RevPar is an acronym for Revenue Per Available Room. This ratio is one of the most important measurements in the hotel Industry because it is the basic measure of success in the hotel industry. The purpose of the ratio is to evaluate if the inventory of rooms is being most advantageously managed in relation to its maximum revenue potential.
RevPar measures how well the hotel has been able to fill its rooms measured in dollars per room. According to the Uniform Systems of Account for the Lodging Industry (USAL), the formula is:
RevPar = Rooms Revenue ÷ Rooms Available for Sale
The USAL does not include rooms out of order or rooms reserved for corporate use in the denominator Rooms Available for Sale.
Hotel Doro has 75 daily rooms available for sale; it does not have any rooms reserved for corporate use and its skilled maintenance staff expediently remedies any room problems successfully avoiding out-of-order rooms for this period. Since the numerator represents annual sales, the denominator is 27,375 (75 x 365). RevPar for Hotel Doro, using Exhibit 1, is computed as follows:
RevPar = $897,500
27,375 = $32.79
Interpretation. RevPar is a ratio that is much more demanding than the occupancy ratio or the average room rate. Notice that Hotel Doro’s occupancy percent was 66% and its average room rate was $50.00. RevPar at $32.79 pales when compared to those two ratios.
RevPar can be made even more demanding if the denominator is rooms available instead of rooms available for sale. Rooms available would include rooms out of order and temporary house use rooms. Hotel Doro does not have house use rooms and its skilled maintenance staff expediently remedies any room problems.
If a hotel makes up for lower occupancy by charging more for the rooms it does fill, or if revenue declines because rooms are filled on deep discounts, RevPar measurements will disclose its revenue per room performance. RevPar does not take into account revenue from other hotel services, such as restaurants, spas, golf courses, marinas, casinos etc. RevPar only reflects rooms revenue, which is heavily influenced by factors managers cannot control, such as business travel and the general economy.
