Higher Occupancy Rates or Nightly Rates? Which is Better?

Many Vacation Rental Hosts pay very close attention to the number of bookings or the “occupancy rate”.

Occupancy Rate is simply the number of days a rental is occupied/booked in relation to the number of days that the vacation rental is available.

The calculation is simple, all you have to do is divide your property’s total number of reserved days by the total number of available days. (Days you block for yourself aren’t counted.) The result—expressed as a percentage—is your occupancy rate.

Also important to note: Occupancy is typically measured over a 12-month period.

So let’s run through an example. Say you want to know the occupancy rate for a property, a beach house in San Clemente that is listed on Airbnb.

Imagine your rental was available for 340 days during the last 12 months, and it was booked or reserved by guests for 240 days.

The math is easy: 240 divided by 340 equals 70.58%. That’s your occupancy rate. That occupancy rate would be very high for a monthly rental or a home with a 30 day minimum in this area, but pretty on par for homes with a short term rental permit. But simply having a high occupancy rate does not necessarily mean you are maximizing revenue.

High occupancy rates can sometimes be a sign that you’re leaving money on the table. That you’re not charging enough for your property given its type, amenities, and location.

An easy example is if you have a home that is rented for $100/ night at 100% occupancy for 30 days vs a home that is rented for $200/night at 60% occupancy for 30 days, you would be leaving $600 on the table per month.

The question you would ask yourself: Do I want higher occupancy or higher average daily rates (ADR)?

The answer is a somewhere in the middle and the strategies for each somewhat work together. On a new or struggling vacation rental, you want to increase the occupancy rate in order to build good reviews (check out our blog on building reviews here) and fill the calendar. There are a few strategies for this, but one way is to lower the nightly rate in the short term. Once the calendar is booked out and there is a good amount of good reviews, you then can increase the nightly rate.

From there, your occupancy rate should decrease a bit, but you will be bringing in more revenue because of the increased nightly rate. It’s then a good idea to implement last minute booking discounts in order to fill those gaps in the calendar that are left over.

The result will look something like this example of a property we manage..

For more information on pricing strategies or information on vacation rental management services, schedule a quick zoom call using the link below.