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Revpar needs an overhaul

17 August 2006
Revpar needs an overhaul

Revpar, trevpar and goppar are all below par as useful measures of hotel performance, says Marcel Lindt, head of research for The Bench

Revenue per available room (revpar) is an industry standard for measuring a hotel's performance, while total revenue per available room (trevpar) and gross operating profit per available room (goppar) are still new concepts.

Trevpar not only looks at rooms revenue, but takes into account all other revenues generated by a hotel. Goppar goes further still and also looks at the gross operating profit of a hotel, and not just its revenue.

All three ratios, however, have a common flaw - they use bedrooms, which are variable units of measurement, as a denominator. So long as the unit of measurement remains different in this way, the results of such benchmarking are only partially valid.

For instance, if a two-bedroom hotel generates £200 revenue per day, the revpar is £100 (£200 from two rooms). Should the owner turn the rooms into one big suite but the revenue remains around £200 per day, the revpar would have doubled to £200 (£200/one room) - but did performance really improve by 100%?

Similar concerns apply for trevpar and goppar, since they rely on room numbers. Worse still, they also incorporate non-room revenue in the calculation, resulting in figures which are even less accurate.

Imagine that this hotel now builds a conference room. Even if this is badly run, trevpar and goppar will still improve, provided that the operating profit is positive.

All these issues concerning different sizes of rooms and non-room revenue could be resolved by comparing the revenue achieved on a certain area with the floor surface of this area. I suggest using square metres as a common denominator.

This would give us revpas (revenue per available space), trevpas (total revenue per available space) and goppas (gross operating profit per available space), with space measured in square metres of floor area.

Another advantage of such a system would be that both revpas and goppas could be applied to each operating department, enabling much more reliable comparisons between departments.

This would then call for yet another key performance indicator: total operating profit per available space (toppas). While goppas could be calculated for each department, toppas would be the operating profit per square metre for the entire hotel.

This would create the ultimate figure for comparing the financial performance of one hotel with another - or with any other form of real estate.

What's wrong with revpar as a measure?

Joni Smith, associate director, CB Richard Ellis
"Revpar focuses only on room revenue, but where there's more revenue coming from other areas, it would be beneficial to analyse that more widely. Revpar doesn't take into account or allow for comparables in the conferencing market, which is a very important sector of UK hospitality."

Michael Wale, senior VP, director of operations, NW Europe, Starwood Hotels & Resorts "It should be revpac - revenue per customer, because we're interested in understanding all the incremental income streams per customer, not just rooms revenue. Take the Westin Turnberry resort - less than 50% of revenue per customer is from rooms; the rest comes from resort activities."

David Bailey, director, Tri Consultancy "Revpar has validity as so many people use it and it's accessible data. But we have long recognised that it's limited and represents only part of the picture - albeit an important one. A wider perspective is needed, which also recognises operating profit and costs. It will become more sophisticated, but we have to move at the industry's pace."

Virginia Masser, general manager, Cadogan hotel, London "It's one of the tools we all use, but there are limitations. Hotels are so different that it's sometimes like comparing apples with pears. However, our investors use it and we use it as one tool to help our revenue management systems. It's important, but not the only tool; we also look at our competitors and the wider London market."

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