The occupancy rate is a KPI commonly used within management in the hotel industry to assess the performance of a hotel. Calculates the percentage of a hotel that is occupied, but it also has many nuances since it is a broader concept than it seems, since it can be related to other metrics.
If you are entering the hotel industry, you are surely wondering what the occupancy rate is and why it is important for hotels? Let’s go over what exactly occupancy rate represents, how to calculate it, and why it’s a crucial part of hotel performance measurement.
What is the occupancy rate?
The occupancy rate calculates the percentage of a hotel that is occupied and is especially useful when used in conjunction with other metrics such as ADR (average daily rate) and RevPAR (revenue per available room) as part of a revenue management strategy.
It refers to the number of rooms occupied at a given time compared to the total number of rooms available at that time. It is one of the most popular KPIs in the hotel industry for revenue management, which allows us to know what percentage of the available space in a hotel is being used.
The occupancy rate of a hotel is expressed as a percentage. Let’s see it with an example, if a hotel has 100 rooms available for sale and 100 of those rooms are occupied, the occupancy rate would be 100 percent. If the same hotel had 35 occupied rooms, the occupancy rate would be 35 percent.
How to calculate occupancy rate
It is important to constantly measure the occupancy rate of a hotel, since it is a key KPI to evaluate and improve profitability at all times. A low occupancy rate has a negative impact on financial health, so knowing how to calculate and use this indicator is essential.
If you want to know how to calculate occupancy rate, here is the formula:
Occupancy rate = Number of occupied rooms / total number of rooms x 100
Example: If a hotel has 310 rooms and 275 of the rooms are occupied:
275/310 = 0,88
0.88x 100= 88% occupancy rate
The importance of occupancy index
Having a low occupancy rate does not mean that the hotel is going under. Although, without a doubt, it is cause for concern. Therefore, it is necessary to know what your occupancy rate is in order to be able to make the necessary changes and incorporate them into your strategy before it is a real detriment to your accommodation.
The occupancy rate measures success in terms of reservations and allows you to compare data to identify trends, know your high and low seasons well, your average stay, the impact of the environment (events or festivities) on the number of reservations, adjust pricing policies flexible and better focus your marketing strategies.
If you have a low occupancy rate, you may need to adjust your pricing and marketing strategy or cut costs to increase your profits.
Obviously, you should always aim for a high occupancy rate, because this indicates that the space is being used efficiently. However, this metric should be used in conjunction with other KPIs, as the goal is still to increase revenue, not occupancy rate. For example, rates may have to be raised to make up for the lack of occupancy.
What is a good occupancy rate for a hotel?
As we have already seen, a good occupancy rate is not the highest, but the one that maximizes income. There are no written rules about what is a correct occupancy rate, it depends on the hotel, what is good for one is not for another.
The important thing is to use this metric by comparing it with other KPIs to get the information you need to improve your profits. And if you want to have guiding data, do a quick check at the occupancy rate in your locality.