The Challenges of RevPAR

Is there a better way to gauge performance? HSMAI’s KPI Workgroup is making the case for a more holistic revenue approach.

By Dana Cariss, CRME, CHDM, Vice President of Revenue Strategy and Distribution, CoralTree Hospitality, and a member of HSMAI’s KPI Workgroup

Since the inception of Smith Travel Research 35 years ago, RevPAR has become the single most important metric of all hotel-management KPIs. The assumption is that balancing occupancy and ADR levels the playing field and provides for a true apples-to-apples comparison. Hoteliers and owners have fallen in love with the concept of RevPAR because it helps us understand in a single metric how we’re doing relative to similar hotels when adjusting for number of rooms.

But is RevPAR enough? Does focusing only on topline metrics offer sufficient insight into the performance or financial health of our hotels relative to our competitors? Is there a better way to gauge internal and external performance?

HSMAI’s Revenue Optimization Advisory Board (ROAB) KPI Workgroup has been drilling into these questions since before the pandemic made them even more urgent, including contributing to HSMAI’s recent Global Curate program, which was focused on determining the most relevant KPIs post-COVID. In this article, we’ll make our case for the importance of a more holistic revenue approach as well as highlight some of the challenges with the current uses of RevPAR.

CHALLENGE 1: RevPAR is not a complete revenue picture.

For years now, the hospitality space has been trying to expand the traditional practice of revenue management from a single focus on topline rooms’ revenue to a broader focus on customer value and strategic profit management. This bottom-line orientation versus topline effort shifts the conversation to the customer and customer acquisition costs. Thus, a complete revenue strategy should expand to multiple revenue sources and encompass a multichannel demand management approach highlighting the importance of profit rather than just revenue. Hotels should spend time in their strategy sessions on acquisition, assessing the value of each customer, so they can develop a specific and personalized relationship with them.

CHALLENGE 2: Focusing only on RevPAR neglects other important revenue streams.

One of the most obvious and — potentially most severe — effects of not adopting a profit-focused revenue management strategy is the missed opportunities to drive non-rooms-related revenue. If we are only focused on RevPAR, we can easily skip over chances to create strategies around incremental revenue growth and spend. The more you optimize wallet spend before and during each guest stay, the more successful your hotel or resort will be, especially over the next two to three years during pandemic recovery.

CHALLENGE 3: RevPAR is not a marker of optimized performance.

Key to the success of a new profit strategy is fully understanding your optimal business mix and using this knowledge to drive down acquisition costs and promote direct bookings to your lowest-cost channels. There are great partners out there to align with if you are unable to do this on your own. A focus on channel cost will minimize topline risk, help drive more business to your most profitable channels, and create trust and buy-in across your organization about the value of a profit-focused strategy.

CHALLENGE 4: RevPAR is not a marker of financial health.

While RevPAR certainly does serve an important role, are there better metrics or more appropriate alternatives to gauge hotel performance and financial health? The ROAB has spent the last year grappling with this very question. How do we begin to shift the narrative from RevPAR to profit? And what are the new metrics we should begin tracking?

I would encourage each of you to spend some time thinking about this question. For me, there are two main profit-related KPIs that should be part of our everyday conversation: total revenue per available room (TRevPAR) and gross operating profit per available room (GOPPAR).

What do we do from here? How can we begin to shape a new landscape that is as focused on TRevPAR or GOPPAR as it is on RevPAR? Join our conversation on LinkedIn using the hashtag #2021hotelKPIs. We would love to hear your insights and opinions.

Categories: Revenue Management, Performance Analysis
Insight Type: Articles