Is RevPAR the Best Metric to Measure Profitability?
RevPAR stands for Revenue Per Available Room, which is a key performance metric used in the hotel industry to evaluate a hotel’s financial performance. RevPAR is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate.
The formula for calculating RevPAR is as follows:
RevPAR = ADR x Occupancy Rate
For example, if a hotel had an ADR of $150 and an occupancy rate of 80%, the RevPAR would be $120 ($150 x 0.80 = $120). This means that on average, the hotel is generating $120 in revenue per available room.
RevPAR is a useful metric because it takes into account both a hotel’s occupancy rate and its room rates. A hotel can increase its RevPAR by either increasing its room rates, improving its occupancy rate, or a combination of both.
RevPAR can be used to evaluate a hotel’s performance over time or compared to other hotels in the same market. It can also be used to forecast future revenue and adjust pricing strategies to optimize revenue.
How is it different from GOPPAR?
GOPPAR stands for Gross Operating Profit Per Available Room, and it is another important performance metric used in the hotel industry. While RevPAR measures a hotel’s revenue performance, GOPPAR measures its profitability by taking into account all of the hotel’s operating expenses, including labor costs, overhead expenses, and other costs of operations.
The formula for calculating GOPPAR is as follows:
GOPPAR = Total Revenue – Total Operating Expenses / Number of Available Rooms
For example, if a hotel had a total revenue of $500,000 and total operating expenses of $350,000, and it had 200 available rooms, the GOPPAR would be $750 (($500,000 – $350,000) / 200 = $750). This means that on average, the hotel is generating a gross profit of $750 per available room.
GOPPAR is a more comprehensive metric than RevPAR, as it takes into account a hotel’s profitability and not just its revenue. A hotel can increase its GOPPAR by reducing its operating expenses, improving operational efficiency, or increasing revenue while maintaining or reducing expenses.
Both RevPAR and GOPPAR are important metrics that provide insights into a hotel’s financial performance. RevPAR is a revenue metric that measures a hotel’s top-line performance, while GOPPAR is a profitability metric that takes into account all operating expenses to provide a more comprehensive view of a hotel’s financial health.
Should hotels consider TREVPAR as the benchmark?
TREVPAR, which stands for Total Revenue Per Available Room, is a metric that takes into account all revenue streams generated by a hotel, including rooms, food and beverage, and other ancillary services. It provides a more comprehensive view of a hotel’s revenue performance than RevPAR, which only takes into account revenue generated from rooms.
While TREVPAR can be a useful benchmark for evaluating a hotel’s overall revenue performance, it may not be the most appropriate benchmark for all hotels. The suitability of TREVPAR as a benchmark depends on the specific characteristics of the hotel and its market.
For example, if a hotel generates a significant portion of its revenue from food and beverage or other ancillary services, then TREVPAR may be a more appropriate benchmark than RevPAR. On the other hand, if a hotel primarily focuses on room revenue and has limited food and beverage or other ancillary services, then RevPAR may be a more appropriate benchmark.
In addition, hotels may also consider other performance metrics such as GOPPAR (Gross Operating Profit Per Available Room) or NOI (Net Operating Income) as benchmarks to evaluate their financial performance.
Ultimately, the choice of benchmark should be tailored to the specific hotel and its market, taking into account its revenue mix, competitive landscape, and other factors that may impact its financial performance.