RevPAR Optimization: ADR vs Occupancy
Is it better to drop rate to fill the house, or hold rate and sacrifice occupancy? The math answers.
Revenue Management often devolves into a binary argument: drop the rate to fill the house, or hold the rate and accept lower occupancy. While both strategies have merits, the mathematical truth lies in calculating the exact RevPAR (Revenue Per Available Room) trade-off, factoring in the variable costs associated with occupied rooms.
The Cost of an Occupied Room (CPOR)
Driving occupancy through aggressive discounting is dangerous because it ignores CPOR. Every occupied room incurs costs: housekeeping labor, linen laundry, amenities, and utilities. If your CPOR is $35, dropping your ADR from $150 to $110 to gain 10 points of occupancy might increase top-line revenue, but it destroys GOPPAR (Gross Operating Profit Per Available Room).
The Rate Resistance Threshold
Conversely, holding rate too firmly in a soft market can lead to severe RevPAR degradation. Competitors who yield aggressively will capture the base business, leaving you reliant on unmaterialized transient demand.
Scenario Modeling
Our RevPAR Forecaster allows you to compare two distinct pricing strategies side-by-side. Input your proposed ADR and expected Occupancy for each scenario to instantly see which strategy yields the higher top-line RevPAR. For true profitability, always mentally subtract your CPOR from the ADR before running the scenario.