If you run a hotel, it is crucial to make the success of your business measurable. Although there are many different performance indicators (metrics) to measure your hotel's success, the occupancy rate is seen as the essential factor for determining your financial health. What does it mean, and how do you calculate it for your hotel?
What is the occupancy rate?
The occupancy rate tells you the percentage of hotel rooms that have been occupied throughout the year or a specific period. This is an important indicator for you to determine your business's growth and, for example, staffing levels during peak periods. In the example below, we use the average per year. If you would like to know what the occupancy over a specific period is, you can do so with the same calculation compared to that period in the previous year.
How to calculate the occupancy rate
You can easily determine the occupancy rate with the following calculation:
(Total number of occupied rooms / Total number of available rooms) × 100
If you make this calculation over a whole year, you are looking at the number of rooms occupied each night for 365 days. The number of persons or the length of stay is not relevant here. For example, your hotel has 70 rooms. The date you are looking at had 48 rooms sold.
(Total number of occupied rooms = 48 / Total number of available rooms = 70) × 100
Your Occupancy rate is 68.57%
Should you want to compare specific periods, then calculate for the same period in different years.
What is a good occupancy rate?
A good or bad occupancy rate depends very much on the characteristics of your hotel. Examples of elements that influence this are your location, your fixed costs, or if you're a seasonal hotel. In 2019, the average occupancy rate of hotels in the Netherlands was 78.2% higher than ever, but the average for 2020 will be lower with the corona crisis. Ultimately, it's all about how you interpret the figures and what conclusions you can draw from them to improve your business.
How do you interpret the occupancy rate?
The occupancy rate only tells you what percentage of the space you use, but what should you do with that? If it varies enormously from time to time, it is important to find out what factors have influenced it. For example, if you have a very high occupancy rate in a certain period, it may be an idea to raise your prices. On the other hand, if it is lower in a certain period, that does not necessarily mean that you must lower your prices. Perhaps you can offer more (seasonal) deals or promote local businesses or event where you can add value to the stay. Also, take a good look at what your closest competitors are doing.
Calculating the occupancy rate of your hotel is important, but not sacred. To calculate your hotel's success correctly, you should also look at the revenue per available room (RevPAR) or the average length of stay (ALOS). Would you like a clear overview of the most important calculations for your hotel? Download our useful infographic!
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