Hotel occupancy rates are one of the biggest concerns for hoteliers because it equates to revenue. What constitutes a ‘good’ percentage rate will depend on the type of hotel, the location and the guest experience, but it can be assumed that the higher the rate, the better it is for the hotel.
Hoteliers can increase this rate through promotions and events, by targeting the right markets, but above all the most important strategy is to ensure a stellar guest experience with a fair quality-price ratio.
In this article we’ll look in more detail at what hotel occupancy rate is, why it’s important in hotels, how to calculate the ideal rate, and how to increase your hotel’s occupancy rate.
What is hotel occupancy rate?
Hotel occupancy rate is the percentage of occupied rooms at any given time compared to the total number of available rooms at that time. You can examine this figure by day, week, month or yearly, and the percentage will depend a lot on the length and period of time. Of course, a random week in February won't have the same number of rooms being occupied as a random week in peak July, which could be at nearly 100%.
To put it simply, the rate is expressed as a percentage. So essentially if a hotel has 50 rooms and 50 of those rooms are occupied, the rate would be 100%, whereas if only 25 of those rooms were occupied, the rate would be 50%.
Why is occupancy rate important in hotels?
Occupancy rate in hotels is an important KPI for hotel revenue management in order to understand how many of the available rooms are actually being used. Furthemore, knowing this number can help you better understand important information about your hotel.
If the number is not what you would like it to be, you may have to readdress potential problems or think of creative ways to generate more bookings. In an ideal world, hotels would have as high of a rate as possible, as continually as possible.
This is often considered to be one of the most useful metrics for hotel owners, together with daily rate and revenue per available room. Hoteliers should aim for high occupancy rates in order to get the most out of their structure and optimize revenue.
How to calculate occupancy rate
In order to calculate hotel occupancy rate, the first step is knowing how many rooms you have and how many of them are actually filled. All you need to do is divide the number of rooms that are booked by the total rooms at your property.
For example, say you have 200 rooms and 150 of them are occupied, then you would have 75% occupancy. You can calculate this number for different days of the week, times of the year, or weekends to understand which periods you might need to run extra promotions.
In order to calculate the average rate per week, you would need to add the number of rooms that were filled every night, divide by 7 days and divide this result by the number of rooms you have.
Using the same example above, if you had 150 rooms occupied for 7 nights then you would have an average weekly rate of 75%. Of course it will differ from week to week because no week is the same, but at least you have a general idea of how to calculate this average and you can use this information to better understand how this percentage fluctuates during different time periods.
The average global hotel occupancy rates between 2014 and 2019 varied within a two percentage point range of 64.1% to 66.1% globally with seasonal fluctuations, and peaking in 2018 with growth in almost all major countries. In 2019, the rate was at 72.2% in Europe.
How to increase your hotel’s occupancy rate
Increasing the number of rooms that are filled is one of the main concerns of hotel revenue managers. So let’s look in detail at different strategies you can implement.
Create promotions and packages
Promotions and packages are a key way to invite guests to book while at the same time masking the actual room rates. The important thing about creating promotions is to make sure the room price is still high enough so that you can still make money and at the same time sell more rooms.
Packages can include a meal at the hotel’s restaurant, a spa treatment, a one-day excursion, or an experience. Since the room price is hidden within the package, guests get the sense that they are saving money by booking a room and an experience for one unique price. It’s a win-win situation as long as you get the prices right.
Know your target audience
The corporate segment is a good target to fill rooms during the week when there tends to be fewer rooms filled. By working with business clients coming from elsewhere, you are bound to boost mid-week sales. Furthermore, corporate clients tend to be repeat clients, because they often have to return to the same locations throughout the year for meetings.
Not only corporate travelers, but also baby boomers are a good target to boost mid-week sales. As baby boomers are now retired, they are no longer restricted to traveling on weekends and in fact, they often choose to travel off-season. Finding the right target for the right period of time is key to increasing occupancy.
Special events
Cultural events are another good strategy to increase your occupancy rate. Work with local event organizers to offer your accommodation to people participating and organizing the event or concert. Seek out the organizers and come up with a deal for them if they book a block of rooms.
If you know that there is a popular music festival coming to your city, start marketing to repeat clients to remind them or give them a discount if they stay at your hotel and book to stay again for the cultural event.
Not only can cultural events help spike bookings, but weddings are also a great way to raise the percentage of filled rooms. Out of town guests will most likely choose to stay at the event location, and will most likely stay at least two nights (arriving the day before the wedding and staying the night of the wedding). You can even offer special rates for mid-week weddings from Sunday-Thursday.
Seek out local partners
Making sure the local crowd is familiar with your hotel is important to increasing your visibility and bookings. Seek out local partners like tourism offices, real estate agents, event organizers and offer a discount to them for recommending your property. This creates a domino effect, which will also increase occupancy and thereby increase revenue, even if you have to pay out commissions.
Rent your facilities
Businesses, especially local ones, always have a need for big spaces to host parties, conferences, events, networking, and product launches. These kinds of work events often take place in the evenings and/or during the week.
Conference-goers or other party attendees might choose to stay the night in the hotel instead of driving after-hours or for the whole duration of the conference, especially if it lasts several days. By renting the hotel’s facilities and making use of them for different purposes, hoteliers can also increase their mid-week revenue, and at the same time get more midweek bookings.
Turn weekend guests into long weekend guests
Weekends are an important source of revenue for hotels, oftentimes charging higher rates and having higher rates of occupancy. But what about turning weekend guests into long-weekend guests? You can offer an attractive discount to those who stay an extra night.
You can let them know when they call in to make a reservation about your special deal or send them an email prior to their arrival, and remind them when they check in. Discounts are a great way to turn weekend guests into long weekend guests and hence boost your reservations outside of the weekends.
Conclusion
In this article we’ve defined hotel industry occupancy rates, including how to calculate them and why they’re important. We’ve also discussed how to improve your rate through events, pairing up with local partners, knowing your target audience and by creating special promotions and discounts.
We’ve determined that occupancy rate is one of the three most important metrics in order to meet the end goal of all hotels of maximizing revenue. While 100% occupancy is ideal, hoteliers should not have to compromise their optimal price in order to achieve this percentage. It should be always measured against the average daily rate and the revenue available per room to get the most out of your property.
If you’d like to know more about the new generation of hotel metrics, download The Metrics that Matter.
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