Occupancy and RevPAR (revenue per available room) are two of the benchmark metrics of the hospitality industry. They both reveal fundamentals about a hotel’s performance, and even in today’s world of advanced analytics, they are still incredibly valuable.
Despite the fact that these metrics relate to similar circumstances, they actually approach things from quite different angles. For hotels to best understand where their money is being spent and earned, they need to understand how these metrics differ, and how they can work in concert.
What Do These Metrics Tell You?
- Occupancy: Getting heads in beds is the core goal of any hotel, which is why occupancy is an important metric. It illustrates how successful a hotel has been at marketing and how competitive it is compared to other hotels or vacation rentals in the area.
- RevPAR: Selling rooms is what drives a hotel’s revenue, and RevPAR highlights whether revenue is trending up or down. By tracking RevPAR on a daily, monthly, quarterly or yearly basis, hotels learn how effective their efforts have been and what forces are affecting the bottom line.
What Don’t These Metrics Tell You?
- Occupancy: Since maximizing occupancy is not the same as maximizing revenue, this metric is not a good indicator of profitability. After all, lowering room rates drives bookings, but it also means that each room is generating less revenue. Plus, high occupancy can drive up other costs like housekeeping and maintenance.
- RevPAR: Similarly, this metric reports on revenue but not profitability, as it does not take property-wide costs into account, such as housekeeping and staffing. RevPAR is also affected by the scale of the hotel; larger properties could have lower room rates but still see high overall revenue simply because they have more rooms.
How Can You Optimize These Metrics?
- Occupancy: Lowering room rates is the easy strategy to decrease vacancies, but this obviously cuts into the bottom line. The better approach is to research occupancy rates at similar properties in the same area, then set a goal to beat the competition through a combination of competitive pricing, creative rate packages, targeted marketing and superior guest experiences. In this way, hotels are able to increase occupancy without shorting themselves financially.
- RevPAR: The key here is to balance room rates and occupancy carefully while driving both as high as possible. Improving the guest experience, marketing to new segments of customers and offering competitive room rates are all ways to drive bookings. Extending the average length of stay, maximizing upsell opportunities and cultivating repeat guests can in turn lead to higher revenue per room while providing the highest level of guest service.
What Other Metrics Should You Consider?
- Occupancy: When analyzing occupancy rates, factor in guest acquisition costs as well as staffing costs. This leads to a more nuanced understanding of how occupancy affects profitability. On the other side of the equation, look at how many extra amenities (such as room service and massages) the average guest purchases to understand how occupancy drives other sources of revenue. Finally, consider how often first-time visitors turn into returning guests.
- RevPAR: A number of new metrics have been developed to help hoteliers understand RevPAR in the context of profitability by factoring in related expenses and revenues. For instance, TRevPAR (total net revenue/total number of rooms) reveals how much each room drives revenue in any form throughout the property. The metric ARPAR (Adjusted RevPAR, calculated as [ADR – variable costs per occupied room + additional revenue per occupied room] x occupancy) factors in extra costs to provide a more detailed understanding of room revenues. And performing a final analysis is easy using GOPPAR (gross operating profit/number of available rooms), since this metric ties everything back to the bottom line.
The important thing for hotel managers is not what metrics they track but how they track them. When it’s easy to collect, integrate, analyze and apply data systematically, there’s no reason to exclude this valuable information from your decision making process. There is also no question that metrics are accurate, up-to-date and actionable. The right access to data puts hotel managers in the driver’s seat of performance.
If you’re ready to understand your hotel in-depth and make sound strategic decision in advance, book a demo with our team.
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