Routes to Enhance RevPAR

One of the most critical performance metrics for the hoteliers is the revenue per available room (RevPAR). It is a ratio commonly used to measure financial performance in the hospitality industry. By this you not only gain a valuable snapshot of how well your hotel is filling its rooms but it also enables you to gauge how much you can charge per room.

Ashok Malkani tries to find the pros and cons of RevPAR as far as profitability in a hospitality property is concerned. It is believed that digital marketing tools and online reviews are two important aspects for increasing the RevPAR. Search engine optimisation can, according to the industry experts, significantly increase a hospitality property’s  RevPAR. But does a high RevPAR really ensure high profitability for the hospitality property? That is a question which the Revenue Managers need to ponder on. 

To be successful in any business, both profitability and growth are important, or rather crucial. Profitability is critical for a company’s long-term survival. Determining and focusing on profitability at the beginning of a company is essential. 

Hospitality industry is no different. Revenue Managers in hospitality properties have to ensure that the revenue earned is not only sufficient to meet the expenses but are enough for the property to make a net profit. RevPAR (or revenue per available room) is a performance metric commonly used in the hospitality industry.

This is believed to be an extremely important yardstick for the financial performance of a hospitality property.  To calculate the RevPAR the total room revenue is divided by the number of rooms. If a 100-room hotel is 60 percent full and earns a revenue of Rs. 60,000 per day, the average room rent would be Rs. 1,000 per room. However, the RevPAR would be Rs. 600 as the amount will be divided by the total number of rooms i.e. 100.  

The Role of RevPAR

Yasin Shaikh, Assistant Revenue Manager of Ramada Powai Hotel & Convention Centre, explained, “RevPAR is hotel’s key performance index. For a hotel it is very important to understand how much revenue is generated by every room daily.”

“It is the most important of all financial ratios for the hotels, because the measure incorporates both room rates and occupancy. It provides a convenient snapshot of how well the hospitality property is filling its rooms, as well as how much it is able to charge,” he added.

“RevPAR is evaluated to see how much revenue a hospitality property has made within a certain period of time. RevPAR not only shows us if we are selling the rooms at the right rates but also how much profit we are making out of every room that is available for sell,” Yasin observed.

According to Rekha Ahirwar, Revenue Manager, Alila Diwa Goa, “RevPAR is revenue per available room and occupancy percentage multiplied by the ADR.”

“RevPAR is the most important ratio that a hotel drives for because it measures both room rates and occupancy,” she asserted.

“RevPAR is an important indicator of the overall performance of a hotel, as well as a useful component of the hotel’s revenue management strategy,” Rekha pointed out.

“From the Owner’s /Operator’s point of view, rooms are a perishable commodity and hence maximising the entire capacity of the hospitality property at the best rates possible helps it achieve a high RevPAR,” averred  Sucheta Jadhao, Director of Revenue, Sofitel Mumbai BKC.

“RevPAR is a convenient and easy to understand measurement tool. It helps hotels to know their position in the market,” declared Rajesh Tripathy, Reservation & Revenue Manager, Radisson Blu Resort Goa Cavelossim Beach.

“RevPAR is the total room revenue generated per available room, whether sold or unsold. It is calculated as total room revenue divided by total inventory,” informed Amel Joe, Director of Sales & Marketing, The Westin Pune Koregaon Park.

“RevPAR is a very good measure of the hotel room sales. Since a hotel’s inventory is a perishable product, a room that goes unsold on a particular day is a wasted product, and hence there is always a need to fill the hotel at optimum rates. Since RevPAR takes into account every available room in the hotel and not just the rooms sold, it is considered a great measure of hotel room sales performance,” he elaborated.

Shortcomings of RevPAR

Within the realm of current hotel revenue management, RevPAR is popularly believed to be the most accurate ratio that can be looked at to calculate a hotel’s’ performance. It is also used to compare hotels’ economic performances.

