How to Estimate Break-Even Occupancy Rate for Hotels?

How to Estimate Break-Even Occupancy Rate for Hotels?

Abhishek Saurabh
Abhishek Saurabh

Given that a hotel records an 8.3% YoY decrease in RevPAR, you must shift your focus on managing finance if you want 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.

But how can you calculate the break-even occupancy rate for hotels?

How to improve hotel break-even occupancy rate?

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

What is the Break-Even Occupancy Rate for Hotels?

Break-even occupancy rate is an approach linked with hotel revenue management. The break-even occupancy rate ensures that the total costs and revenue are the same.

The break-even occupancy rate is the lowest hotel occupancy rate you have to maintain to ensure you cover all operational costs.

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

Once you calculate the break-even occupancy rate, you can get detailed insights into the break-even point. Achieving your break-even 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 break-even point. The average break-even occupancy rate fluctuates because of variable factors like operating costs. 

The average operation break-even point was 37.3% in the United States, while in Europe the average BEP was 34.5%. It can vary, and you must look for your operational area to understand the local BEP for performance measuring.

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

How to Improve Your Break-Even Occupancy Rate?

You can follow different effective strategies to improve the break-even occupancy rate. The first step is to assess your fixed and variable costs. Ensure you keep the costs to the minimum to improve the break-even 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 adjusting pricing accordingly in the off-season. 

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

It can provide you the most optimal rate for 24/7, 365 days of the year, to cover your operational cost and bypass your revenue beyond the break-even 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 break-even occupancy rates. 

How to Calculate Your Break-Even Occupancy Rate?

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

The annual room availability is calculated using the hotel inventory and the days of operations. The formula is Annual Room Available = Hotel inventory * Day of operation.

And the break-even point in the room is calculated using the fixed costs and the contribution margin per room. The formula is BEP in room = Fixed costs / Contribution margin per room.

Once you get the two important metrics, you can calculate the break-even occupancy rate with finesse. The formula is Break-even Occupancy Rate = (BEP in room/ Annual Room Available)*100.

Once you get the break-even occupancy rate, it’s time you start with the break-even analysis. The analysis process is much more than calculating the break-even occupancy rate.

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

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

  • Determine the operational cost, including fixed and variable, by looking at your profit and loss statement for an entire year.
  • 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 the rooms available.
  • 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 break-even point analysis, you can balance the revenue and expenses and get a fair idea about the pricing. 

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

Revenue Management Services for Hotels

Once you get the break-even 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 a tailored revenue management solutions for hotels to ensure you unlock the true business potential and bypass the break-even occupancy rate to book great profits. 

Integrating a professional revenue management service 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 break-even 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 provided by AxisRoom offers 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 RM service to suit your hotel’s unique needs. You can decide whether you should exclude commission & taxes or how to benchmark your hotel against your competition. 

Being awarded the best revenue management system, you can use AxisRooms to ensure you implement the best strategies after calculating your break-even occupancy rate. The software can help you achieve your business goals and minimize your efforts.