Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Do hotels have a benchmark for occupancy rate to price ratio with which they will use as minimum cut-off for having a good night and a profitable night? Obviously, they want 100% as high as they can. But is there a minimum occupancy rate they will lower price to fill up to, and be considered profitable? And then whatever is left, they will lower the price further until filled but considered to be lessening their opportunity losses. Or will hotels just keep lowering and lowering until all rooms fill up immediately?
Like I guess, when first deciding to build the hotel, considering all the fix costs, and estimated variable costs, and how many rooms you can sell in a given market and at what price, you must have a minimum occupancy at a minimum price that you can consider acceptable. At that minimum occupancy, and minimum price you can pay all your expected bills, and not lose the hotel.
Of course you dont want to build too many rooms, but you also realize you probably wont fill all your rooms. And you wont get your max price. Yet, when looking into financing, you need to know the minimum you can charge for a room, and minimum number of rooms you sell.
Does hotel industry have a standard for deciding this?
When I was in college, out in the middle of Pennsylvania, I could not help but notice some hotels out in the middle of nowhere like in a small town or along a highway. I guess they expect truck drivers to need a place to sleep, but these hotels are spread across a number of exits. I dont see how they are predicting how many truckers or passerbys will stop in. Even in the town of State College, there are a number of hotels. But they only get business in the fall during football weekend, incoming prospective students looking for tours in the fall. In the Spring time or summer, there is no business at all or little of it.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
44,580 posts, read 81,186,228 times
Reputation: 57818
There are many hotel management software systems available that do this and much more, such as required staffing levels based on occupancy for bringing in more help when busy. Data is tracked, so seasonal changes are predictable. For some, even shutting down completely at times and taking a vacation is the most cost-effective, no use paying staff when no revenue is coming in.
There are many hotel management software systems available that do this and much more, such as required staffing levels based on occupancy for bringing in more help when busy. Data is tracked, so seasonal changes are predictable. For some, even shutting down completely at times and taking a vacation is the most cost-effective, no use paying staff when no revenue is coming in.
I am just asking if there is a commonly used benchmark. But that shutting down is interesting. I guess that is what a lot of those hotels in seasonal markets are doing.
But that shutting down is interesting. I guess that is what a lot of those hotels in seasonal markets are doing.
Something else you can consider doing is maintaining a skeletal staff during the off-season and cross-train those in different areas of hospitality service. Then when you're busy season comes you've got your core staff in place and you add others in areas that need minimal training.
Do hotels have a benchmark for occupancy rate to price ratio with which they will use as minimum cut-off for having a good night and a profitable night? Obviously, they want 100% as high as they can. But is there a minimum occupancy rate they will lower price to fill up to, and be considered profitable? And then whatever is left, they will lower the price further until filled but considered to be lessening their opportunity losses. Or will hotels just keep lowering and lowering until all rooms fill up immediately?
Like I guess, when first deciding to build the hotel, considering all the fix costs, and estimated variable costs, and how many rooms you can sell in a given market and at what price, you must have a minimum occupancy at a minimum price that you can consider acceptable. At that minimum occupancy, and minimum price you can pay all your expected bills, and not lose the hotel.
Of course you dont want to build too many rooms, but you also realize you probably wont fill all your rooms. And you wont get your max price. Yet, when looking into financing, you need to know the minimum you can charge for a room, and minimum number of rooms you sell.
Does hotel industry have a standard for deciding this?
When I was in college, out in the middle of Pennsylvania, I could not help but notice some hotels out in the middle of nowhere like in a small town or along a highway. I guess they expect truck drivers to need a place to sleep, but these hotels are spread across a number of exits. I dont see how they are predicting how many truckers or passerbys will stop in. Even in the town of State College, there are a number of hotels. But they only get business in the fall during football weekend, incoming prospective students looking for tours in the fall. In the Spring time or summer, there is no business at all or little of it.
I'm not expert in the hotel industry, but there is a lot of research done on predicting occupancy rates and average room prices. I'm going to be buying a B&B next year or the year after and I've done quite a bit of research on this. I'm buying existing, so all the research is already done, but I can tell you that hotels do have formulas for calculating occupancy/average room rate. The rates will change based on peak and slow season, but they also change constantly based on occupancy rates. If a hotel is at 90% occupancy they will increase their rates by a certain percentage, and if their occupancy lowers past their average occupancy for a season, then they will lower their rates. There are many variables, so it's impossible to give exact numbers.
A ski resort will have very different benchmarks compared to a hotel in Kansas City. A ski resort will have a peak and slow season, whereas a hotel on a busy interstate will stay more consistent throughout they year.
Again, I'm not an expert, and I don't know the common formulas or benchmarks, but I own a restaurant and we use a standard formula for calculating food costs. There are also standard formulas for income properties and B&Bs, so it makes sense that hotels and resorts would also have a common formula/benchmarks.
Do hotels have a benchmark for occupancy rate to price ratio with which they will use as minimum cut-off for having a good night and a profitable night? Obviously, they want 100% as high as they can. But is there a minimum occupancy rate they will lower price to fill up to, and be considered profitable? And then whatever is left, they will lower the price further until filled but considered to be lessening their opportunity losses. Or will hotels just keep lowering and lowering until all rooms fill up immediately?
Like I guess, when first deciding to build the hotel, considering all the fix costs, and estimated variable costs, and how many rooms you can sell in a given market and at what price, you must have a minimum occupancy at a minimum price that you can consider acceptable. At that minimum occupancy, and minimum price you can pay all your expected bills, and not lose the hotel.
Of course you dont want to build too many rooms, but you also realize you probably wont fill all your rooms. And you wont get your max price. Yet, when looking into financing, you need to know the minimum you can charge for a room, and minimum number of rooms you sell.
Does hotel industry have a standard for deciding this?
.
The answer is it varies by hotel submarket. You have to run numbers for each hotel submarket based on the current data.
The basic/simple answer is this:
"A feasible hotel project is one where the economic value is greater than the cost. Accurately estimating the total project cost is a relatively simple process for the architect and development team. However, determining the economic value is much more complicated."
As has been noted, a seasonal resort market could run a market-wide hotel occupancy rate of 65% where as more urban markets with multiple demand generators might see market occupancy in the 75% to low 80% range. The feasible occupancy rate will vary by market. In addition, the feasible or minimum"Average Daily Rate" necessary to achieve feasibility will vary by market/location.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