The hospitality industry seems to be obsessed with RevPAR and, in particular, with RevPAR growth. Typically, one of the important items in discourse in a hotel company’s quarterly earnings report is the percentage of RevPAR growth achieved by the property concerned. It may be mentioned that while RevPAR is a convenient and easy-to-understand measurement tool, and though it may be the most popular indicator of hotel’s revenue performance, but it is not always the best one, especially in an economic environment of uncertainty or even recession. If you take a closer look, there are some limitations to its relevance.

“RevPAR won’t tell you the whole story when it comes to revenue. It is because it does not take CPOR (costs per occupied room) into account. You can’t tell what optimal occupancy you need to reach by only looking at your RevPAR. It does not take into consideration any additional income a hotel may have f r o m other revenue-generating departments. Also, it won’t tell you much about your profits. You could have an awesome RevPAR, but if your costs are outstripping it, your hotel will be suffering,” conveyed Rekha.

“The main shortcomings of RevPAR is that it fails to take ancillary revenue into account and therefore gives an incomplete picture of a hotel’s overall performance,” averred Yasin.

“RevPAR won’t tell us the whole story when it comes to a hospitality property’s revenue. For  example,  a large hotel with 500 rooms will pull in a lot more money than a hotel with 50 rooms, even if it has a much lower RevPAR than the smaller hotel. Also, it won’t tell us much about our profits. We could have an awesome RevPAR, but if our operating cost is higher, then the hotel will be suffering,” affirmed Amit Ghosh, Director of Sales and Marketing, DoubleTree by Hilton Hotel Pune-Chinchwad.

“Today, most hotels see equivalent revenue contribution f r o m room sales and F&B sales, and hence every business decision made by the hotel has to take into account the impact on both of these revenue channels. Guest demographics can have a significant impact on ancillary revenues like food & beverage revenues, spa revenues, catering revenues, etc. Since RevPAR takes into account of only the room revenue, it cannot measure the impact on other revenue streams and hence may not be the comprehensive measure of profitability of hospitality properties on a macro level. TrevPAR or Total Revenue Per Available Room is a better measure of the hospitality property’s performance,” revealed Amel.

RevPAR Index

It is sometimes more pragmatic for hotel GMs to focus on RevPAR Index.  So what is RevPAR Index?

“RevPAR Index measures a hotel’s performance relative to an aggregated grouping of hotels (i.e., competitive set, market or submarket). We utilise indexes to measure performance in three key areas: occupancy, ADR and RevPAR. An index of 100 means a hotel is capturing a fair share compared to the aggregated group of hotels,” Amit pointed out.

“Revenue Generation Index or RevPAR Index is the hotel’s RevPAR divided by its competition set average RevPAR. The competition set is pre-defined by the hotel,” explained Sucheta. 

“RevPAR Index measures a hotel’s performance to an aggregate of competition hotels. In other words, it is the hotel’s fair share in the market,” explained Rekha.

“RevPAR Index is the Revenue Generating Index that compares your hotel’s RevPAR to the average RevPAR in the market,” articulated Yasin. 

For the laymen it may be explained that RPI (also known as Revenue Generating Index) is usually expressed as a percentage; so a property with a RevPAR Index of 102 means its RevPAR is two percentage points higher than the hotels in its competitive set. 

Increasing RevPAR

However, all said and done, despite its limitations, the hospitality industry is focused on ways to increase RevPAR. The question every hotelier is concerned about is: How can I get more bookings so that I can increase my RevPAR? But does increasing room bookings actually increase your profitability? Merely increasing your room bookings does not increase your profitability unless you book the rooms at your normal rates. If you book more rooms at low rate you are not going to increase your profitability.  

You will never know how your hotel is doing until you don’t have accurate records of your hotel’s revenue and expenses. By analysing certain key numbers like Revenue Per Available Room (RevPAR), Average Daily Room Rate (ADR) and Occupancy Rate, you can get a better idea of how your hotel is performing in the current year as compared to the past year.

Rajesh categorically states that selling more number of rooms does not necessarily increase the profitability of the hospitality property. “To increase the RevPAR, the cost of room revenue needs to be understood by each demand segment. To truly understand the best net RevPAR, some of the measures need to be undertaken. Try playing with the average length; focus on occupancy and rate; harvest in online reviews; make endeavours in digital marketing; analyse the demand pattern and reduce the cancellation rate,” he explained. 

