What is NRevPAR?
NRevPAR, or Net Revenue per Available Room, measures a hotel’s revenue from room sales after subtracting distribution and transaction costs. It provides a more accurate picture of profitability than traditional metrics, emphasizing net gains over gross revenue, and is crucial for understanding a hotel’s financial health and operational efficiency.
Key Takeaways
- More Accurate Performance Indicator: NRevPAR factors in distribution costs, offering a truer reflection of a hotel’s financial performance than RevPAR.
- Useful for Revenue Management: NRevPAR is essential for revenue management strategies, helping to optimize pricing and increase room revenue efficiency.
- Limitations in Scope: While insightful, NRevPAR doesn’t account for actual occupancy rates or non-room revenue, and calculating certain costs like commission can be challenging.
- The formula for Calculation: NRevPAR is determined by subtracting distribution costs from room revenue, divided by the number of available rooms.
- Comparison with RevPAR: Unlike RevPAR, which considers gross room revenue, NRevPAR focuses on net revenue, providing a more accurate profitability measure.
Introduction
Net revenue per available room, or NRevPAR, is used by those within the hotel industry as part of a wider revenue management strategy, helping them to assess overall business performance. As a KPI, the NRevPAR metric is similar to RevPAR, but factors in distribution costs. Therefore, it is arguably a more accurate performance indicator.
What is NRevPAR?
The NRevPAR metric is used to calculate the net revenue generated per available room in a hotel. In this context, net revenue refers to the room revenue generated, minus any room distribution costs. As a KPI, it provides a picture of how successful a hotel is at making money from each of its available rooms.
NRevPAR can also be used alongside other revenue management metrics to adjust pricing, increase occupancy levels, or the revenue received. It can be calculated with the following formula:
NRevPAR = (Room Revenue – Distribution Costs) / Number of Available Rooms
What is the Difference Between RevPar and NRevPAR?
In many ways, the NRevPAR metric is very similar to RevPAR, in that it is concerned with revenue generated on a per-available room basis. However, unlike RevPAR, NRevPAR looks at net revenue rather than simple room revenue. Therefore, distribution costs, such as travel agent commissions and transaction fees, are subtracted from room revenue first, before the number is divided by the number of rooms available.
Uses and Limitations
NRevPAR is a useful KPI for those in the hotel industry carrying out a revenue management strategy. In particular, it can reveal how successful a hotel is at generating revenue through the sale of rooms, while also factoring in the number of rooms that are available to be sold and the distribution costs associated.
However, it does not reveal the actual occupancy rate, or revenue generated through other sources. Moreover, certain distribution costs, like commission, can sometimes be difficult to accurately calculate.
More Revenue Management KPIs
KPI stands for Key Performance Indicator. With KPI, you can measure and identify areas of success and failure and trends related to demand and customer behavior. Besides NRevPAR, other important Revenue Management KPIs are Occupancy rate, RevPOR, ADR, TRevPAR, EBITDA, ARPA, and GOPPAR.
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