Since every hotel business is different, various Key Performance Indicators (KPIs) can be used on the basis of business needs. Here's a detailed account of the advanced KPIs like RevPOR, TRevPAR, NRevPAR, ARPA and EBITDA that experienced Revenue Managers use.
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Revenue Management KPIs and Why They Are Important
The basics of Revenue Management aim to sell the right product at the right price to the right customer through the right channel. In order to measure the success of it, we have several different KPIs.
KPI stands for Key Performance Indicators that enable the revenue manager or hotel owner to assess the current state of the business and make adjustments to the pricing and overall strategy based on the outcome.
In our article titled: Top Hospitality KPIs to Evaluate Your Hotel Performance, we have already covered: OR, ADR, RevPAR, and GOPPAR, which are the most useful and popular KPIs used by hoteliers worldwide. If you're not 100% familiar with them, go check them out and then come back for a read here.
If you're already well-informed, let's take a look at the most advanced KPIs used by Revenue Managers, how to use them, and why they are important.
Revenue per Occupied Room (RevPOR)
RevPOR stands for Revenue per Occupied room, which as the name suggests, only takes into consideration occupied rooms. For this calculation, we take into account all other revenue streams that are associated with the rooms (laundry, telephone, room service, breakfast, etc.) It allows us to understand what other services guests are using and paying for in order to maximize overall revenue.
Revenue per Occupied Room (RevPOR) Formula and Example
RevPOR = Total Revenue Generated by Occupied Rooms / Number of Occupied Rooms
Example: For the month of September, the property made €300,000 Revenue and they have 2000 rooms occupied. This would mean 300000/2000, which is a €150 RevPOR.
Total Revenue per Available Room (TRevPAR)
TRevPAR stands for Total Revenue per Available Room. Just like RevPar, it focuses on all the rooms available in the property. However, it takes only the revenue of the room night instead, and takes into consideration other expenses (laundry, room service, restaurant charges, etc.)
Total Revenue per Available Room (TRevPAR) Formula and Example
TRevPAR = Total Revenue / Total Number of Rooms
Example: For the month of September, the property made in total €500000 revenue and the total number of rooms in the property was 5000 rooms. Based on the calculation: 500000 / 5000 is €100 TRevPAR.
NRevPAR stands for Net revenue per Available Room. It takes into account the total revenue generated per available room. However, this KPI is based on the net revenue. Therefore, all costs that are associated with selling the room are first taken out. This gives the most accurate image of the real revenue received from the sold rooms.
Net Revenue Per Available Room (NRevPAR) Formula and Example
NRevPAR: Total Revenue Cost / Total Number of Rooms
Example: For October, the property has generated€300,000 revenue (net) and the total number of rooms in the property was 3000. Based on the calculation: 300000/3000 is €100 for NRevPAR.
Average Revenue per Account (ARPA)
ARPA stands for Average Revenue per Account. This KPI focuses on specific customer accounts rather then property-specific performance. It tells us the revenue generated by the chosen account, and can be calculated monthly or yearly to help business owners decide the value of the business the account brings in. Usually, these are predominantly used for corporate and business accounts but can be used for FITs as well.
Average Revenue per Account (ARPA) Formula and Example
ARPA: Monthly Recurring Revenue / Total Number of Accounts
Example: For the month of September, the monthly revenue was €50,000 and we had in total 50 accounts. Based on the calculation: 50000 / 50, the ARPA was €1000 per account.
Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA)
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It shines light on the day-to-day operational profit generated by the hotel after extracting the different variables, such as interest, tax, depreciation and amortization. It’s an important KPI for investigating the financial performance of the business across different markets and industries.
Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) Formula and Example
EBITDA: Total Revenue – All other expenses
Example: In the month of September, the property generated €300,000 revenue and the total expenses associated with it were €50,000. Based on the calculation: 300,000/50,000 equals €250,000 in EBITDA.
Currently, Mia works for a leading Hospitality Company as a Revenue Manager. With years of expertise in Creative Writing at Writers Bureau, she is a published author, who has written two fiction novels, and is currently working on more titles.