Well, this question is quite common among hoteliers and concerns most parts of the vacation rental industry. When it comes to your hotel’s occupancy percentage, every property manager is well aware that this is one of the basic elements that can optimize your revenue. But, why is it so important?
In general, occupancy rates are crucial to business owners since they can indicate whether a facility is successful or not. If a hotel continuously has poor occupancy rates, for example, it could indicate that the property has serious issues and therefore can not attract the desired public.
The occupancy rate can also be used to assess how successful a facility is in comparison to its competitors, as well as how changes in pricing or marketing methods affect its bottom line.
The Occupancy Rate in the Hospitality Sector
The occupancy rate indicates how many of your available rooms have been booked. And, this figure is proportional to the amount of money you make.
It’s simple math: the more room nights you sell, the more money you make. Isn’t it true that the more money you make, the better?
However, keep in mind that this is only true provided you don’t sacrifice your average daily rate (ADR) in order to increase occupancy. To maximize revenue per available room, you should always strike a balance between the two (RevPAR).
Also, bear in mind that the percentage of time that your property is occupied determines how much money you make. It is one of the hospitality providers’ Key Performance Indicators (KPIs). You can use it to determine how well your business is functioning when combined with the Average Daily Rate (ADR) and Revenue per Available Room (RevPAR).
What Exactly is the Occupancy Rate?
Basically, the occupancy rate of a hotel is the proportion of rented space to total space available. Apart from hotels and hospitality facilities the occupancy rate is also used for hospitals, apartments, real estate businesses, and assisted living facilities to describe the percentage of available units.
For example, if you reside in a 300-unit apartment complex and 250 of those units are rented, your complex is 90% occupied. That means that 90% of the units offered for rent are already rented.
Typically, a real estate agent will buy a number of different lodging units and will keep a portfolio of them. The primary goal of such apartments is to generate rental income. As a result, such investors strive to determine occupancy to measure the profitability of their real estate portfolio.
Why is the Occupancy Rate Important to Hoteliers?
Let’s now explain why your hotel’s occupancy rate is important. When it comes to a decent hotel occupancy rate, the logical response is 100 percent.
Of course, any hotelier would like their establishment to be entirely full every night. However, maintaining a 100% occupancy rate may not be the best profitable strategy for your hotel.
The ideal occupancy rate for many hotels is between 70% and 95%, while the sweet spot varies depending on the number of rooms, location, style of the hotel, target customers, and other factors.
If you’ve booked every room, you may have missed out on revenue by not selling higher rates, and your costs may rise as a result. Your hotel’s ideal occupancy rate is one that allows you to maximize income while lowering expenditures.
Generally, when it comes to finding the optimal occupancy rates for your hotel, there are no hard and fast rules. What works well for one hotel may not work well for another. And the other way around. Experimenting to figure out what works best in your specific situation is a good place to start.
How to Calculate the Occupancy Rate
The most generally used operating ratio in the hotel front office is occupancy percentage, which reflects the proportion of sold or occupied rooms to the total number of rooms available for the given day or term.
Calculating occupancy rates isn’t difficult. It all starts with two digits that most property owners or managers already have. These two figures are then used to calculate the occupancy rate percentage. This is how the formula looks:
(Number of Rooms Occupied) / (Total Number of Rooms Available for Sale) * 100 = Occupancy Percentage
The number of rooms occupied and the number of rooms sold (Rooms Sold = Occupied rooms – Complimentary and House use) are the two most common methods for calculating hotel occupancy percentages.
Isn’t that simple? When you divide the number of units being rented by the total number of units available, you get a decimal number. You can find the percentage by moving the decimal point two places to the right, which is your occupancy rate percentage.
You can check the online hotel occupancy calculator right here:
Is the Occupancy Rate Enough for a Hotel to Make Profit?
Well, the short answer is no. As a matter of fact, hotel salesmen were given a set of goals to accomplish two decades ago, depending on the overall number of rooms they needed to sell. They were rewarded with a bonus if they reached their goals. These bonuses were determined by how far they exceeded their booking targets, which were expressed as a percentage of rooms filled.
But, now things have changed and since the early 1990s, hotels have been focusing their efforts on a metric known as RevPAR, rather than occupancy rates.
The term “revenue per available room,” or “RevPAR,” refers to the amount of money made per available room. You can calculate this by multiplying the actual room revenue by the number of available rooms.
ADR, which stands for an average daily rate, is another crucial figure to consider. The average daily rate (ADR) is computed by dividing the revenue per room by the number of rooms sold.
