Pearson New International Edition International pcl tp indd 1

FIGURE 13
RevPar index evaluation.
Hotel
Occupancy Percentage
ADR
RevPar
RevPar index
Altoona
75%
$100.00
$75.00
98.40
Competitive Set
74%
$103.00
$76.22
101.63
FIGURE 14
RevPar index comparison.
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Altoona’s revenue manager is told by the hotel’s owners that the FOM and the rev-
enue manager will each receive a $1,000 bonus anytime the hotel’s monthly RevPar
index exceeds 100. The following month, a potential client approaches the FOM to
request the purchase of 75 rooms per week (a total of 300 during the month) at a
price of only $40 per night. If the sale is made and, if there are no other changes in
either the Altoona’s sales or those of its competitors, the following month’s RevPar
index would that shown in Figure 15.
Note that the Altoona hotel’s occupancy percentage increases (because of the 300
extra rooms that were sold) while its ADR declines (the effect of 300 rooms sold at
$40 per night). The result is a $1.33 increase in RevPar (from $75.00 to $76.33). The
revenue manager and the FOM would have achieved their bonuses (RevPar index 
100.01), but the hotel may actually have suffered because of the sale. Why?
Remember that each time a room is sold, the hotel incurs costs to clean the room.
Some would argue that any revenue above the direct costs (e.g., housekeeping labor
costs for cleaning and providing guestroom supplies) for renting a room should be
considered positive and, therefore, of benefit to the hotel’s bottom line. Others would
point out that excessive wear and tear on rooms when minimal incremental revenue
is achieved actually damages the hotel in the long run. If, in this example, it cost $35
in direct expenses to clean a room, the hotel would have achieved $1,500 in incre-
mental income from the sale (300 rooms 
×
[$40 
$35]). This amount is actually
insufficient to fund the $2,000 bonuses to be paid by the hotel’s owners!
Those who advocate GoPar as the best measure of sales effectiveness will also be
concerned about a sales department that spends $1,000 to advertise rooms and gener-
ates less than $1,000 in additional room revenues. In this case, RevPar will increase, and
the hotel’s sales department may look better when it is measured solely by RevPar. The
hotel’s profitability, however, will certainly suffer. The difficulty in these cases, is not that
RevPar is a poor form of measurement. Rather, RevPar should not be the only measure-
ment of a revenue manager’s effectiveness (nor should GoPar). General managers, own-
ers, and others should look to RevPar and its index as well as other measures of efficiency
(including GoPar) when evaluating the entire hotel’s sales and marketing efforts.