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.

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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.

What Influences the Hotel Occupancy Rate?

In addition to understanding what an occupancy rate is and how it is calculated, you also need to understand what influences it. So what is an occupancy rate impacted by? Larger hotels are generally more difficult to fill, while an increase in competition in the area might adversely impact demand for your hotel. Your occupancy rate could also be negatively impacted by high prices or wider trends, such as times of economic turmoil.

By contrast, a number of factors can also positively influence your hotel occupancy rate. As an example, the emergence of new attractions in the local area could draw in more visitors, while nearby events can also increase demand. Low prices, special offers, new hotel facilities and better marketing could also all improve your occupancy rate.

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.

Strategies to Maximize Occupancy Rate in Hotel Revenue Management

It can be beneficial to use tried and tested strategies to boost the occupancy rate in your hotel. In the sections that follow, you can learn about some of these strategies and why they can improve this key metric.

1. Competitive Offers

Your hotel occupancy rate can be boosted through the intelligent use of offers that help you to remain competitive. What is an occupancy rate boosting special offer? Examples range from a simple discount on hotel rooms to discounted access to a local attraction, free meals, or the inclusion of additional services along with the room.

2. Enhanced Guest Experiences

One of the best ways to boost your occupancy rate is to focus on guest experiences. After all, guests who enjoy their stay may recommend your hotel to others or leave positive reviews. Make sure you personalize hotel services as much as possible and pay attention to small details that can improve customers’ stays. Prioritize hygiene and cleanliness, train staff to deliver great customer service, and look for ways to minimize friction throughout the customer journey.

3. Capitalize on Loyalty Programs

Customer loyalty programs are designed to encourage repeat business, and capitalizing on this demographic of past customers can help you to fill rooms at times when demand may be low. Offer your loyal customers clear reasons to keep coming back, from discounts or free upgrades to access to member-only facilities or services.

4. Attract Bigger Groups

If you focus on the question of ‘what is an occupancy rate?’ the emphasis is on occupied rooms rather than the number of guests. Therefore, you may be able to boost your occupancy rate by focusing on bigger groups, where people are likely to want to book multiple rooms. Hosting business conferences, weddings, and Christmas parties are just some examples of ways you can attract large groups of people who may want to book multiple rooms.

Occupancy Rate and Other Revenue Management KPIs

This table illustrates the interplay between occupancy rate and key hotel revenue metrics like ADR, RevPAR, GOPPAR, and TRevPAR. It highlights how these relationships can be strategically managed to optimize revenue and profitability in the hospitality industry.

Relationship to Other KPIs Interaction Description Strategic Use in Revenue Optimization
ADR (Average Daily Rate) ADR measures the average revenue earned from occupied rooms. While occupancy rate quantifies room usage, ADR reflects pricing effectiveness. Optimizing ADR alongside high occupancy rates can significantly increase total revenue, maximizing profit margins.
RevPAR (Revenue Per Available Room) RevPAR combines the occupancy rate with ADR to provide a comprehensive view of revenue performance. It is calculated by multiplying ADR by the occupancy rate. Focus on balancing high occupancy and higher ADR to boost RevPAR, which is critical for assessing overall financial health and operational success.
GOPPAR (Gross Operating Profit Per Available Room) GOPPAR provides a deeper dive by factoring in operational costs and profits, beyond just revenue metrics. It considers both occupancy rate and ADR in the context of overall profitability. Enhancing occupancy rates and ADR without escalating costs leads to better GOPPAR, optimizing bottom-line performance.
TRevPAR (Total Revenue Per Available Room) TRevPAR extends beyond RevPAR by incorporating all revenue streams (e.g., dining, spa services) divided by available rooms, reflecting how occupancy impacts overall revenue generation. Leveraging high occupancy to cross-sell other hotel services can enhance TRevPAR, illustrating the broad financial implications of occupancy rates.

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:

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This article is written by:

Martijn Barten

Hi, I am Martijn Barten, founder of Revfine.com. With 20 years of experience in the hospitality industry, I specialize in optimizing revenue by combining revenue management with marketing strategies. I have successfully developed, implemented, and managed revenue management and marketing strategies for individual properties and multi-property portfolios.