Are you tired of the mysterious language of Revenue Management and Pricing professionals?
Below are all the keys to understanding them.
- Occupancy rate
- Average Price
- Revpar
Definition and use of the occupancy rate
This is the percentage of nights sold for a hotel or apartment.
For a hotel
The occupancy rate is the number of rooms sold over a period considered divided by the number of rooms available in the hotel multiplied by the number of nights studied.
Example: hotel with 15 rooms over a period of 3 nights. 10 rooms sold the first night, 15 the second and 10 the third.
The occupancy rate is: [ (10+15+10)/(15+15+15) ] *100 = 77.7%
For an apartment
The occupancy rate is the number of nights sold over a period considered.
Example: for 3 nights apartment sold the first two nights but the third.
The occupancy rate is: [ (1+1+0)/(1+1+1) ] *100 =66.6%
What is the point of the occupancy rate?
The occupancy rate makes it possible to compare performance in volume (quantity of sales) and to compare it between several hotels/apartments or between different periods. The percentage helps make the figures comparable.
To illustrate the interest of the occupancy rate here is a little duel.
Who do you think performs best?
A 30-room hotel that achieved 60 sales in 3 days
Or
A 20-room hotel that achieved 42 sales in 3 days.
Well yes! against all expectations, it was the hotel with only 42 sales that performed the best: it produced an occupancy rate of 70% versus 66% for its competitor.
Definition and use of average price
The average price is the average of the sales prices of rooms or an apartment.
What is the point of the average price?
The average price is the result of the pricing positioned for the sale and all the actions taken: promotions or negotiated prices for companies for example.
It allows comparison to the maximum price displayed (to assess the level of reduction granted on average) and also allows you to compare yourself to the past to assess the evolution of your own performance.
For example for our hotel with 15 rooms over 3 nights (see example above)
10 rooms sold the first night for €70, 15 the second at €65 and 10 the third at €75.
As seen above the occupancy rate is 77%
The average price is: [ (10*70€+15*65€+10*75)/(10+15+10) ] = 69€
Definition and use of revpar
Revpar is the most barbaric word in revenue management but it is the most important indicator. It is this indicator which has the last word in any situation on the turnover performance of a hotel.
Revpar consists of dividing the turnover of a period by the number of rooms available for sale.
For example for our hotel with 15 rooms over 3 nights (see example above)
10 rooms sold the first night for €70, 15 the second at €65 and 10 the third at €75.
As seen above, the occupancy rate is 77% and the average price is €69
The revpar is: [ (10*70€+15*65€+10*75)/(15+15+15) ] = 53€
What is the point of revpar?
The benefit of this indicator is to check whether our revenue management strategy has been effective. In fact, two major strategies exist: sell low and sell a lot or sell very high and sell little. Without the review it is difficult to know what ultimately brought in the most money with the rooms available.
To illustrate the interest of the occupancy rate here is a little duel.
Over which period was the performance best in your opinion?
Hotel with 30 rooms during one week in January: 200 rooms sold at €60.
Or
The same hotel with 30 rooms during a week in August: 154 rooms sold at €75
At first glance we might think that the sales made at €75 in August would allow us to perform better in any case. This is not the case!
In truth, the revpar for August is 55€ versus 57€ for the month of January. The turnover performance is therefore better in January.
Be careful for an apartment the revpar = the average price
Note: for an apartment the average price is in fact equal to the revpar because the apartment (even if it has several bedrooms) is a single asset. If it is sold (even for 2 when it could accommodate 6 people) the empty rooms cannot be sold.
2 Answers
Hello Elise,
and thank you for the book.
I would like to explain to my students the coding of rooms for an OTA and its correspondence to a hotel's PMS. Do you have an example?
Bine to you
Grace
Hello, thank you for your comment. I think this topic will require further posts. I suggest you tell me more by email hello@jannoncecomplet.com Excellent day, Elise