In order for a hotel to determine its performance level and overall success, it can calculate various results from Key Performance Indicators or KPIs. One of the KPIs that hotels can utilize is occupancy rate; simply put, the number of rooms that are in use during a given day or time period divided by the total number of rooms. Success is measured in many different ways in the hotel industry, but occupancy rate is one of the most important factors in managing a hotel.
In this article, we will explore occupancy rate in more detail as well as discuss potential avenues to improve it, such as pattern forecasting and personalized marketing. While a 100% occupancy rate is something to shoot for, there are ways that rates less than 100% will still provide the same or more revenue. We’ll provide some ways to increase your rate and ultimately, increase your profit.
Importance of Occupancy Rate to Real Estate Investors
Since occupancy rate show expected cash flows, these figures are crucial to real estate investors. A commercial property investor seeking to purchase a supermarket or shopping center is probably not interested in one with a 25% occupancy rate, which indicates that tenants occupied just 25% of the mall's available stores and restaurant space.
An investor who purchases a building with a low occupancy rate must commit time and money to locate more tenants, risking not filling the vacancies while still being responsible for maintenance expenses and property taxes.
Apartment complexes, shopping centers, and other establishments with low occupancy rates sometimes sell for less than equivalent assets with high occupancy rates as a result.
A low occupancy rate may often signal something wrong with the retail mall, including its location or facilities. In other instances, low occupancy rates might be a sign of bad management by the facility's current owners or an unfavorable location.
In other situations, a realtor could check the hotel and other facility occupancy rates close to a property they're thinking about purchasing. These figures may provide information about the local economy.
For instance, if an investor is considering purchasing a restaurant, they may attempt to learn the hotel occupancy rates in the area as such figures impact the possible customer base.
Key Performance Indicators
KPIs are mostly used by hotels for revenue management: is a hotel bringing in enough revenue to cover its own costs and produce an extra profit? Is the property value going up or down? Should a hotel adjust the price of each room as a response to KPIs?
Other KPIs include RevPAR (revenue per available room), ADR (average daily rate), and ARR (average room rate). In order to determine a hotel’s performance, all of these KPIs need to be taken into consideration. However, in order to fully understand the numbers and percentages that come out of these KPIs, you have to consider the context, season, or situations that occurred with these datasets.
For example, even though an occupancy rate may be lower, the RevPAR may be higher; without looking at the surrounding data, it can be confusing to have these rates next to each other. There are multiple factors to take into account along with KPIs.
Example of Occupancy Rates
Examining patterns in an assisted living, hospital, or senior living facility expansion for example may be done using the home bed occupancy rates. These institutions regulate their occupancy rates to prevent congestion.
They often keep track of the occupancy rates in certain departments as well to analyze demand and growth. Governments and groups also use aggregate data on hospital occupancy rates to design public health campaigns.
Occupancy Rate Calculator
As mentioned before, you can determine occupancy rate by taking the number of rooms occupied and dividing it by the total number of rooms in the hotel. For example, if you have 115 rooms and 85 of them are occupied in one night, that day’s occupancy rate is about 74%.
Occupancy Rate Formula (Sec. Keyword)
0.739 (x100) → 74%
Of course, this is only taking into account the occupancy rate on one day/night. You can calculate the rate over a week, month, or even a year. As such, it gets a little more complicated as you increase the number of days for the occupancy rate, which is why there are online calculators that hotels can use in order to generate these numbers. Our PMS can automatically calculate this for you, leaving the mathematics to someone else and saving you time.
What is a Good Occupancy Rate for Hotels? (FAQ)
The logical conclusion is that 100% is a desirable hotel occupancy rate. Of course, you would assume that every hotelier wishes to have a fully booked hotel every night. However, operating your hotel at 100% occupancy may not be the most lucrative course of action. According to Hotel Tech Report , an optimal occupancy rate for many hotels is between 70% and 95%, while the sweet spot varies depending on factors like the number of rooms, location, hotel type, target market, and more.
When every room is booked, your expenditures may rise, and you may have missed out on extra revenue by not charging higher prices. Your hotel should have an optimal occupancy rate that enables you to maximize profits and save expenditures. Additionally, luxury hotels will strive to provide each client with great service, a job that becomes more challenging as the number of visitors increases.
How to Improve Your Occupancy Rate
You may notice that your occupancy rate is at its highest on the weekends and lowest on the weekdays.
This is normal, as guests are more likely to vacation or travel during the weekend. However, if you are looking to balance out these rates or make them as close as possible, there are some options to consider.
Take a look at the patterns that formed in the past year or so. Do you see any trends that you can take advantage of? Are there any local or regional events, such as sports, holidays, or shows, that increased your revenue or occupancy rate?
Paying attention to local and regional happenings is a huge part of improving your occupancy. Particularly in college towns, gamedays, parent weekends, and holidays are incredibly important to note and market towards.
Even small-town hotels can take advantage of local events such as antique shows, Christmas markets, and festivals to increase their occupancy. If you are already aware of these events, you can customize your marketing to specifically target individuals who may come to them. See if you can partner with any of the other local businesses in the area; you may be able to increase awareness or even work out some discounts that could benefit all businesses.
Make sure to take note of your price per room while you calculate your occupancy rate. It’s possible that you made more money one week with 70% occupancy rather than 100%, simply because the rate per room changed between those two weeks. That being said, remember to take into account other data in order to make sense of your KPIs as a whole.
Of course, you can utilize email marketing campaigns on a more regional or national scale if you are able. If you have an email marketing system that can handle it, you can determine what rates may work best at certain times and maximize your occupancy rates. Whatever the case, increasing awareness and finding the right price for your rooms at the right time are two major factors in improving your occupancy rates.
Relationship Between Occupancy Rate and RevPAR?
A measure called RevPAR (Revenue Per Available Room) considers both occupancy rate and Average Daily Rate (ADR).
Like a weighted form of ADR, RevPAR distributes the ADR evenly across all open rooms, not just reserved ones. RevPAR is used as a performance statistic to evaluate a hotel's performance, much like the occupancy rate. Like ADR, RevPAR is represented in monetary units.
ADR and occupancy rate are multiplied to produce RevPAR. The average daily rate (ADR) is only the cost of a room reserved for a certain day or time.
An excellent way to compare a hotel to its rivals and its own historical statistics is to look at its occupancy rates.
Knowing how your hotel is doing compared to other hotels in the market and in past years may help you plan upgrades or maintenance, establish pricing, anticipate guest behavior, and schedule personnel.
Based on your previous statistics, if you anticipate a certain weekend will have a high occupancy rate, you may prepare extra employees and avoid scheduling a refurbishment during such times.
Among many other metrics, the best way to contribute to a high or improved occupancy rate is through proper management. An effective way of managing your property is by automating your tasks. This can be done by utilizing a property management system ( PMS) that will make your operations more accurate, easier, and faster.
Booking Ninjas offers:
- An all-in-one solution, all on one single platform, saving you a lot of time so you can focus on revenue generation.
- Cloud-based means you can access the system and data anywhere and everywhere.
- You save time, effort, and headaches because the system is easy to learn, use and control.
- Your unique needs are seen to with our customization and personalization options.
To learn more about who we are and what we do, schedule a free call with us right now!