Break Even Occupancy Rate: Formula & Percentage Calculation

A hotel must focus on managing finances to handle daily hotel room rates, grow, expand, and reopen for the new season.

You must understand how much your rooms cost to balance the revenue and expenses and ensure your operation remains profitable.

Focus on performing a break-even analysis for your hotel rooms, calculate the break-even occupancy rate to achieve your desired business goals, and streamline your hotel revenue management.

Let’s dive deep into understanding the nitty-gritty aspects of the concept.

How to Estimate Breakeven Occupancy Rate for Hotels?

To manage daily room rates in the hotel, drive growth and prepare for a new season, hotels must focus towards managing their finances. Understanding the cost structure of your rooms to balance revenue with expenses and ensuring operations remain profitable. Conducting a breakeven analysis will provide insights into the minimum occupancy rate required to cover costs and achieve business objectives. 

Breakeven occupancy rate calculations help hotels align their pricing strategies with their financial goals. They streamline their revenue management processes and enhance overall profitability. 

When hoteliers are aware of the precise costs of running their hotels, they can make informed decisions and maintain profitability. 

What is the Break Even Occupancy Rate for Hotels?

The breakeven occupancy rate is an approach to hotel revenue management that ensures the same total costs and revenue.

The breakeven occupancy rate is the lowest hotel occupancy rate you must maintain to cover all operational costs. 

If your property has a good percentage of occupied rooms at any given time, you can cover your operational expenses and book decent profits to achieve the desired business results. 

Once you know how to breakeven occupancy rate, you can get detailed insights into the breakeven point. Achieving your breakeven point can ensure that every future sale will generate 100% profits for your hotel.

To assess your hotel’s performance, you can compare your results with the industry standard breakeven point. The average breakeven occupancy rate fluctuates because of variable factors like operating costs. 

The average operation breakeven point (BEP) in the United States was 37.3%, while in Europe, it was 34.5%. BEPs can vary, and you must look for your operational area to understand the local BEP for performance measurement.

If your BEP is lower than average, you can focus on improving the breakeven point to unlock your desired hotel business potential. 

How to Improve Your Breakeven Occupancy Rate? 

You can follow different strategies to improve the breakeven occupancy rate. The first step is to assess your fixed and variable costs. Ensure you keep the costs to the minimum to improve the breakeven occupancy rates.

Once done, here’s what you can do:

• Stay on top of supplier payments.
• Avoid high salary costs.
• Minimize room expenses without upsetting the guest experience. 
• Bring the contracts to an operational minimum. 

Focus on increasing the sales volume during the season and automate pricing adjustments accordingly in the off-season. 

Using professional revenue management solutions provided by AxisRooms, you can also achieve dynamic pricing based on season, demand, day of the week, competition, and more. 

It can provide you with the most optimal rate 24/7, 365 days a year, to cover your operational costs and bypass your revenue beyond the breakeven point.

The last important strategy is to sell services and rooms with a higher contribution margin. Use different reliable solutions to generate a new stream of ancillary revenue. 

You can make your guests buy pre-arrival room upgrades and different ancillaries for improved breakeven occupancy rates. 

How to Calculate Your Breakeven Occupancy Rate?

Calculating the breakeven occupancy rate for hotels is straightforward. You must establish two metrics beforehand: annual room availability and the breakeven point in the room.

Annual Room Available Formula

The annual room availability is calculated using the hotel inventory and the days of operations. 

Break Even Point in Room Formula

The breakeven point in the room is calculated using the fixed costs and the contribution margin per room. 

Break Even Occupancy Rate Formula

When you have the two important metrics, you can easily calculate the breakeven occupancy rate. 

Once you get the breakeven occupancy rate for a hotel, it’s time you start with the breakeven analysis. The analysis process is much more than calculating the breakeven occupancy rate.

The process is based on cost, volume, and profit. Cost implies fixed costs, like salary expenses, and various variable costs.

The profits imply your hotel’s bottom line, and the volume implies sales volume fluctuations. Here are three factors you should follow:

• Look at your profit and loss statement for the entire year to determine the operational costs, including fixed and variable.
• Calculate the annual room available to analyze the inventory. You should multiply the number of rooms by the number of operational days and average room price by dividing total room revenue by available rooms.
• Estimate the contribution margin per room, as every room has variable costs. You can calculate it by dividing the total annual variable costs by the total number of rooms sold. You must also subtract the variable cost per room from the selling price per room.

Using the breakeven point analysis, you can balance the revenue and expenses and get a fair idea of pricing. 

However, you would require additional hotel revenue management services to increase the efficiency of business pricing and streamline your business success. 

Revenue Management System for Hotels

Once you get the breakeven occupancy rate for hotels and know the limited requirements to ensure profitable business operations, you must price your hotel rooms effectively and manage your revenue flow with finesse. 

You can rely on tailored revenue management solutions for hotels to ensure you unlock the true business potential and bypass the breakeven occupancy rate to book great profits. 

Integrating a professional revenue management service or software provided by AxisRooms can help you access:

Powerful dashboard

You can track your hotel’s performance on KPIs like ADR, revenue, occupancy, and RevPAR with detailed insights to ensure you can optimize your hotel operations based on accurate and reliable details.

Detailed industry insights

You can access the featured rate shopper with benefits like comparing your rates with the competition, understanding your hotel’s online rate parity and where your hotel stands with the ranking.

Effective room pricing

You can set up BAR pricing to optimize just one price and achieve dynamic pricing like airlines using booking window, season, and competition to ensure your business revenues can increase and bypass the breakeven point. 

Optimizer

The revenue management as a service & system can help you optimize your rate 24/7 and get notified of automatic price updates. The flexibility to override pricing recommendations enables you to keep control of your hotel pricing and access different communication channels and OTAs.

Powerful reporting

Revenue Management service & software provided by AxisRoom allows you to leverage the detailed reports provided by the system that deliver detailed breakups with comparison against historical data. It can help you gauge your hotel’s performance and ensure you increase your business efficiency, and unlock your true business potential.

Effective configuration

Customize the Revenue management service to suit your hotel’s unique needs. You can decide whether to exclude commission and taxes or how to benchmark your hotel against your competition. 

AxisRooms, named the best revenue management system, can help you use the right strategies after calculating your breakeven occupancy rate. It makes it easier to reach your business goals and reduces your workload. 

Read Also: Maximizing Hotel Occupancy in 2024: Proven Strategies