How to Calculate RevPAR?

What is RevPAR?

Let’s consider this: for a particular period, you have achieved a very high average daily rate (ADR), which is the average rent booked daily. Then you realize you have a low occupancy rate for that same period. You have a considerably lower ADR but a higher occupancy rate for another time period. 

Which scenario do you think accounts for a better performance? Neither one necessarily. Analyzing ADR and occupancy rate together will give you a better picture of performance.

While ADR helps you understand your property’s daily profit, RevPAR helps you understand your property’s ability to fill nights at ADR. With this metric, you can account for your daily profit and occupancy. 

How to calculate RevPAR?

It can be calculated by dividing your total revenue by the number of available nights or by simply multiplying occupancy rate and ADR.

RevPAR Formula =

= total revenue / no. of available nights

or

= occupancy x ADR

You must remove all maintenance and owner blocks from the total count for total nights available. In both scenarios, the property was unavailable to be booked by your guests. So, it was not part of the supply. 

To calculate it accurately, you need to calculate the actual room revenue. This figure excludes any and all taxes, cleaning, or miscellaneous fees. 

While tracking this metric, remember that it indicates your property’s performance. It is not an indication of your property’s financial health. 

Financial health is your property’s ability to turn revenue into profit. This metric tracks the money that comes into your property while not considering the associated costs like commissions, utilities, supplies, labor, etc. 

While it is an important KPI to track, it is pretty restricted.

RevPAR or ADR: Which one?

ADR refers to the average price of the vacation rentals booked each day. RevPAR refers to the revenue per available rental per day, month, or year. 

It is important to note that unless your occupancy rate is 100%, your RevPAR will be below your ADR. 

Calculation comparison between the two metrics:

Available nights = 100 Booked nights = 80	ADR = total revenue / booked nights = $6000 / 80 = $75
Occupancy rate = 80% Total revenue = $6000	RevPAR = total revenue / no. of available nights = $6000 / 100 = $60 or = occupancy rate x ADR = 80% x 75 = $60

Which formula should you use?

Either of the formulas can be used to calculate your RevPAR. As demonstrated in the above scenario, both of the formulas will account for the same result. 

However, as an industry standard, the below-mentioned formula is used more often than the other. 

RevPAR = Occupancy rate x ADR

This is because the benefit of using this metric is to look at the balance between occupancy and ADR.

When is ADR = RevPAR?

Both metrics can be equal only when your occupancy rate is 100%. 

RevPAR =

= 100% x ADR

= occupancy rate x ADR

= 1 x ADR 

RevPAR = ADR 

This might not necessarily be good for your property. The more it is booked, the more it is used. Inevitably, increasing your maintenance costs. This is never a good thing. While crafting a pricing strategy, you need to remember to factor in your maintenance & cleaning costs as well. You need to charge an appropriate cleaning fee alongside your ADR as well. 

Another factor to consider is if you are pricing it right. Are you pricing it too low that it has become highly accessible for your guests? This is why tracking this metric is integral to your pricing strategy.  

Let’s consider the above example and modify it to see how this metric can help maximize your revenue. 

The calculation to maximize profit

Available nights = 100 Booked nights = 80	Occupancy rate = 80% ADR = $75
RevPAR = 80% x $75 = $60	Revenue for a year = $60 x 365 = $21900

For the same property, let’s try increasing the ADR by $20. When you increase your ADR, you might experience a little lower occupancy rate.

Available nights = 100 Booked nights = 80	Occupancy rate = 75% ADR = $95
RevPAR = 75% x 95 = $71	Revenue for a year = $71 x 365 = $25915

The difference in profit between the two scenarios – $4015

A drastic increase in your ADR might lead to a decrease in your occupancy. Yet, an increase in your overall revenue. This is the power of balancing ADR and occupancy comes into play.

What is the RevPAR index?

RevPAR index measures a property’s RevPAR compared to an aggregated group of properties or a competitive set. 

There are three inferences you can arrive at with the help of this metric: 

1. If your RevPAR index is =100, then you are on par with the market. 
2. If your RevPAR index is < 100, then you are underperforming compared to the market
3. If your RevPAR index is > 100, then you are performing better than the market

RevPAR Index = (Your RevPAR / Comp set RevPAR) x 100

With the help of this metric, you can understand: 

1. your property’s positioning
2. market demand 

It is essential to choose your competitive set carefully. Choose properties that are similar to you in the following aspects: 

1. Property build, e.g. # of bedrooms, bathrooms, etc.
2. Amenities 
3. Location
4. Pricing

Remember that it is essential to collect all the underlying metrics accurately before calculating your RevPAR. Keeping a track of all the metrics can be tedious.  This is where a service like Pricelabs portfolio Analytics comes in. We track everything for you in real-time, providing valuable insights in one platform.

Pricelabs Portfolio Analytics gives you a real-time reporting system that tracks high-level metrics for your property. You can get a quick snapshot of your property’s financial health. We dive further in and provide insights on listing level performance and metrics. You can use our data to make informed decisions while setting up your pricing strategy. 

With Portfolio Analytics and Market dashboard, compare your property with others in your neighborhood.