How to Calculate RevPAR?

How to calculate your property's RevPAR?

The era of data and analytics have revolutionized the travel industry. To completely exploit the value of data to calculate RevPAR, you need to understand the key aspects of the data points that you want to track. The right metrics will enable you to gain a better understanding of your business and craft an effective pricing strategy

There are various metrics that you can track to judge performance and make data-based decisions. One powerful metric is RevPAR. It provides an insight into the number of rooms that are being booked and analyzes the revenue generated from those bookings. RevPAR is one of the most common and important vacation rental KPIs for your property. 

What is RevPAR?

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

Which scenario do you think accounts for a better performance? Neither one necessarily. Analyzing both ADR and occupancy rate together will give you a better, fuller picture of performance. RevPAR is a better indicator of the overall performance of your property than looking at just your ADR or occupancy rate. 

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 will be able to account for both your daily profit and occupancy. 

How to calculate RevPAR?

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

RevPAR formula 

RevPAR = total revenue / no. of available listings 

or

RevPAR = occupancy x ADR

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

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

While tracking RevPAR, remember that it is an indication of 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. RevPAR tracks the money that comes into your property while not considering the associated costs like commissions, utilities, supplies, labor, etc. 

While RevPAR 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. 

RevPAR calculation in comparison to ADR:

Available listings = 100

Booked listings = 80
ADR

= total revenue / booked listings
= $6000 / 80
= $75
Occupancy rate = 80%

Total revenue = $6000
RevPAR

= total revenue / no. of available listings
= $6000 / 100
= $60

or

= occupancy rate x ADR
= 80% x 75
= $60

Now that you know how to calculate the RevPAR of your vacation rental, let’s talk about which formula will work best for you. 

Which formula should you use for RevPAR calculation?

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 RevPAR is to look at the balance between occupancy and ADR.

When is ADR = RevPAR?

Your average daily rate can be equal to your RevPAR only when your occupancy rate is at 100%. 

RevPAR = occupancy rate x ADR

RevPAR = 100% x ADR

RevPAR = 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 extremely accessible for your guests? This is why tracking your RevPAR is an important part of your pricing strategy.  

Let’s consider the above example and do a couple of alterations to it to see how RevPAR can be helpful in maximizing your revenue. 

RevPAR calculation to maximize profit

Available listings = 100

Booked listings = 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 listings = 100

Booked listings = 80
Occupancy rate = 75%

ADR = $95
RevPAR

= 75% x 95
= $71
Revenue for a year

= $71 x 365
= $25915

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 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 the RevPAR index: 

  1. If your RevPAR index is =100, then you are in 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 RevPAR index you can understand: 

  1. your property’s positioning
  2. market demand 

It is important to carefully choose your competitive set. 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

Once you understand your positioning in the market, you can create a strategy to increase your RevPAR and earn more profits from your vacation rental.

You must remember that it is important to accurately collect all the underlying metrics 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 you with useful 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. 

While there are multiple KPIs, RevPAR is one of the most important metrics to track. It will help you make appropriate changes or alterations to your ADR for you to maximize your profits. RevPAR is an important metric because this helps property owners or managers to measure the overall success of the vacation rental property. 

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