RevPAR – How To Maximize Hotel Revenue
You will never know how good or bad your hotel is doing if you do not keep accurate records of your revenues and expenses. By analyzing certain key figures and industry ratios like the Revenue Per Available Room (RevPAR), the Average Daily Rate (ADR) and the Occupancy Rate, you can get a clear picture if the current year is better than the previous year.
Of all the figures that hotel owners, managers and financial analysts use to evaluate performance, the most important one is RevPAR. This figure, which is stated in dollars, is attained by dividing Total Guest Revenue by Total Number of Available Rooms. It not only measures occupancy and the room rate, but also provides insight into how well a hotel is utilizing its room inventory.
For instance, it can be misleading to say that you are doing better this year, compared to last year because you are getting an average of $10 more per room that you rent. What you really want to know is if you would generate morerevenue with higher occupancy rates if you lowered your room rates by $10. If you have 200 guest rooms and can fill 180 of them if you charge $100 per night or you can fill 150 of them if you charge $150 per night, what is better? If you do the math, you will see that you will bring in more money by charging a higher rate and having fewer guests.
This information, which can be gathered by studying RevPAR is very helpful in trying to price your guest rooms properly. There is a certain point where the price and occupancy rate meet that will maximize the revenue for yourhotel.
In order to increase your RevPAR figures and maximize the net revenue that your property, you need to keep a close watch on all aspects of your operation. One of the common mistakes that many managers and operators make is that they allocate too many of their rooms to online travel agencies (OTA) so they can fill their rooms. OTAs like Priceline, Expedia and Travelocity, appeal to so many travelers because they sell your rooms at largely discounted rates.
Now this is not their fault. You are the one that signs the contract with each company and you are the one that decides how low a price you are willing to accept for a guest room. Somewhere along the line, perhaps in a frantic attempt to fill every empty room, common sense went out the window. If you factor in the variable costs per occupied room (VCPOR) such as the cost to have a maid clean it or the cost of washing more towels, the expenses can add up. If you discount that guest room through an OTA too low, you may increase occupancy rates, but actually lose more money than if you left the room unoccupied.
One of the tips that will help keep you from messing up your price structure to the point where it actually hurts RevPAR is to get a firm grip on the demand patterns for your property. You should have a very good idea when guests are most likely to visit. For instance, managers at hotels around Disneyland in Anaheim know that demand rises when the kids are out of school in the summer and almost all hotels in the area have very high occupancy rates when Disney celebrates the Fourth of July or some other big event.
Contrary to what most owners and managers of hotels believe, you will not maximize profits by charging less for your rooms to try to attract more guests. When you think about it, people do not flock to a hotel because it is renting rooms for $39 per night. They go to hotels because they need a place to stay when they are in the area. Demand forhotel rooms is basically inelastic. In any given market segment, you will maximize your income and improve yourRevPAR if you charge higher rates than your competitors.
There are some exceptions such as if you own an exclusive resort and offer a special rate during the off-season to attract guests when you have lots of empty rooms. Lower rates can be made up by charging for additional services like spa treatments or fancy dinners when your guests arrive.
Touching back on the subject of fixed and variable costs, can help you maximize profits. If you need to hire more maids, your electricity bill rises when there are more occupants, or you have to buy more donuts for the free breakfast buffet, that will cut into profits. Of course you do not want to shortchange your guests, but you do want to control wasteful spending.
There are a number of great tips that will improve your Revenue Per Available Room figures. Some of these tips are just common sense and others are things you just might never have thought of doing.
It does not take more than a little common sense to know that people driving by and looking for a place to spend the night will gravitate toward hotels that have curb appeal. You can increase your curb appeal by making sure your grounds are well kept, your building is in good repair and you have a big sign that can be seen from a distance. Visual appeal is a good way to attract more paying guests and boost your room sales.
Did you know that there are other ways to attract business besides using the Internet and social media? Yes, it is true that we are living in a digital world, but studies have shown that old-fashioned highway billboards are a very attractive way of steering people onto the exit ramp and into your hotel’s parking lot.
You should certainly pay attention to all of the online reviews that are written about your property. It is quite normal to get a few bad reviews, but addressing them promptly can restore your hotel’s good name. Retaining customers and encouraging new ones to visit will put cash in the register.
First impressions do matter. When a guest passes through the entrance into the lobby, he or she does not want to see some old furniture and a pile of disheveled newspapers on a coffee table. Your lobby should be carefully designed and pleasing to the entering guest. When they get up to the front desk to check-in, the front desk clerk must fill the role of enthusiastic representative with a friendly smile and pleasant personality. This is the hospitality business and a grumpy clerk is bad for business.
A few more tips for hoteliers who want to improve their financial figures are to give the guest more than what they expect. Instead of having an average free breakfast with some cold cereal and donuts, upgrade the experience to hot scrambled eggs, fresh seasonal fruit and premium brand coffee. Reward your employees who come up with ways to save money and provide better guest experiences. Enter into reciprocal relationships with some of the other area hotels. When they have no vacancies, they can send guests to your place and you can return the favor when all of your rooms are filled.
You must work hard and you must work smart if you want to increase revenues and decrease the percentage of empty and available rooms. Demand for guest rooms changes from week to week and at different times of the year. You need to have a good understanding of when demand is high so you can raise your rates. By understanding your customers and their needs, you can be successful.