If you are looking for a measure for revenue performance look no further than the multi-dimensional RevPAR. Owners swear by this KPI which not merely reflects revenue performance but in the process also provides a pointer to the extent to which capacity utilization has occurred. What is capacity utilization?
If the primary function of a hotel asset is to earn revenues, then the RevPAR is a measure that fulfills that role in a stellar way. But a RevPAR is not just a metric for revenue performance. Since it uses Rooms Available as a denominator, it also makes a statement of how far rooms available as a hotel asset have been leveraged to produce revenues.
Although RevPar can also be calculated by dividing room revenue by available rooms, the method of multiplying ADR by the occupancy % has a powerful advantage. It shows you the relative contribution of ADR and occupancy % in the calculation. For instance, a 50% occupancy at a given rate dilutes the ADR by half. Your RevPar index shows you operating at HALF CAPACITY.
Driven by Volume and Price
RevPAR as a strategic measure factors in both price as well business volume contribution of revenue performance. It thus is a powerful indicator of how significant the average daily rate attribute is and similarly the occupancy attribute. This not only has revenue implications but points to the bottom line performance as well. Occupancy increases bring with them variable costs while average rate increases travel to the bottom line without such costs. RevPAR composition can thus influence profitability such a great deal.
How are the key factors of business volume and price achieved? Channels of distribution employed by the hotel provide them. A channel of distribution is pre-dominantly an online agency which creates a conduit between the customer looking for a hotel and the hotel itself. In the past decade or more, these channels have gotten a stranglehold on a hotel’s booking composition. By their ability to command a variety of hotel properties in their kitty and with the use of sophisticated yield management algorithms, these channels virtually railroad the customer into making the booking. While often this is a great benefit to the customer in getting sweet deals regularly, the hotel is often paying the price for being on that channel’s list.
While channels tend to dampen prices offered, their magic elixir is the consistent business volume they promise and deliver. In a manner of speaking, hotels end up trading business volume for price. And of course, that has an impact on the RevPAR.
