We’re getting back to basics to help you better understand the critical metrics we use in the hospitality industry necessary to measuring performance. To fully maximize hotel performance, we use several specific terms including RevPAR, ADR and Occupancy; each of which we’ll discuss during the next few weeks.

This week we’re discussing occupancy, a seemingly basic which is not as simple as it may seem.

What is Occupancy?

Simply put, it’s the number of rooms occupied by guests on any given night. If you have a 100-room hotel and 62 rooms were sold, then occupancy is of course 62%.

Averaging Occupancy Rates

Knowing how many rooms were purchased on any given night is a valuable tool, but the industry also likes to understand average occupancy for longer time periods, such as a week, a month or a year. When looking to understand occupancy numbers over a longer time period, we have to average daily occupancy numbers over the selected dates.

Let’s take a month, for example. In April, there are 30 days. Simply take the total number of rooms sold for the entire month and divide it by 30. So, while you may have 90% of rooms occupied some nights, other night it may be considerably lower. But, at least this metric provides an average number of rooms sold throughout the month.

However, this basic benchmark ignores how much is being spent by each guest for their specific room, but it does help hoteliers understand whether they are filling more, less or about the same number of rooms as their local competitors, their individual market and the entire United States.

Occupancy is also extremely important for understanding RevPAR, revenue per available room, which we will discuss in another article.

Now let’s tie occupancy into how it’s used in the real word.

According to STR, overall hotel industry occupancy was 65.4% in February 2017,  a 0.2% increase achieved during the previous 12-month period. This figure on its own tells us some valuable information. It helps hoteliers understand if their hotel is capturing above or below the average number of room nights sold, making this a quick way to determine if the hotel is getting its fair share of business.

However, national statistics do not typically provide a clear understanding of individual markets. When looking at national occupancy figures, it’s a great bellwether for determining if the entire industry is selling more or fewer rooms compared to the past. This reveals major national trends, but it is not a great way to measure individual hotel success.

The Higher Occupancy the Better?

Be warned, the goal of any hotelier is not to simply fill as many rooms as possible to achieve higher occupancy. It’s filling the right amount of rooms at the right rate, a challenge a cloud based property management such as the SkyTouch Hotel OS® can help hoteliers meet with its built in revenue management features.

Let’s examine a pair of 100-room hotels. The first hotel achieved an occupancy of 75% last night, while our second hotel achieved 65% occupancy last night. At first blush it may seem as if the hotel with higher occupancy is more successful, but that first hotel may have sold more rooms at a significantly lower rate than the first hotel, making the second hotel more profitable even though it sold less rooms.

Why Your Property’s Occupancy Matters

Aside from being a basic benchmark against competition, understanding occupancy is most valuable in determining the financial resources that must be spent to keep a hotel running smoothly. The more rooms sold, the more front desk and housekeeping personnel are needed. At hotels that include a breakfast buffet, for example, this number also helps understand how much food will be consumed on any given day as well. The SkyTouch Hotel OS® features more than 100 reports that help hoteliers understand their actual expenses.

Caution: Focusing on occupancy alone can be dangerous. But only when it leads property decision makers down a path to making room pricing decisions based on only a sliver of all available information. It’s why we need to look at other industry benchmarks such as ADR (average daily rate) and RevPAR.

We’ll get into those topics during the next couple of weeks.