RevPAR (Revenue Per Available Room) is one of your hotel’s most important performance metrics. Yet while commonly used and heavily relied upon, it’s a metric that isn’t without its faults.
In the following post, we’ll show exactly how RevPAR can be distorted, highlight the potential impact this can have on your business, and offer solutions to mitigate the risk.
Calculating RevPAR
Hotels often use RevPAR as a way to measure performance against their competition, which typically includes a handful of hotels in their geographic area with similar levels of service and facilities.
RevPar can be calculated in two ways. The first involves multiplying your property’s average daily room rate (ADR) with your occupancy rate. The second involves dividing your hotel’s total room revenue with the total number of available rooms in the period being measured.
But as we’ll discuss, the data that RevPAR reveals is just part of a more nuanced financial picture.
Misinterpreting RevPAR
The trouble with using generic formulas to calculate RevPAR is that they don’t take into consideration the channel mix.
If every reservation that a hotel took was simply a walk-in, with no commissions paid out, then RevPAR would be totally accurate. But in our complex distribution world, things aren’t that simple.
The modern-day hotel has a broad mix of business lines that encompass direct bookings, GDS, and OTAs. And it’s the high commission rates and mix of OTA pricing models that can so often throw RevPAR off.
OTA pricing – comparing net vs gross
Using RevPAR and getting a distorted view of the figures is easy to do, and it most commonly happens because OTAs use either a net or a gross model of revenue. Over an extended period of time, hotels can end up using these distorted figures to make strategic decisions.
OTAs such as Hotels.com, Orbitz and Travelocity all use a net or merchant model, which involves the booking site collecting the payment, and then giving the hotel its share (minus commission). In contrast, OTAs such as Booking.com use a gross or retail model, whereby the hotel collects the initial payment, and then pays Booking.com its commission fee later.
