The Future of Hospitality Revenue Management: Understanding TRevPAR
Disrupt or be disrupted. This concept, originally founded within the fast-paced, innovation-based world of Silicon Valley has quickly spread beyond tech-centric industries. It has become quickly apparent that when companies resist change, they are often passed up by newer competitors who are willing to lean into the world of technology. The hospitality industry is not immune to this phenomenon, and recently, this mentality of adaptation has come to light in a new form of revenue management: TRevPAR.
Simply put, TRevPAR (total revenue per available room) is a modern take on the industry-standard RevPAR; the most widely used metric for benchmarking performance in the hospitality industry. TRevPAR picks up where RevPAR leaves off. While both models analyze the amount of revenue brought in per available hotel room, TRevPAR also incorporates additional revenue brought in by each hotel guest, including money spent in the restaurant, at the bar, from room service and beyond. While the difference between the two models seems subtle at first glance, analyzing those extra guest expenditures can make all the difference in the world when maximizing possible profit opportunities.
What’s more, TRevPAR offers insight into a growing revenue driver: According to Oracle Hospitality and Skift’s Back to Hospitality: Getting Smarter and More Profitable in a Post-COVID World survey, 59% of hotel executives expect non-room revenue will represent a growing share of their annual revenue in the next five years. Nearly half (43%) said non-room sources of revenue could represent as much as a quarter of their hospitality business in 2021 and another 24% said it could account for between 25 to 50% of revenue within five years.
Building Upon a Strong Foundation
When familiarizing yourself with TRevPAR, it is important to understand that the new system does not reinvent the wheel. Rather, it carries the baton a little further than its predecessor. While RevPAR leaves measurement at the door of the hotel room, TRevPAR looks at additional sources of hotel revenue, resulting in a stronger analysis of profit centers beyond rooms alone. This is especially beneficial because simply put, different customers spend in different ways. TRevPAR allows you to better understand how different guests spend their money and tailor strategies around each unique customer, ultimately boosting your bottom line.
Identifying Customer Value Beyond Their Room
A core opportunity present within the TRevPAR model is to better identify the value of a customer beyond the room they sleep in and the upgrades they request. For example, a guest with a lower room rate does not necessarily equate to less profit. In fact, savings on their room can translate directly to more money spent at your hotel’s other profit centers, such as an on-property restaurant, bar, casino or spa. While the majority of surveyed consumers either have or are open to purchasing drinks at the hotel bar (82%) or food at a hotel restaurant (91%), other non-room offerings, like wellness or fitness services (63%) or subscription memberships to hotel services (53%), offer potential opportunities for hoteliers to grow revenue.
By placing value upon a customer beyond the room they book, you can drive spending and maximize profitability in a way that was not possible before. Money earned at your hotel’s bar is just as valuable as the money earned through room sales. The TRevPAR model simply accounts for both.
Rooms Do Not Always Tell the Full Story
The hotel industry is widely varied. As a result, RevPAR does not always tell a holistic story about the success of a hotel. For an example of this phenomenon, look no further than casino, golf or theme park-based resorts. In these instances, hotel rooms are nothing more than a vehicle to drive spending in other areas with higher profitability margins. This is not to say that the hotel room is an unimportant factor. However, the hotel room does not tell the full story. It is important to understand the driving factors behind a guest’s spending, and TRevPAR allows you to capitalize on this opportunity. While no two hotels are completely identical, this model allows for a greater level of standardization.
The RevPAR model is unquestionably a standard-bearer within the hospitality industry. For years, the model has defined the industry and allowed hotels to better understand how to price out rooms. As the industry evolves, incorporating the TRevPAR model into daily operations will help your company better understand core profit centers, maximize opportunities for growth and cater to the needs of your customers. With a cohesive database underpinning the property management system, POS at on-property venues like restaurants and sales and event management, hoteliers can seamlessly integrate data for a unified view of TrevPAR accounting for all hotel operations. By incorporating this analysis model of the future, you can feel secure in the knowledge that you have taken the first step necessary in hospitality innovation, and it is always more fun to be the disruptor.