How to Calculate Occupancy Rate?

Occupancy rate

As a property manager, you would always want to measure the performance of your property to keep improving your property performance. Tracking important metrics like Occupancy rate will help you quantify your property’s performance and craft an effective pricing strategy.

The occupancy rate, one of the most important metrics to track your property’s success, tells you how many days your property is occupied from the days you have made your property available. To be able to increase your occupancy rate, you first need to understand, in-depth, how to measure it and how to derive insights from your results. 

Let’s dive right into it.

What is Occupancy Rate?

Your vacation rentals’ occupancy rate is the percentage of the total number of nights that have been rented over a specific period. You can calculate your occupancy rate for any given time period.

Your property can either be 0% booked or 100% available on any given day.

Let’s consider your occupancy rate for 2 days. If your property is booked for 1 day and not the other, your occupancy rate is 50%. If it is not booked for both those days, it would be 0%. 

Now, if you consider only one day’s occupancy, it can either be completely booked or not booked. So, your occupancy rate can be 100% or 0%.

How to Calculate your Occupancy Rate?

The occupancy rate is simply calculated by dividing the nights booked by the total nights that were available.

Occupancy rate = (Number of nights booked / total available nights)*100

Let’s do some quick math.

Say your property is booked for 15 days out of 30 in a month.

Your occupancy rate would be = (15 / 30 ) * 100 = 50%

Calculating your available nights can be tricky. Each calendar day can be classified as

  1. Available for guests to book
  2. Blocked due to owner stays or maintenance
  3. Booked by paying guests

Which of these days should you consider when calculating your occupancy rate? 

Well, this differs. Some property managers want to exclude blocked dates from their calculations.

But, in most cases, your total nights are an aggregation of all calendar days.

Total Nights = Available nights + Blocked nights + Booked nights

Depending on the individual property manager’s goal, some might choose not to include blocked nights in their occupancy rate calculation. Let’s look at this method of calculating the occupancy rate, which is quite popular amongst property managers. 

What is Guest Occupancy Rate?

While it is important to calculate your occupancy rate for the whole month irrespective of the owner or blocked nights, it might also be useful to look at the occupancy rate of total nights available for guests to book and pay. With the help of the Guest Occupancy rate, you could look specifically at the nights you had paying guests on your property.

Guest Occupancy rate is the percentage of the nights that guests booked out of the total nights available for booking. This metric excludes any sort of block, including owner nights.

Guest Occupancy Rate = (Number of nights booked/total available nights for guests to book) * 100

Say your property was booked 15 out of 30 days in a month.

In this, your property was closed for maintenance for 3 days, and the owner blocked it for his personal use for 4 days.

Your available nights would be = 30 – 7 = 23

Your occupancy rate would be = (15/23) * 100 = 65.2%

If you compare this with standard occupancy, you will notice a massive difference of 15.2%. With the guest occupancy rate, you can accurately calculate the number of nights that are making you money.

The Myth of 100% Occupancy Rate

It is a common understanding that a 100% occupancy rate is a good thing. Sometimes, it is. Sometimes, not. To better understand this, we need to understand two other things: 

  1. Market performance and 
  2. Your revenue metrics

To understand the role of market performance, we need to compare your property with another property in your neighborhood. 

Say you are booked for the whole month. But the booking is long-term; the guest has booked a 40-day stay at a discounted rate.

Your monthly occupancy rate is 100%; they’ve booked for $120/night.

Another property in your neighborhood has been booked for 22 days out of 30. But at a higher rate per night – say maybe $180/night.

Your occupancy rate = 100%Competitor occupancy rate = 73.4%
Your ADR = $120Their ADR = $180
Rent Revenue = 100 x 120 x 30= $ 3,60,000Rent Revenue = 73.4 x 180 x 30= $ 3,96,360

Even if your occupancy is high, it does not mean that your revenue would also be high. This might be because

  1. You have priced yourself lower than the market
  2. You have long-term bookings at a lower price than multiple short-term bookings at a higher rate.

While calculating our occupancy rate, it is important to ensure that you are also looking at other metrics, such as

  1. RevPAR
  2. Average Daily Rate (ADR)
  3. Booking window
  4. The average length of stay

RevPAR

RevPAR compares the money you make per night with the booked nights. You can use this to compare and evaluate your pricing strategies. RevPAR can be calculated by dividing your total revenue by the number of available listings or by simply multiplying occupancy rate and ADR. 

