By Jean Francois Mourier
There has been a great deal of discussion as of late as to the value of the revenue management metric TRevPar (Total Revenue per Available Room). TRevPAR is calculated by dividing the total net revenues of a property (room revenues plus ancillary revenue streams such as food and beverage, rentals, etc.) by the total available rooms. Many industry experts are saying that TRevPAR is a more valuable metric than RevPAR in determining pricing strategies, but I’m here today to offer a different opinion.
TRevPAR is a fantastic metric for accountants, hotel owners and even the general manager, as it helps to determine the overall financial performance of a property. However, it is NOT a valuable metric for revenue managers. Because so many different types of revenues are included in the TRevPAR calculation, it makes it nearly impossible to isolate the information that a revenue manager needs to determine accurate pricing (according to what the market will bear).
In a hotel, different departments are responsible for ensuring that the multiple areas of a hotel are performing well financially: the F&B Manager would oversee the purchase of food/beverage items and the revenues earned through all related purchases; function space rentals would be handled by the Special Events team; and room revenues are handled by the revenue management department. So why would you use a metric that takes into consideration the financial performance of multiple departments in determining your room rates?
As you know, a revenue manager’s main goal is to be able to predict what price a market will bear up to a year in advance and then develop a pricing strategy accordingly. As someone who is responsible for the management of the majority of most hotels’ revenues, why would you use a metric that puts a percentage of the property’s earnings (and TRevPAR stat) completely outside of your personal control? If the other departments have a bad day/month/year financially, it will appear that your revenue management strategies were not effective (even though that may not be the case).
So at the end of the day, although it may not be the new metric du jour, RevPAR is still the best metric for revenue managers as it takes into consideration the details that revenue managers are concerned with: room revenues alone.
