If you work in the hotel business, acronyms are part of the job. Among the many shorthand terms we use, two are particularly important for measuring performance. Their names might strike a similar chord, but delving into these respective metrics reveals crucial distinctions.
RevPAR and TRevPAR are two of the most frequently used metrics for hoteliers assessing the health of a property or portfolio as well as industry stakeholders measuring the health of market. However, understanding these measurements on their own is only half the battle. True performance insights are unlocked when you understand the fundamental differences between the two and how these metrics complement each other in a comprehensive benchmarking strategy.
What is RevPAR?
RevPAR, or “Revenue Per Available Room,” is the most common key performance indicator (KPI) used in the hotel industry. It provides hoteliers with insight into the top-line financial performance of their rooms division. It also helps identify potential increases or decreases in revenue, irrespective of property size or type. That last piece is why RevPAR is so widely used—the metric can be used to create comparisons across any of the industry’s segments.
How to Calculate RevPAR
You can calculate RevPAR with the following simple formula:
When calculating the total number of available rooms, don’t forget to consider any rooms that can’t be rented out due to repairs or maintenance. These are referred to as “Out of Service” rooms, as opposed to “Out of Order,” which are not removed from available inventory.
RevPAR Example
Ruth is a revenue manager at a mid-sized franchised hotel off a major freeway, where average daily rate (ADR) is $95. The hotel normally has 130 rooms available to book, but six rooms are currently unavailable as they undergo bathroom renovations.
Ruth pulls the room-driven revenue numbers for April and sees that the hotel made $205,647. With 30 days in April, she knows her total number of room nights available (also known as supply) was 3,720 (30 x 124). Therefore, she has everything she needs to calculate April’s RevPAR:
Pros and Cons of Using RevPAR as a Hotel KPI
Pros
- A straightforward formula thanks to simple math and a relatively small number of factors
- Easy to digest number
- Built for easy comparison across hotel types, regardless of offerings
- Its measurement helps with yield management, which focuses on maximizing revenue regardless of extraneous factors
- It can be a leading indicator of profitability
Cons
- RevPAR doesn’t factor any revenue streams aside from room sales, so it may not completely capture performance if a property generates substantial income from non-rooms departments (F&B, parking, spas, etc.)
- While a solid indicator, RevPAR does not give a precise read on profitability
Those first two bullet points are the most compelling reasons to tap into P&L metrics. That is where the similarly-named TRevPAR acronym comes into play.
What is TRevPAR?
The “T” is a subtle difference between TRevPAR and RevPAR, but it’s an important difference. Instead of standing for revenue per available room, TRevPAR stands for Total Revenue Per Available Room.
RevPAR is the largest component of TRevPAR, but instead of considering only revenue from room sales, a TRevPAR formula allows hotel operators to factor sources of income or revenue like those below. The revenue collected from these items is the hotel’s portion only. For example, add-on excursions booked through a hotel may be outsourced, and for a $100 excursion, the hotel may only receive $20.
- Food & Beverage (F&B), such as room service
- Spa facilities
- Paid parking
- Add-on excursions
- Pet fees
- Laundry services
- Childcare
This list is non-exhaustive and may vary depending on the type of property. In general, the more amenities a hotel property offers to its customers, the more variables there will be. For that reason, TRevPAR is more complicated to calculate, but it creates a fuller picture of performance.
TRevPAR Example
Ali is a revenue manager at a large resort property with multiple wings and amenities. The hotel normally has 935 rooms for rent but 200 rooms in the hotel’s oldest wing are awaiting renovations and not being rented out to guests. During April, 735 rooms in the hotel were available for rent each night.
The resort generates substantial revenue from guest add-ons, including transportation packages, day-long excursions, room service, food and beverage at the resort restaurants and pool, gift shop transactions, and spa and wellness packages.
Ali has his RevPAR, which is the largest piece of the TRevPAR equation. In order to calculate TRevPAR for April, however, Ali has to pull reports from several different departments to add with the revenue generated by room sales. From all reports, he can see that the total revenue number for April was $2,150,000.
Armed with that revenue number, and a supply based on the 30 days of the month, Ali can calculate TRevPAR:
Therefore, the TRevPAR for this hotel is $97.50.
TRevPAR Pros and Cons
Pros
- Provides additional context by taking into consideration other revenue streams
- Useful for hotels with multiple offerings
Cons
- A less straightforward calculation, it’s easier to miss numbers
- Requires the gathering of multiple revenue reports and the cooperation of several different departments
- Only factors revenue, not costs, thus does not give a read on profitability
- Does not differentiate revenue derived from the hotel operations vs. leased space. Thus, a hotel with a leased restaurant will not have F&B included in TRevPAR, but a hotel with an operated restaurant would. That would make the use of TRevPAR for benchmarking a lot less reliable.
TRevPAR and RevPAR: Which One is Better?
Whether your hotel should focus more on TRevPAR or RevPAR depends greatly on the type of property you’re running as well as your property goals. While it may be tempting to give one KPI more weight than another, RevPAR and TRevPAR are most insightful when looked at holistically.
To gain as much intelligence as possible, look at both TRevPAR and RevPAR. By combining these metrics, you get the most comprehensive overview of your hotel’s revenue generation, which can help with:
- Understanding the key drivers of your hotel or portfolio and how they contribute to your overall profitability
- Evaluating your overall strategy and whether or not you’re in need of new revenue streams
How do I Know if My TRevPAR is Healthy?
An example of a good TRevPAR or RevPAR will vary depending on:
- The type of property you’re evaluating and its competitive set
- The time of year
- Market conditions
It is hard to determine whether your TRevPAR and RevPAR are optimal without proper hotel benchmarking. Hotel benchmarking is the act of comparing your hotel or portfolio performance against the competition.
A trusted provider of hotel data benchmarking since 1985, STR is the trusted go-to source for industry performance indicators. Every day, hundreds of thousands of hoteliers worldwide leverage STR to monitor the competitive marketplace and help you understand your performance. Get in touch to learn how benchmarking the past, present and future will help you identify new opportunities and make better strategic decisions.
