How do you become truly profitable as a short-term rental host or property manager? Most property managers and hosts are familiar with key metrics such as occupancy, RevPAR, and average daily rate (ADR). These metrics are incredibly important, but don't present the full picture when determining profitability for your vacation rental business.
For example, you could have very high ADRs but low occupancy, meaning that revenue suffers. Alternatively, you could achieve very high occupancy, but if your ADR is low, you’re leaving money on the table. This is where RevPAN (revenue per available night) comes in.
How Property Managers Can Measure Profitability
Total revenue is incredibly important as you aim to earn a return on your investment. However, total revenue does not account for things out of your control, like owner stays or maintenance blocks.
For example, let’s say that last August you had 31 nights available to rent, but this August the owner has decided to stay in the property for 14 days. This August’s revenue will probably decrease compared to last August, even if you have a more effective pricing strategy.
Hotels have understood these dynamics for decades, and as a result, have measured not just ADR, occupancy, and revenue, but also revenue by room on a relative basis, or, Revenue per Available Room (RevPAR).
That’s why we’re highlighting RevPAR’s short-term rental equivalent, Revenue per Available Night (RevPAN), as an important benchmark for short term rental property managers and owners to get to know.
What is RevPAN?
RevPAN stands for Revenue per Available Night and is calculated using data that's familiar to every property manager or owner, but it may be hard to use on a regular basis without a proper revenue management system. RevPAN is calculated for a date range, but typically for a month or year at a property listing or portfolio-wide level.
RevPAN = Total Revenue / Available Nights
RevPAN = (400 + 400 + 400) total revenue / 5 available nights = $240 RevPAN
What Are Available Nights?
Available nights are defined as nights that can actually be sold for a property compared to unavailable nights. Unavailable nights are most commonly represented by owner stays or owner blocks at a property, where the property cannot be sold because it's being occupied by the property owner rather than a paying guest. Other examples of unavailable nights may include maintenance, cleaning, or renovation taking place at the property.
Important Definitions
Revenue: total revenue produced by listing or portfolio for the specified date range
Available Nights: property nights that were available to sell and not blocked by owners or otherwise unavailable to be booked by guests
At Beyond, we calculate available nights by taking the total nights in a date range and subtracting the amount of nights that the listing is unable to sell due to the fact that it's unavailable. This allows us to fairly and equally calculate revenue performance over actual bookable nights.
In other words, this allows us to calculate revenue performance over the nights within your control. It would not be a fair comparison to look at revenue over a period of 31 days where 14 of those days were blocked for an owner's stay, as we explained in the example above. RevPAN helps account for this issue across all dates.
Why Is RevPAN Important?
When compared to other metrics like occupancy and ADR, RevPAN shows a more accurate and equal picture of revenue management performance over a given period of time. With available nights as the common denominator for RevPAN, the metric can be compared to historical date ranges and factors in how many actual nights could have been sold at a property.
RevPAN can help solve a number of issues, including the fact that revenue management success should not be dictated by something that is out of the property manager’s control like owner stays or maintenance blocks at a property.
RevPAN is the best metric to use for evaluating the overall success of a revenue management strategy.
Another benefit of using RevPAN is that it can help easily demonstrate the opportunity cost of owner stays or maintenance blocks that can have a substantial impact on performance. RevPAN is also a fantastic indicator of profitability, since it’s able to clearly communicate whether or not a property is effectively selling all bookable nights when compared to operational costs.
Stay tuned for part 2 where we will be sharing real-life examples of how to gain actionable insights from the RevPAN metric.
For a more detailed look at RevPAN for your properties, check out our Insights tool today.
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