Working out RevPAR from the room revenue in your books
How a hotel or guesthouse calculates RevPAR, where the room revenue and available rooms should come from, and why a higher RevPAR is not more profit.
By Achekam · · 4 min read · For Hospitality businesses in South Africa, Nigeria, Kenya
Every hotel conversation seems to come round to RevPAR. Booking sites quote it, lenders ask for it, and the owner of the guesthouse down the road says hers went up last season. Yet many small properties calculate it from a figure someone typed into a spreadsheet, with room revenue that includes breakfast, conference packages and the odd laundry charge, divided by whatever number of rooms felt right that month.
A RevPAR built like that cannot be compared with anything, not even with your own last year. This piece explains the calculation, where each figure should come from, and how to keep the room revenue clean in your books so the result means something.
Two routes to the same number
Investopedia explains that revenue per available room (RevPAR) can be calculated in either of two ways:
- total room revenue divided by the total number of rooms available, including available rooms that were not occupied; or
- the average daily rate multiplied by the occupancy rate.
Both should land on the same figure for the same period. A worked example in words: a guesthouse adds up the room revenue for the month and divides it by the room-nights it had to sell, which is the number of rooms multiplied by the nights in the month. Separately, it divides the same room revenue by the room-nights actually sold to get the average daily rate, divides room-nights sold by room-nights available to get occupancy, and multiplies the two. If the routes give different answers, one of the inputs is wrong, which makes the second route a useful check on the first.
Counting available rooms honestly
The denominator is where most home-made RevPAR figures go wrong. Investopedia's definition counts available rooms that were not occupied, so the empty rooms belong in the count. A property that divides by occupied rooms has calculated something closer to an average rate, not RevPAR.
Decide your rules once, write them down, and keep them:
- Count every room you could have sold, every night of the period.
- Decide how to treat a room closed for renovation for a long period, and apply the same rule every month.
- Do not drop rooms from the count because they did not sell.
- Count complimentary and staff-occupied rooms the same way each time.
The available-room count comes from your room inventory and reservations records, not from the ledger. The ledger's job is the revenue.
Keeping room revenue in its own account
The numerator should be room revenue and nothing else: not breakfast, not the bar, not venue hire, not the deposit for a wedding later in the year.
In Achekam each business has its own double-entry ledger with a standard chart of accounts, and accounts can be added, renamed or switched off. Add a Room revenue account if your chart has none. Then deal with one limit honestly. Today, all invoice revenue posts to one account, Professional Services Revenue (4100), even for a business that sells goods, and an invoice line cannot name another sales account. Room charges you invoice will therefore land in that account with everything else you invoice.
The fix is a month-end journal that moves the room charges for the month from the general revenue account into Room revenue. A business can post manual journals; an unbalanced journal or one dated in a closed month is refused, and a posted journal is corrected only by a reversal. Post the reclassification before the month is closed, and keep the room-revenue report from your reservations records with it as support.
Once that is done, the management accounts show room revenue as its own line. They show an income statement for the chosen period beside the period before, added up from the business's own journals, so the numerator for this month and last month is in one place.
Why a higher RevPAR is not the same as a higher profit
Investopedia cautions that an increase in RevPAR does not necessarily mean higher profits, because RevPAR measures revenue only and ignores expenses and the size of the hotel. A guesthouse that fills more rooms through a booking site may raise its RevPAR while the commission eats the gain. One that cuts rates to fill rooms may see RevPAR hold steady while laundry, amenities and wages rise with every extra guest.
Read RevPAR beside the income statement, never instead of it. If RevPAR rose and the profit did not, look at commission, cleaning and variable staff costs first. Investopedia also describes TRevPAR, a variant that adds revenue from amenities such as spas, pools, entertainment areas and restaurants; for a property with a strong restaurant, that is often the more telling figure.
Setting your own targets
Investopedia notes that comparing RevPAR with other hotels can be difficult because their revenue and occupancy figures may not be readily available, so management should be prepared to set internal RevPAR targets. For a small property that is the realistic route anyway:
- set a target for each month, based on the same month last year;
- set lower targets for the low season rather than one figure for the year;
- review the gap monthly, and note what explains it: rate, occupancy or both.
A group running more than one property should calculate RevPAR for each separately before adding them up; running a group of several properties covers keeping their books apart. The quiet months deserve their own targets and their own cash plan, which cash planning for the low season works through.
Investopedia's explanation of RevPAR sets out both formulas, the TRevPAR and ARPAR variants, and the measure's limits.
This month, put room revenue in its own account, write down your available-room rule, and calculate RevPAR both ways. If the two answers agree, you have a figure worth tracking.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
