For Hotels: RevPar and ARR Explained
How many hoteliers understand and make use of RevPar and ARR? What do they average and how can they assistance a hotel in decision making for future revenue growth and profitability?
ARR = Average Room Rate
RevPar = Revenue Per obtainable Room
Let us take an example of a 50 bedroom hotel which has sold 30 bedrooms at 100 per room, and has 20 rooms unsold.
The ARR is 100 x 30 = 3000 divided by 30 = 100 per room
The RevPar is 100 x 30 = 3000 divided by 50 = 60 per room
Two totally different figures. ARR just takes an average of the rooms which have been sold. RevPar takes an average of the rooms sold and the rooms unsold.
In looking for a reliable measure of how a hotel is performing on rates and revenue, ARR produces an inflated impression of the real figures, while RevPar gives a true picture of revenue achieved from accommodation obtainable ie. overall capacity.
So how do hotels use this to their advantage? There a number of ways at looking at revenue generation eg.
(1) lower the rate and sell 50 rooms at 80 = 4000 with a RevPar of 80
(2) sell 30 rooms at 100 per room, then lower the rate to sell more rooms increasing the overall turnover and RevPar
The decision for hoteliers is how to use need in their area, to flex rates, to match need and rates to optimise occupancy and revenue, and to be looking to unprotected to the best RevPar they can.