For instance, if the hotel earned $5,500 in room income for a night and sold 50 rooms, the average pricing per room was $110.
Because every hotel is in business to generate a profit, focusing solely on occupancy rates is insufficient. For more details, you can read this article in Hotstats that explains at which point of occupancy rate can a hotel break even.
In other words, anyone may achieve 100% occupancy by merely reducing prices in today’s overdeveloped distribution channels. As a result, it’s critical to consider the occupancy rate in conjunction with any revenue-related indicators.
Ways to Increase your Occupancy Percentage
There are many ways to increase your occupancy rates. For example, special offers and packages, revenue strategies, length of stay restrictions, advertising campaigns, and other marketing activities are all common approaches to increase your occupancy rate but also your profit and popularity.
In general, lower rates may entice more visitors. This frequently occurs at the expense of profitability, so proceed with caution. Once the public has been accustomed to reduced rates, it can be difficult to restore them. Lowering the charges may also attract a different type of customer than the one you want.
In addition, discounts and promotions can be quite beneficial, especially when utilized to boost occupancy during low seasons.
Another great incentive to increase your occupancy percentages, as well as your popularity, is partnering with online travel agencies and other ancillary services.
By incorporating supplementary services into your guest experience, you’ll be able to get the most out of every stay. These services won’t just help you generate more cash, but will also significantly improve the client experience.
Providing a variety of supplementary services will help you attract more guests to your hotel. Their functions might range from airport transfers to bicycle rentals and tours, as well as city or outdoor activities.
So, look for ways to form connections with local businesses and operators in order to get discounts for your guests and a commission for yourself.
Higher occupancy means more guests in your hotel, which means higher income potential at your F&B, spa, shops, and activities, as well as a greater possibility to raise brand awareness and increase your guests’ loyalty. Therefore, it’s crucial not to focus only on filling your rooms, especially when modifying pricing and generating bundles. This can lower your hotel’s total profitability, attract the wrong target clientele, and destabilize your market position. It can also be difficult to recover from rash rate cuts. If you don’t add value in another way, clients may not want to return when you charge increased fees.
Establishing and sticking to a solid revenue strategy without erratic pricing changes would be a better way to drive constant occupancy. You can read more about ameliorating your revenue strategy during the pandemic in this article published by Lybra hospitality technology company.
Long-term success can also be achieved by focusing on boosting guest contentment and encouraging them to submit positive evaluations. A solid reputation allows you to charge greater prices, which is beneficial for your financial line, in addition to encouraging more people to book with you.
Monetize Empty Retail Space with Stasher
There’s no denying that Covid lockdowns have wreaked havoc on the tourism sector. Unprecedented numbers of travel-related and hospitality businesses have permanently closed their doors.
Some innovative businesses, on the other hand, have effectively shifted their offerings to keep their doors open. These astute hotels have identified a new source of revenue that they can count on long after things have returned to normal. What’s more, they didn’t have to spend any money upfront.
As a matter of fact, luggage storage can be an annoyance for both Property Managers and guests. Allowing your visitors to keep their bags before or after their stay allows them to get the most out of their visit while also assisting you in managing early arrivals, late check-ins, and the accompanying turnover headaches.
Stasher is a luggage storage company with more than 2500 StashPoint locations worldwide. Stasher’s network is still growing, with various secure storage facilities in major cities around the world, many of which are hotels.
Note that Stasher has facilities in over 250 cities worldwide and pays a percentage for every booking you make.
What Your Hotel can Gain by Partnering with Stasher
Hoteliers and property managers with foresight are converting unused space into secure luggage storage facilities that will earn semi-passive income even after the pandemic is over.
For businesses in the hospitality industry, monetizing vacant space has always been a challenge. So, some hotels have taken advantage of their low occupancy and partnered with Stasher in order to increase their hotels’ profitability, especially as the travel market steadily improves.
Apart from increasing your profit and popularity, you can also enrich your hotel’s services. Note that regardless of size or weight, Stasher charges the same price per item.
Meaning that travelers with large suitcases, musical instruments, or athletic equipment would appreciate having secure storage alternatives for their valued items. Moreover, many of Stasher’s storage locations are open late or provide 24-hour service as an added bonus which you can also use for your hotel.
In general, Stasher is a worldwide luggage storage network that you can use in order to monetize your underutilized space while also assisting you in upselling other services your hotel may offer.
Becoming a host for Stasher can be done online in less than 2 minutes and you gain a win-win situation for all parties involved. Lastly, keep in mind that just 20 square feet of unoccupied space can generate up to $20k in additional cash for your company!
Find out more information right here!