“We can achieve a higher RevPAR by maximising on both aspects — occupancy & average daily rate. So achieving a target of 100 percent occupancy with the highest average rate amongst your competition set of hotels will help you achieve an impressive RevPAR,”  Sucheta put forward candidly. 

Yasin concurs with the view that selling more rooms helps in improved RevPAR. “Making hotel inventory sold out is the best way to make profit out of every room available,” he pointed out.

“However, for getting a higher RevPAR, it is important that you get your pricing right. You cannot price your rooms too high or too low. You must make sure that your hotel’s room pricing is very competitive in the market so that you get a fair share of the guests,” he continued. 

“You must keep monitoring your hotel occupancy, and, as the occupancy increases you must increase the price. It is necessary to sell out your hotel inventory on daily basis. Have a proper yield management in place,” Yasin advised.

Rekha too agrees with the view that selling more rooms can help increase the RevPAR of the hotel.  “Occupancy plays an important role in RevPAR. Every room sold adds up to the occupancy,” she said.

“To get a high RevPAR you need to ensure that your hospitality property yields as much as possible. You must be aware of the opportunities available in the market and tap the right sources to ensure that your hotel yields occupancy and ADR to its optimum,” Rekha asserted. 

“There are two ways to increase the RevPAR.  One is by selling more rooms at a static ADR and second is by selling at higher rates in a market where the demand is high and the supply is low,” Amit pointed out. 

Digital Marketing Tools

There are various tools in this digital age to increase RevPAR. One way of improving RevPAR is by utilising digital marketing tools. It helps boost the volume of your direct booking transactions. Digital marketing tools could improve the conversion rate of your website and the look-to-book ratio of your distribution partners. 

Normally the decision of an online booking takes a few days, during which the potential guest compares different destinations and different offers. This is the time in which you can influence the guest with marketing messages. Several softwares allow you to target only those who show interest in your hospitality property.

Yasin asserted that digital tools help in improving RevPAR. There are several tools which can be used. “Social media listing tools allow you to monitor conversations through flagging certain keywords, hashtags, or brand mentions online. What you do with these mentions are totally up to you. Ideally, if someone mentions your brand in a positive way (for example, through an Instagram post commending your property on a fun stay), you could express your gratitude through a reply. Similarly, if someone had a negative experience and wrote a less than stellar review on their blog and tweeted the post to their followers, you can reach out via the comments or on social media to offer to fix the issue,” Yasin elaborated.

“Google Analytics is another pragmatic option to increase RevPAR. One tool in your marketing toolbox is your hotel website. To figure out how well this marketing tool is performing for you and your property, you can use Google Analytics. This free tool f r o m Google empowers you with the digital analytics tools you need in order to figure out all the touch points your customers receive during their customer journey. Knowing how customers interact with your website can tell a qualitative story of how customers come and go into your ecosystem. If you are creating content on your hotel website (for example, with a blog), Google Analytics also tells you how much traffic your posts are generating. Google Analytics is an especially powerful tool when it comes to direct bookings; which will help us to get direct revenue and avoid commissions,” Yasin explained further.

Website analytics tools like Google Analytics help you read through and understand customer demographics and behaviour. If your hospitality property has a website, you must know everything that is happening on it. What are the demographics of guests who are looking to booking your rooms? What do they find interesting? How long do they spend on your pages, which pages of your website are being visited most, f r o m which part of the world are you attracting the most traffic f r o m, etc. A good understanding of your hotel website can help you in multiple ways which include hosting the right content, designing the right promotion, targeting the right audience, etc.

“Surveys are a great way to get honest and quick customer feedback and conduct market research. While you may not think of a survey as a hotel marketing tool, it can inform you as to what people want to see more of f r o m your hospitality brand. What kind of hotel promotions do your customers want to see more of? What do they love about staying at your property? Figuring out these nuggets of information can inform what you need to show more often in your hotel marketing,” Yasin averred.

