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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Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.