Revenue management strategies are becoming increasingly popular as more and more hoteliers begin to see the impact these strategies can have on profitability. However, when it comes to measuring the same, a large number of hoteliers still rely on outdated metrics such as occupancy indexes and revenue generated per available room (RevPAR). In today’s dynamic scenario, such metrics no longer provide hotels with enough information to take an informed decision.
Let’s see why.
First, let’s take a look at the three most popular indexes in hospitality – namely the ADR, RevPAR, andOccupancy. ADR refers to the average revenue generated per sold room while RevPAR refers to the average revenue generated per available room. These two metrics don’t provide hoteliers with a full picture of their property’s performance as they don’t take into account costs associated with higher occupancy and additional sources of income.
In order to properly measure a hotel’s performance, hoteliers need to measure the other costs too, such as the cost per occupied room (CPOR). The CPOR takes into account costs such as housekeeping, replenishing toiletries etc. Hotel managers also need to account for additional revenue generated by other sources of income in the property.
The ARPAR (Adjusted revenue per available room) is an index that accounts for these metrics as well, and as Ira Vouk explained in her article, this can be calculated with a simple formula –
ARPAR = [(ADR – CPOR) x Occupancy] + POS Revenue
With a robust revenue management strategy, hotels can increase profitability during the peak season and even generate more demand during the off-season. Flexibility for implementing these kind of revenue management strategies is directly influenced by the capability of the property management system being used – selecting the right one is integral to the process!