“All the above tools will help improve our hotel ratings and hence it will help us to welcome more guests at our hotel,” Yasin pointed out.

Rekha is of the opinion that digital tools can facilitate in increasing the RevPAR of the hospitality property. “Digital tools can help in increasing the length of stay and also help in benchmarking your position and help you to sell higher room categories,” she articulated.

“Digital marketing helps to drive volume to the hotel which is a result of high occupancy and increase in the hotel’s RevPAR,” expressed Sucheta.

Listening to your customers is also a safe way to increase your RevPAR. With the rapidly developing online social environment, it has become imperative for hotels and other hospitality properties to have presence on Facebook, Instagram, Twitter, TripAdvisor, ensure that they are engaging with the audience in a timely and appropriate manner. Tools like Hootsuite help follow online conversation regarding your hospitality property and let you respond appropriately.

If a guest has posted a picture of his beautiful room on Instagram with a hashtag relating to you, you can express your gratitude, and on the other hand if a guest has highlighted issues by tweeting about, you can offer to fix them. In today’s digital age, it is not wise to not heed to customer feedback.

The proper handling of SEM and SEO can ensure that when a potential guest is searching for a hotel in your area, the search results show you up. Efficient SEO (Search Engine Optimisation) & SEM (Search Engine Marketing) can help display the right ad to the right guest at the right time, thus facilitating to convert ‘searchers’ into ‘bookers.’

For hospitality properties who see a high mix of international guest, GDS presence and marketing is imperative. For in such cases you have to not just reach the guest, but also the booker; the agent who makes the booking.

“Digital marketing like GDS promotion, e- banner marketing, choice of right SEOs and SEMs, linking of the hotel’s website to various upcoming events in the city, being active on social media and timely responsiveness of reviews on hotel’s website helps in increasing the hotel’s RevPAR,” declared Amit.

Rajesh concurs with the view that digital tools help increase the RevPAR and added “For example, bookings through brand website can make the revenue more than the OTA bookings.”

“RevPAR can be increased by achieving the right occupancy percentage at the right ADR. Digital marketing tools, whether they are Google Ads or GDS Banners, all help grab attention, educate travellers about the hospitality property and can facilitate to bring in room sales,” averred Amel.

Online Reviews

Nearly half of the travellers these days book their rooms after reading online reviews. Thus your hotel’s online reputation would influence its RevPAR. So what steps should be taken to improve them?   

Rajesh believes, “Maintaining rate parity would be of help.”

“The hospitality industry has made its way into the big world of online reputation management, where improving reviews and ratings in the online space play an extremely big role in generating revenues. Better the reviews and image of the hotel in the social media, more guest preference for the hotel. The steps to be taken to facilitate this are continuous monitoring of the feedback platform, promptly attending the guest complaints with utmost care and resolving them, wherever possible,” stated Amit.

Rekha asserts that online reputation for hospitality properties must be maintained. “As a hotelier, your property/ies must be visible on all online hotel channels including OTAs, Metasearch sites, travel review sites, etc. You must have effective channel management / OTA management,” pointed out Rekha.

“Hotel distribution and online reputation play very important role in today’s hospitality industry and they influence your hotel’s RevPar,” iterated Yasin.

Hotel distribution and online marketing can be improved by continually monitoring guests’ feedback, by noting when satisfaction drops or surges; digging deeper to understand the forces driving those trends, and then making changes based on what you learn. It is important to be online and discoverable on all online hotel channels including OTAs, Metasearch sites, travel review sites, etc. As more travellers are turning to reviews as part of their trip planning and sharing, a positive reputation is critical to the success of most hotels. Also analyse your ratings and rankings on key review sites, and decide where you should be (objectives) and how you will get there (strategies).

Also it is advisable to update your profiles on key review sources like TripAdvisor, Google Business, Yelp and online travel agencies. Maintain accuracy of your content over time. In case of any complaints take prompt action and prevent them f r o m recurring, and endeavour to generate a steady stream of positive reviews.

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