The question that every hotelier is concerned all the time about is: “How can I get more bookings and increase RevPAR?” But least do they understand, that selling rooms at low rates to increase occupancy does not mean profitability for the hotel.
It is not high occupancy but high RevPAR on which every hotelier should concentrate on.
You’ll never know how your hotel is doing until you don’t have accurate records of your hotel’s revenue and expenses. By analyzing certain key numbers like Revenue Per Available Room (RevPAR), Average Daily Room Rate (ADR) and Occupancy Rate, you can get a better idea of how your hotel is performing in the current year as compared to the past year. Among these numbers, Revenue Per Available Room (RevPAR) is the keyword you need to focus on. And that’s exactly what I’ll be talking about in this blog.
Getting 100% occupancy with the compromise in Average Daily Room Rate (ADR) is not a great achievement. Let’s say you have 150 rooms at your hotel. Now either you can fill 130 rooms by charging 100 USD OR you can fill 100 rooms by charging 150 USD per night. Think about this: Do you want more money by charging higher room rate with fewer guests? Or you’re willing to compromise your ADR and increase your occupancy? The choice is yours!
Let’s dig into what is RevPAR?
Revenue per available room, or RevPAR as it is usually shortened to, is a buzzword used within the hotel industry in order to gauge financial and business performance. As a metric, it is concerned with both room revenue and occupancy rate, which makes it an important indicator of the overall performance of a hotel, as well as a useful component of a hotel’s revenue management strategy.
Majorly, RevPAR is a measurement of both average daily rate and the ability to fill the rooms. This is really important because it gives you a clear idea of the current performance and will let you charge accordingly. If RevPAR increases then, that will increase the occupancy or revenue or in some cases may be both.
Why RevPAR matters?
RevPAR is the most irrefutable term used in the hotel industry. The information, which can be gathered by studying RevPAR is very helpful in trying to price your rooms properly. There is a certain point where the price and occupancy meet that will maximize the revenue for your hotel.
Hotels have fixed and variable expenses and they need to ensure that their ADRs can cover both the fixed and variable expenses.
A high ADR at the wrong time may result in low occupancy thus not covering the expenses of the hotel.
RevPAR Formula – How to calculate RevPAR?
In order to get your hands on RevPAR, you should be able to calculate the RevPAR value with the help of available data.
Now, there are two possible ways to calculate RevPAR:
RevPAR = Rooms Revenue/ Rooms available;
RevPAR = Average Daily Rate(ADR) * Occupancy Rate;
So, let’s do the math
Let’s consider that you have a hotel with 200 rooms. The average daily rate of the hotel is $100, the occupancy rate is 80% and Total Rooms Revenue is $16,000; then RevPAR will be calculated as:
|From the first formula
||From the second formula
|RevPAR = $16,000/200
|RevPAR = $100 * 0.8
So we can conclude that this hotel generates around $80 in revenue per day for each of its hotel rooms.
Now coming to the techniques to increase RevPAR
In order to increase your RevPAR figures and soar the net revenue of your property, you need to keep a close watch on all aspects of your operations. Let me walk you through some of the most-effective techniques:
Try playing with the average length of stay (ALOS)
One thing you might want to use during the peak season at your hotel is the concept of ‘Minimum Length of Stay’. If you have guests who are willing to stay four nights at your hotel then undoubtedly, you’re going to be a lot more open to having them at your hotel than those who are only willing to stay one or even two nights.
To increase your occupancy rate, you can employ strategies using length of stay restrictions as below:
- Minimum length of stay:Accept long-termed stays instead of bookings with short-termed stays.
- Maximum length of stay:Take reservations at discounted rates only for set maximum nights of stay.
Focus on occupancy and rate
While occupancy and average daily rate both tell about a hotel’s performance, the benchmark indicator of that performance is RevPAR which when multiplied with the number of rooms available provides rooms revenue – the top line revenue in the most profitable department of a hotel. In other word maximizing the RevPAR, should be the ultimate goal for you.
Many hoteliers still view high occupancy as the operational target, disregarding all other aspects of revenue management. In reality, higher occupancy in many cases leads to lower profits, when the increased number of rental units doesn’t offset the loss in average rate.
Harvest in online reviews
Nearly half of all travelers book a hotel room by first reading online reviews. Suffice to say, your hotel’s online reputation is a critical aspect you need to focus on, in order to bring in more guests and build your brand value.
You should certainly pay attention to all of the online reviews that are written about your hotel. It is quite normal to get a few bad reviews, but addressing them promptly can restore your hotel’s good name. Retaining customers and encouraging new ones to visit will put cash in the register.
Digital Marketing efforts
Digital marketing tools can help grow the volume of your direct booking transactions. It can also improve the conversion rate of your website and the look-to-book ratio of your distribution partners.
The road to the decision of an online booking takes around few days, during which a potential guest compares different destinations and different offers. That is the perfect time when you have the opportunity to influence the guest with a marketing message. The current technology allows you to effectively target only those who show interest in your hotel.
Analyze the demand pattern
One of the important tips that will keep you away from messing up the price structure is to get a firm grip on the demand pattern of your property. Every hotel is in need of increasing their hotel’s occupancy without compromising the Average Daily Rate. In order to achieve this, you need to analyze the demand, you should be aware when the guests are more likely to visit. Analyze in which occasion are guests visiting the most and plan your price accordingly.
Demand for hotel rooms is basically inelastic. In any given market segment, you will maximize your income and improve your RevPAR if you charge higher rates than your competitors. As a hotelier, you need to constantly look at the demand forecast and gauge which days are going to be busy and which are going to be leaner. This is just another way of finding a perfect balance between occupancy and Average Daily Rate (ADR).
Reduce Cancellation Rate
High cancellation rate is a major pain point for hotels. Having more non-refundable reservations can help reduce this. Though this won’t bring any changes in your cancellation policy, putting up non-refundable reservations will definitely increase your occupancy and reduce the cancellation rate at your hotel.
Stop relying on OTAs
This is one of the biggest mistakes every hotelier does, allocating the majority of their inventory to OTAs so they can fill their rooms. But the reason behind this is, OTAs appeal so many travelers because they sell your rooms at high discountable prices, which simply means, increase in occupancy but sadly decrease in your revenue.
Don’t try to charge less for rooms in an attempt to attract more guests. Instead, increase the perceived value of your room by offering additional amenities or packages. You may find that by charging a higher rate and having fewer guests, you’ll actually increase your revenue (and service your guests better)
To sum up,
Demand for inventory changes from week to week and at different times of the year. You need to have a good understanding of when the demand is high so that you can raise your rates. By understanding your customers and their needs, you can be successful. Investing in the right hotel technology will help you plan your revenue management strategies and eventually increase your revPAR.