Many vacation rental managers think that having 100% occupancy guarantees good financial results, but it is not entirely true, because if your occupancy is well above the market average, there is a great possibility that you have been leaving money on the table with your Average Daily Rate (ADR). The idea is to be able to maintain a balance between occupancy and rate, to maximize income, for this, we want to bring you some tips that VacayMyWay has published to track and measure the performance of your vacation accommodation.
Occupancy levels, along with ADR and RevPAR are the key metrics for revenue managers in the hospitality industry. As the company points out, the problem with 100% occupancy is that it does not guarantee a higher income, if you book every night, you may have left money on the table by not selling at a higher rate.
For example, if your property is 100% occupied for 365 nights per year at $ 100 / night, you will project a potential annual gross booking income (GBR) of $ 36,500. Of course, any discount would reduce that potential income and even 7 nights a month with a 15% discount reduces your income by $ 1,260. So it’s clear that earnings are very sensitive to ADR changes, so increasing your ADR will have a very beneficial effect on your bottom line, even if your occupation suffers a bit. Referring to your vacation rental neighbors, either through manual rate buying or investing in vacation rental data to provide accurate and time-saving answers, will guide your ADR decisions and ensure your ADR is aligned with your competition.
Your goal should be to balance ADR and occupancy as closely as possible, which could mean turning away small-time guests or waiting longer to lower your rates on busy weekends and during peak season.
¿How do I calculate my occupancy rate and ADR?
To calculate the occupancy rate just divide the number of nights the property is reserved by the number of days it was available within your time period. Most of the time, a monthly time frame is used to track performance.
Example 1: Monthly Occupancy Rate – If a property is booked 25 out of 30 days in a month, the occupancy rate would be 83%.
Example 2: Annual Occupancy Percentage – If a property is reserved for 281 days out of 365, the annual or occupancy rate would be 77%
The ADR is typically calculated on a monthly basis as well, dividing the total income earned by the property by the number of nights booked.
Example 1: Monthly ADR: If an ad earned $ 3,100 in GBR in a month and the property was reserved for 25 days, the ADR for that month would be $ 124.
Example 2: Annual ADR: If a host earned $ 28,000 in GBR with 281 nights reserved, the annual ADR would be $ 99.64
In addition to this explanation of how to calculate and differentiate between the occupancy rate and the ADR, you should watch the competition: If your occupancy is much higher, it could be that you are underestimating the price. If the opposite happens, you have a wonderful availability and the neighbor’s accommodations are full, it may be that you have very high prices. In these cases it is good advice, see the best on the market and use them as guides. Remember, occupation is not the only tool for measuring success. A long-standing rule adopted by the hospitality industry is to aim for 70-80% occupancy, and by maximizing ADR through pricing strategies like those suggested above, you can make a similar or improved profit while avoiding the excessive wear and tear on your property. After all, sometimes the best guests aren’t invited at all.
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