RevPAR = total revenue / no. of available listings 

or the most common formula: 

RevPAR = occupancy x ADR 

Unlike any other metric, RevPAR considers both your occupancy rate and your average daily rate. You can analyze your property’s overall performance with this one metric.

To help you dive deeper and understand how to calculate RevPAR for your property, we have put together a helpful guide – How to Calculate your RevPAR 

Average Daily Rate (ADR)

Average Daily Rate measures the daily rate paid by your guest during their stay at your vacation rental property. It is calculated by dividing the total revenue during the stay by the number of nights booked.

ADR = Total Revenue / Number of Nights Booked

Say your property is booked for 15 nights for $8000

Your ADR = $8000 / 15

ADR = $533.33

You might have rented out your property for different rates on different nights. ADR is an average of all your nightly rates. For example, you might have charged $400 for 8 nights and $685 for the rest of the nights, bringing the total to $8000.

If you use dynamic pricing solutions or adjust your pricing manually, your ADR will have to be adjusted constantly depending on various factors:

  1. Seasonality
  2. Events or High-demand days
  3. Market trends 

ADR will help you maintain track of the rate your guests have been paying and are ready to pay for a stay at your property.

Booking Window

Booking window and length of stay add another layer of analysis. It helps you understand why you have a certain occupancy rate during a specific period of time.

With the help of the booking window metric, you can analyze how far in advance guests are booking your property. The booking window is the number of days between the day the guest books and the day the guest will check-in. It is also known as ‘lead time.’

Let’s say your booking window is typically about 14 days and your occupancy at the beginning of the month is lower than the market. You still have time as per your guests’ booking window to start worrying. At this point, you need not worry about making any changes to your base price because your guests are yet to book.

Length of Stay

While comparing your occupancy rate and your ADR with your competitors, it is also important to look at the Length of Stay. When looking at the length of stay, you would be able to understand how long your guests are booking your property for. This will help you further understand the market you are catering to and re-evaluate your pricing accordingly. For example, how you charge your rooms for a weekend stay will definitely differ from how you would charge a guest who has booked your property for over 3 weeks. Also, as in the example above, it is not important to look at your occupancy alone when comparing property; it is important to look at all three metrics together.

PriceLabs’ Portfolio Analytics helps you analyze these important metrics for your overall portfolio in one glance. It is a real-time reporting system that tracks important KPIs for your properties to keep improving your performance and growing your revenue. 

How to Increase your Occupancy Rate?

After nearly a decade, the recent Airbnb update influx promises increased bookings for hosts. While this article helps you understand the calculation, it is important to use the various hosting tips to increase your bookings.

1. Make sure your listing is accurate and appealing. 

It is important to be upfront with your guests about the amenities you have or don’t have on your property. Along with complete honesty, a little bit of flattery also helps. You need to upload visually appealing, full-coverage images of your property to the listings, describe your property to the T, and make it appealing to guests. Try and paint a picture in your guests’ minds.

You can also find out the popular amenities that your competitors are offering using the PriceLabs Market Dashboards to increase the demand and visibility of your property.

2. Price according to the market demand.

The market is continuously changing. Your pricing should also keep changing with the market. According to market trends and seasonality, you should keep adjusting your rates. Increase your rates during busier seasons and provide discounts during slow seasons. You need to be constantly aware of your market and study it in depth to make informed decisions. 

Dynamic pricing solutions can help you with the necessary data to make informed decisions.

With PriceLabs’ dynamic pricing solutions, you can get pricing recommendations based on historical and current booking data, market supply and demand, seasonal and day-of-week trends, special events and holiday predictions, and days left to book your property.

3. Market your property appropriately.

You need to retarget and repoint the needle of your vacation rental marketing strategy for each season. Not all guests are the same.

Similarly, not all seasons will treat your property the same way. You need to have a separate marketing strategy for low seasons. Let’s say there’s a drop in mid-week demand. First, take a look at the types of guests that book your property – it might be business travelers. Now target them through specific deals.

Let’s say you have a beach-front resort. You might not have much demand during peak winter. You can then look at creating experiences such as indoor events or games that guests might be interested in. This will help in pulling in more and more guests.

There are more KPIs to track regarding your vacation rental property. The occupancy rate has to be one of the top metrics you track, along with RevPAR and ADR. This metric will help you understand your listing’s health and then properly alter your pricing strategies or your ADR to maximize your profits. 

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