Occupancy rates and turnover?

What are occupancy rates?  They are the number of rooms sold in a given period out of the possible number of rooms which could be sold expressed as a percentage. For example if a motel has 16 units they could sell over a period of 31 days in a month they have a possible 496 rooms to sell. If over the month they sell a total of 258 rooms then the occupancy rate is 258/496 which is 52%

So what does this mean?  Well in isolation it doesn’t really mean anything but needs to be viewed in conjunction with the tariff and turnover achieved. One of the main purposes of running a motel is to make a profit which is determined by the turnover and expenses. The occupancy rate relative to the turnover will affect the expenses and subsequently the profit.

For example if you have a 10 unit motel with a 100% occupancy rate @ $80 per night you will achieve a turnover of $800. If you had the same motel with occupancy of 60% but the rate was $133 per night you would achieve the same turnover. It is logical though that the expenses such as cleaning, wages, electricity, consumables etc will be less for 6 rooms than it would be for 10 rooms.  Therefore the profit will be higher for the lower occupancy rate. Thus if we just looked at occupancy we may think 100% is better than 60% but when we look at the complete picture we find this is not correct.

Therefore when you are looking at motels and occupancy it must be analyzed relative to turnover.

November 03 2010 02:30 pm | Uncategorized

2 Responses to “Occupancy rates and turnover?”

  1. denis james on 28 Mar 2013 at 2:32 pm #

    Q what % of t/o would normally be sustainable as a lease cost

  2. Kathie Shepard on 22 Apr 2013 at 3:53 pm #

    Hi Denis
    Sorry for the delayed reply. I assume by lease cost you are meaning rent. Traditionally we have used the third/third/third rule. This means of your turnover a third is rent a third is expenses and a third is cash surplus. There are many motels who currently are not meeting this rule due to the global financial crisis impacting on turnover. As the turnover decreases then the rent becomes a higher percentage of it due to the fact that most leases have a ratchet clause in them preventing the rental from decreasing. You would need to look at each motel on an individual basis to see if they could sustain the rent at the level it is set.
    hope this helps

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