As a hotelier, we all know that you can multiply your property’s average daily rate (ADR) by the occupancy rate to know your revenue per available room (RevPAR).
NB: This is an article from Hotelogix
Or the other way to find your RevPAR is to divide your total room revenue by available rooms. This is a KPI that hoteliers like you across the globe use to measure their hotels’ financial and business performance. It helps you understand how successfully you’re filling your rooms and how much you can charge for them.
Subscribe to our weekly newsletter and stay up to date
Before we look at various ways to increase RevPAR at your hotel, we will pause for a while to see how RevPAR is directly proportional to ADR.
Scenario 1
For example, let’s assume that you have 50 rooms and you have been charging $100 (your ADR) per room night, and every day you are selling 40 rooms. In this scenario, your occupancy stands at 80%, with a RevPAR of $80. Now let’s raise your ADR by another 50% to $150. If this increase in price doesn’t impact your occupancy, that’s a good sign for your business as you are earning more. But what happens if you manage to sell 30 rooms the next day? Your RevPAR is now at $90. Congratulations on this achievement. Moreover, you now have a better understanding of your room pricing.
Scenario 2
Due to a drop in demand, you are selling just 20 out of your 50 rooms at an ADR of $100. So here, with 40% occupancy, your RevPAR is at $40. But then, you decide to decrease your ADR by 30%. Now let’s see what happens if, with an ADR of $70, if you manage to sell 40 rooms. First, you have increased your occupancy to 80%, plus your RevPAR has risen to $56.
How to increase RevPAR
1. Avoid static pricing
Don’t slash your room rates when you are in demand – say when your occupancy is at 90%. It would help if you didn’t even increase your prices when dealing with lower occupancy or demand is low in your market. This means you should not even rely on a static price throughout the year. It will never help you improve your RevPAR. Instead, it is advisable to adopt dynamic pricing based on demand, season, day of the week, competition, and more. This can adjust your room rates with the optimum price possible so that you get to sell more rooms to increase occupancy.
2. Introduce length of stay package
During high/peak seasons, package and sell your rooms around a minimum length of stay. Prepare and plan accordingly to accept reservations only for longer durations. You may also try experimenting with a maximum length of stay rule when you foresee that you would sell your rooms at higher rates. By doing this, you can put a cap on the number of rooms sold at discounted rates for multiple-night stays. Now here is the most crucial point – have your revenue management team determine the right time and the length of stay to come up with the correct pricing to make it look appealing.
3. Focus on selling more rooms
You can do this by working with OTAs, GDSs, and metasearch engines. But to distribute efficiently on these online sales channels, you would need a channel manager solution. This will update your rates and availability on all the sales channels instantly and in real-time. Additionally, you need a booking engine to sell more rooms via direct channels – your website and social media pages. These direct bookings are commission-free. Thus it increases your revenue per every booking.
4. Win guest loyalty
This is an essential aspect of your hospitality enterprise. Do whatever it takes to offer best-in-class services to your guests. It’s not only giving them value for what they pay you, instead what more you provide to make their stay memorable. Because, if they are happy, they will come back to you, and that too directly. They also write positive reviews about your property. This influences and inspires others (your potential guests) to book with you directly. And as we have already made it clear, the more direct bookings you generate, it will make your RevPAR look impressive.
5. Adopt a revenue management system
The name itself suggests that a well-designed and intelligent revenue management system can help you earn more revenue for your hotel. It does so by enabling you to understand local demand, booking trend, forecast, which pricing/package/promotion had worked well for you in the past, competitor pricing, and most importantly, by helping you optimize your ADR. It also helps in targeting the right segment – retail, corporate, wholesale, or group. The idea here is to sell the right room at the right price to the right customer to make more profits. A carefully considered pricing strategy is vital to improve RevPAR at your hotel, along with selling more rooms to increase occupancy. And for this, you would undoubtedly need a revenue monument system, the ones from AxisRooms.
