Occupancy Rate

Occupancy rate is a vital performance metric in the hospitality industry, measuring the percentage of available rooms that are occupied over a specific period. It’s essential for understanding a hotel’s operational efficiency, gauging demand, and informing pricing and marketing strategies. High occupancy rates indicate strong demand and operational success, while lower rates may signal a need for strategic adjustments.

Key Takeaways

  • Performance Assessment Tool: Occupancy rate, a percentage of occupied rooms, is a key performance indicator (KPI) in the hotel industry, used to assess hotel performance and implement effective revenue management strategies.
  • Measure of Space Utilization: It indicates how much of the available space in a hotel is being used, highlighting operational efficiency. For instance, if a hotel with 100 rooms has 60 occupied, its occupancy rate is 60%.
  • Balanced Strategy Importance: While a high occupancy rate is desirable for efficient space utilization, it should be balanced with other metrics like ADR and RevPAR to maximize revenue.
  • Calculation Formula: The occupancy rate is calculated as the number of occupied rooms divided by the total number of available rooms.
  • Contextual Use: While a high occupancy rate indicates efficient space use, it’s crucial to view it alongside other metrics like ADR and RevPAR, as the ultimate goal is revenue maximization, not just high occupancy.

Introduction

Occupancy rate is a KPI used by those within the hotel industry to assess a hotel’s performance. As a metric, it is concerned with the percentage of a hotel occupied, and can be used alongside other KPIs, such as ADR (average daily rate) and RevPAR (revenue per available room), as part of a revenue management strategy.

What Does the Occupancy Rate Stand for?

In simple terms, occupancy rate refers to the number of occupied rental units at a given time, compared to the total number of available rental units. It is one of the most popular KPIs in the hotel industry for revenue management, highlighting how much of the available space in a hotel is being utilized.

The occupancy rate of a hotel is expressed as a percentage. So, for example, if a hotel has 100 rooms available to be sold and 100 of those rooms are occupied, the occupancy rate would be 100 percent. If the same hotel had 60 rooms occupied, the occupancy rate would be 60 percent.

How to Calculate Occupancy Rate

The occupancy rate KPI can be calculated with the following formula:

Occupancy Rate = Number of Occupied Rooms / Total Number of Available Rooms

Example: If your hotel has 220 rooms and 210 of the rooms are occupied:

210 / 220 = 0.95 = 95 percent occupancy rate

How to Use Occupancy Rate

Occupancy rate is often considered one of the top three most useful metrics for hotel owners carrying out a revenue management strategy, alongside average daily rate and revenue per available room. With that being said, it has some limitations as a KPI, so it is important to understand how to read it effectively.

Generally speaking, those working in the hotel industry should aim for a high occupancy rate, which indicates that space is being used efficiently. However, it should be used with other metrics, because the goal is to maximize revenue, not occupancy rate.

While a 100 percent occupancy rate is desirable, hotel owners may have to lower rates to achieve it. Therefore, there could be instances where hotels can make more money from an 80 percent occupancy rate than a 100 percent occupancy rate, if the 80 percent are paying higher prices. For this reason, the occupancy rate should always be viewed in context, alongside the average daily rate and revenue per available room.

More Revenue Management KPIs

KPI stands for Key Performance Indicator. With KPI, you can measure and identify areas of success and failure and trends related to demand and customer behavior. Besides Occupancy, other important Revenue Management KPIs are RevPARRevPOR, ADR, TRevPAR, NRevPAR, EBITDA, ARPA, and GOPPAR.

More Tips to Grow Your Business

Revfine.com is a knowledge platform for the hospitality & travel industry. Professionals use our insights, strategies and actionable tips to get inspired, optimise revenue, innovate processes and improve customer experience. You can find all hotel & hospitality tips in the categories Revenue Management, Marketing & Distribution, Hotel Operations, Staffing & Career, Technology and Software.

This article is written by:

Hi, I am Martijn Barten, founder of Revfine.com. I am specialized in optimizing revenue by combining revenue management with marketing strategies. I have over 15 years of experience developing, implementing, and managing revenue management and marketing strategies and processes for individual properties and multi-properties.