# Occupancy rate

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## Occupancy rate

The occupancy rate is a very important ratio which gives you information on the relationship between the number of occupied rooms and the total number of rooms. Benchmarks will put results into perspective. The occupancy rate is the percentage of the available rooms booked (occupied) during a certain period between 12:00am and 11:59pm.
The hotel market has a structural overcapacity: the supply of hotel rooms exceeds the demand for the hotel(nights). So whatever you do, it is, (as in reality), very difficult to achieve an occupancy rate exceeding 80%. This means that in the total of a year, from your 100 hotel rooms you had 80 rooms occupied. On taking over, the occupancy rate is 50% as an average across the entire year (check key metrics on operating review).

## More revenues, more costs

The fixed costs will be the same at any occupancy rate; the maximum variable costs is related to the number of occupied rooms. More guests, means higher cleaning costs and more staff, for example. This is also explained in your operating review and in your Team File on the 'Results' tab when you mouseover the small triangles in column B.

On the other hand, if you have a higher occupancy rate, you have more guests and increased revenues. The occupancy rate defines the number of rooms 'sold'; this number times the prices your Management Team has set, equals revenue.

Keep in mind that the number of occupied hotel nights is NOT the same as the number of guest nights or the number of bookings. There is all kinds of help available on the internet like Little Hotelier. More information on the rooms their location, and details on their facilities is on the rooms page.

## Basic elements affecting your occupancy rate

As you take over the Emerald Forest Hotel in year 0, all of you start with the same occupancy rate from the past: 50%. There are two basic elements influencing your occupancy rate:

- The prices and costs chosen in your ten management decisions and the quality of your decisions
- The decisions themselves, the numbers: the prices (psychological, logic, etc.)
- The better your arguments on prices and costs, the better your calculations will be; this will have a very positive effect on your occupancy. Your coach will 'rate' your arguments and this will heavily influence your occupancy rates. Your creativity assignment is also evaluated. See this as the business mark and the creativity mark together, having an influence of 50% in the changes of your occupancy rate.

- The market
- the balance between supply and demand, as explained there is some overcapacity in the hospitality market, in the region where the Emerald Forest Hotel is.
- the competitors in your city: how active are they? Does your strategy set you apart from the competitors?
- aiming at the right targetgroup, the right markets.
- a bit of luck, coincidence etc., just like in reality.

Learn more about this by doing research on this platform, maybe buying Market information and looking in the real world. Of course, the results after any year and the Coach comments give you a lot of information as well.

## Different targetgroups, markets

There is also a difference between the two targetgroups: They each have their own occupancy rate which you can find in your results. Check the next pages for detailed information:

## Total hotel capacity

The total available capacity is called the hotel Inventory. There are 100 rooms available for 364 days (in all calculations we take 52 weeks x 7 days, so 364). So the maximum capacity is to rent-out 364 days x 100 rooms = 36,400 'room nights'. When you take over the occupancy rate is 50%, so overall 18,200 'room nights' are booked.

## Weekdays and the business targetgroup

*Please take into account that in this game a year is calculated as 52 weeks * 7 days = 364 nights per year!*

So the maximum number of hotel nights to be sold would be:

52 weeks x 100 rooms x 57% weekdays x 7 days = 20,748 nights (out of the total of 36,400).

At the average room price (€ 120), that would generate a maximum revenue from selling rooms of € 2,489,760.

The revenue from renting the rooms now during weekdays is € 1,244,880 as stated in the Operating review.

So € 1,244,880 ./. € 2,489,760 = 50% of the possible market at the prices you start off with; these are mostly business guests.

So, upon taking over the management, the hotel realizes 50% of the maximum revenues on renting weekend rooms of € 2,489,760 per year. So 50% of 20,748 nights is 10,374 nights, which is an occupancy rate of 50%.

To get more details on this, look at the Revenue per room page.

If you try to analyse the revenues of the rooms as shown in the operating review the number might be different from what you expect. This due to cancellations, overbookings, group size reductions, no-shows, and complimentary stays for friends & relatives. So a difference of a few percentage points in these revenues is normal.

## Weekends and the leisure targetgroup

*Please take into account that in this game a year is calculated as 52 weeks * 7 days = 364 nights per year!*

The maximum number of hotel nights to be sold would be:

52 weeks x 100 rooms x 43% weekends x 7 days = 15,652 'room nights' (out of the total of 36,400).

At the average room price (€ 90), that would generate maximum revenue from selling rooms of € 1,408,680.

The revenue from renting the rooms now during weekends is € 704,340 as stated in the Operating review.

So € 704,340 ./. € 1,408,680 = 50% of the possibilities at the prices you start off with; these are mostly leisure guests.

So, upon taking over the management, the hotel realizes 50% of the maximum revenues on renting weekend rooms of € 1,408,680 per year. So 50% of 15,652 nights is 7,826 nights, meaning an occupancy rate of 50%.

To get more details on this, look at the Revenue per room page.

If you analyse the revenues of the rooms as shown in the operating review, the numbers might be differences from what you expect. This due to cancellations, overbooking, group size reductions, no-shows, and complimentary stays for friends & relatives (no records available on this). So a difference of a few percentage points in these revenues is normal.

## Total

- Weekends and the leisure targetgroup: 50% occupancy rate of 15.600 room nights is approx. 7,800
- Weekdays and the business targetgroup: 50% occupancy rate of 20,800 room nights is approx. 10,400
- Average 50% occupancy rate of 36,400 room night (100 rooms x 7 nights x 52 weeks)

## Indication

This gives an indication of the maximum growth. Of course, things change if you have a higher occupancy rate AND a higher sales price.

So when creating additional costs (apart from the fixed and variable costs you cannot "avoid"), this calculated maximum gives you an indication of what you could make on extra costs which still could be earned back - or, even better, lead to more profit! Also, take into account that last year the net profit was € 486,307.

## Benchmarks

Across an entire year, an average of 50% doesn't seem to be too bad a position to start from. Of course, there is a strong relationship with profit. Between 50% and 60% as an average for the years seems to be realistic: Check real benchmarks. Above 60% generally means you are doing a good job unless your prices are very low and your costs high. In some periods you can get up to 95%, but as an year-round average occupancy-rates above 80% are nearly impossible in the industry. Raising prices without explaining to the customers why (which incurs marketing costs) or improper investments, will make the occupancy rate go down. Lower prices attract cheap-buyers which might boost your occupancy rate, but in the end, per room you will not make less profit so your profit will drop. So it is all about balance and following your concept.

## Type of customers

There is no specific information on the type of customers. The hotel has always primarily targeted business guests and secondly leisure guests.

## Covid situation

The situation in the hotel industry was heavily influenced by Corona in 2020 and 2021. So keep this in mind when looking at numbers and benchmarks in the market. If you are managing one of the new venues, the numbers from the market and the original hotel are still very relevant and are your benchmarks.

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