Hotel Profitability
1. Room Occupancy- A simple measurement of a hotel’s profitability is its room
occupancy.
Number of rooms sold divided by total number of available rooms multiplied
by 100 to determine the occupancy on a percentage basis.
For example, I a 125-room hotel has 75 rooms occupied on a particular night.
No. of rooms sold
Occupancy %= x 100
No. of rooms available
75
Occupancy %= x 100
125
= 0.6 x 100
= 60%
2. Occupancy can also be determined for a week, a month, a year or any other
period of time.
For example, in a 125-room hotel in which 463 rooms were occupied during the
week, the occupancy percentage would be:
No. of rooms sold
Occupancy %= x 100
No. of rooms x 7 days
available
463
Occupancy %= x 100
125 x 7
463
Occupancy %= x 100
875
= 0.529 x 100
= 52.9%
3. Double Occupancy Rooms – When occupancy is calculated considering both
the rooms available for letting out and number of guests.
Occupancy percentage is not usually the best measure of marketing
success for a hotel because it does not show whether the revenue is being
maximized. Whether a room is occupied by one person or by two persons, the
occupancy percentage will not change but the revenue obtained will be changed.
For example: A five star hotel in the Philippines has 320 lettable rooms on a
particular day. 240 rooms are occupied by 300 guests. Calculate the occupancy
rate.
Formula: Total No. of - No. of rooms
Guests Occupied
Double Occupancy Rooms = x 100
No. of rooms Occupied
(300-240)
Double Occupancy Rooms = x 100
240
60
Double Occupancy Rooms = x 100
240
= 0.25 x 100
= 25%
4. Average Rate Per Room Occupied – Another way of measuring maximization
of revenue is the average rate per room occupied. The average rate will increase
if more expensive rooms are sold or if more rooms are double or triple occupied.
Formula:
Revenue for a period of time
Average Rate Per Room Occupied =
No. of rooms occupied during that period
For Example: If a hotel had 463 rooms occupied during a week and a room revenue of
₱ 898, 200.00 for that week, the average room rate is:
₱ 898, 200.00
Average Rate Per Room Occupied =
463
Average Rate Per Room Occupied = ₱ 1,939.956
5. Average Daily Rate Per Guest – As hotels often have double rooms, triple,
quadruple or even more occupancies per room, this ratio allows an insight into
exactly what rate is paid on average.
Formula:
Room Revenue for a period
Average Daily Rate Per Guest =
Total no. of guests accommodated during that period
For Example:
If the total revenue for the week was ₱ 1, 900, 500.00 for a hotel occupied by 1, 050
guests, then the average daily rate per guests for the week is:
₱ 1, 900, 500.00
Average Daily Rate Per Guest =
1, 050
Average Daily Rate Per Guest = ₱ 1,810.00
6. Breakeven Point- is the point at which total cost and total revenue is equal,
meaning there is no loss or gain for the business.
Fixed Cost
BEP=
Contribution Margin
Contribution Margin = Average room – Variable cost of having a
room occupied
For Example: If the fixed cost of a 125-room hotel is $1,950,000 for a year, its average
rate is $80, and the variable cost per room occupied is $20, its Breakeven Point is:
Fixed Cost
BEP=
Contribution Margin
$1,950,000
BEP=
($80.00 - $20.00)
$1,950,000
BEP=
$60
BEP= 32,500 Room Sales to breakeven in a year
The 32,500 rooms to be occupied during the year can be converted into an occupancy
figure as follows:
32,500
Occupancy %= x 100
125 x 365
32,500
Occupancy %= x 100 = 0.712 x 100
45,625
= 71.2% Room Occupancy
