Are Your Channels Delivering Optimum RevPAR?

Are you factoring in costs of hotel booking in your RevPAR measure?

By S. Lakshmi Narasimhan Founder, Ignite Insight LLC | March 25, 2018

If you are looking for a measure for revenue performance look no further than the multi-dimensional RevPAR. Owners swear by this KPI which not merely reflects revenue performance but in the process also provides a pointer to the extent to which capacity utilization has occurred. What is capacity utilization?

If the primary function of a hotel asset is to earn revenues, then the RevPAR is a measure that fulfills that role in a stellar way. But a RevPAR is not just a metric for revenue performance. Since it uses Rooms Available as a denominator, it also makes a statement of how far rooms available as a hotel asset have been leveraged to produce revenues.

Although RevPar can also be calculated by dividing room revenue by available rooms, the method of multiplying ADR by the occupancy % has a powerful advantage. It shows you the relative contribution of ADR and occupancy % in the calculation. For instance, a 50% occupancy at a given rate dilutes the ADR by half. Your RevPar index shows you operating at HALF CAPACITY.

Driven by Volume and Price

RevPAR as a strategic measure factors in both price as well business volume contribution of revenue performance. It thus is a powerful indicator of how significant the average daily rate attribute is and similarly the occupancy attribute. This not only has revenue implications but points to the bottom line performance as well. Occupancy increases bring with them variable costs while average rate increases travel to the bottom line without such costs. RevPAR composition can thus influence profitability such a great deal.

How are the key factors of business volume and price achieved? Channels of distribution employed by the hotel provide them. A channel of distribution is pre-dominantly an online agency which creates a conduit between the customer looking for a hotel and the hotel itself. In the past decade or more, these channels have gotten a stranglehold on a hotel's booking composition. By their ability to command a variety of hotel properties in their kitty and with the use of sophisticated yield management algorithms, these channels virtually railroad the customer into making the booking. While often this is a great benefit to the customer in getting sweet deals regularly, the hotel is often paying the price for being on that channel's list.

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Guest Service: A Culture of YES

In a recent global consumers report, 97% of the participants said that customer service is a major factor in their loyalty to a brand, and 76% said they view customer service as the true test of how much a company values them. And since there is no industry more reliant on customer satisfaction than the hotel industry, managers must be unrelenting in their determination to hire, train and empower the very best people, and to create a culture of exceptional customer service within their organization. Of course, this begins with hiring the right people. There are people who are naturally service-oriented; people who are warm, empathetic, enthusiastic, pleasant, thoughtful and optimistic; people who take pride in their ability to solve problems for the hotel guests they are serving. Then, those same employees must be empowered to solve problems using their own judgment, without having to track down a manager to do it. This is how seamless problem solving and conflict resolution are achieved in guest service. This willingness to empower employees is part of creating a Culture of Yes within an organization.  The goal is to create an environment in which everyone is striving to say “Yes”, rather than figuring out ways to say, “No”. It is essential that this attitude be instilled in all frontline, customer-facing, employees. Finally, in order to ensure that the hotel can generate a consistent level of performance across a wide variety of situations, management must also put in place well-defined systems and standards, and then educate their employees about them. Every employee must be aware of and responsible for every standard that applies in their department. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.