Revenue Management is very important for the progress of any hotel sector company. This allows the tourist accommodation to focus all its efforts to achieve an increase in its benefits thanks to the correct management of its income.
Studying the competition progress, defining and applying a correct pricing policy or determining which communication channels are the most appropriate for the establishment, are just some of the actions and strategies that involves Revenue Management. However, in order to evaluate the results obtained from the application of RM in an establishment, it is necessary to measure the profitability obtained.
In order to focus on the fundamental terms and KPIs in Revenue Management, we have developed the following Revenue Management manual, which is very useful for the Revenue Manager as a reference guide, and also for the hotel sector entrepreneur who want to learn a little bit the main indicators that a Revenue Manager uses in their day to day to improve and enhance their income.
Main key performance indicators
Every professional Revenue Manager must pay attention to key performance indicators. These metrics or KPIs will allow him to measure the effectiveness of his hotel revenue management strategy.
Among the main financial indicators of the hotel sector the following ones stand out:
ADR (Average Daily Rate)
This KPI is used to calculate the average price or rate for each hotel room sold for a specific day. It does not include the profits produced by complementary offers, such as guided tours, spa reservations or room service. It is a nice KPI to measure how successful is the performance of your accommodation against your competitors.
To calculate ADR, it is necessary to do the following operation:
ADR = rooms revenue / rooms sold
RevPAR (Revenue Per Available Room)
RevPAR is one of the most important financial indicators for any establishment because it helps to discover how much revenue it has made within a certain period of time.
There are two ways to calculate RevPAR:
RevPAR = revenue / available room
It is calculated by dividing the total revenue generated between the total number of rooms available the accommodation has.
RevPAR = ADR x occupancy percentage
Occupancy percentage = rooms sold / rooms available
As this data tells you how much the average profit per room amounts to, it will be very useful to set the price per night on your property.
GopPAR (Gross operating Profit Per Available Room)
The GopPAR determines the overall performance obtained by an accommodation, including additional services that may be derived from the accommodation such as parking, spa, etc.
To calculate the GopPAR, the following operation must be done:
GopPAR = (gross operating revenue – gross operating expenses) / available rooms
Gross operating revenue is the total billing obtained by ALL accommodation services and gross operating expenses are the total payments that have been necessary to disburse to provide such services.
When you know this information, you have a clear idea of how profitable your establishment is. Therefore, it is one of the best KPIs to measure your establishment performance.
RevPOR (Revenue Per Occupied Room)
While RevPAR is the revenue per available room, the RevPOR is the revenue per occupied room.
To calculate the RevPOR, the following formula is used:
RevPOR = total revenue / total occupied room
Total revenue = accommodation + breakfast + mini bar + spa, etc
Unlike RevPAR, RevPOR includes the benefits resulting from the additional services the guest has hired during their stay, which allows you a better understanding how much profit you make from the guests who actually stay at your property
NRevPAR (Net Revenue Per Available Room)
This useful indicator refers to the net revenue for each room of your accommodation. We should not confuse it with RevPAR, which only quantifies the rental benefits. NrevPAR also takes into account earnings from complementary services and deducts distribution costs, transaction fees and travel agency commissions.
Its formula is the next one:
NRevPAR = (room revenue – distribution costs) / available rooms
It allows you to discover how profitable your promotion and sales strategy is, and reveals your real profit margin per room.
TRevPAR (Total Revenue Per Available Room)
This metric is very useful because it allows you to see the total revenue from all departments which the room can generate. It gives us an idea of the real property performance.
The TRevPAR formula is as follows:
TRevPAR = total revenue / total available rooms
Total revenue = accommodation + breakfast + spa, etc.
RevPAG (Revenue Per Available Guest)
Calculating benefits per guest instead of per room is a recent practice. RevPAG considers everything spends a guest during his stay in the accommodation. An increase in the value of this variable is a sign that complementary services are generating interest in users.
To calculate this indicator, it is necessary to do the following operation:
RevPAG = revenue per accommodation / available guests
Overbooking: a risky strategy but feasible
It is worth mentioning a technique you may know called as overbooking. It consists of offering more rooms than the establishment is able to, bearing in mind that it is very likely that some clients cancel their booking. While implementing it constitutes a risk, it can also prevent rooms from being available, especially during the high season.
To apply this technique successfully, you must obtain the average cancellations occurred in previous years, during the same period. That will be the maximum number of rooms you can sell.
Controlling the analysis of metrics, allows you to make decisions based on proven data, besides to analyze the current situation and detecting improvements in your business.
Do you measure RevPAR, GopPAR and all above ratios on a daily basis?
If you need some help to measure your accommodation profitability, to develop a clear pricing strategy, to analyze your historical data or you are interested in receiving any kind of counseling, from Roitels, experts in that, we can help you.
Do not hesitate to contact us for more information. Do not waste more time and start maximizing your benefits!