Break-even occupancy: how many rooms you must sell to cover your costs

The sum rests on splitting your costs in two. HSMAI's glossary calls a fixed cost one that stays the same whatever the volume and must be paid regardless of occupancy, and a variable cost one incurred when a room or a service is sold.

• Fixed costs: salaries of permanent staff, rent or lease, loan payments, insurance, property tax, the part of your power bill that runs whether the hotel is full or empty, software, and maintenance contracts.
• The cost of each room sold: cleaning and laundry, guest supplies, breakfast if it is included, the power and water a guest uses, the booking site's commission, and payment charges.
• Some costs are partly both. Electricity has a part that runs regardless and a part that rises with guests; extra housekeepers taken on only when the hotel fills are variable. Split them as well as you can, and keep to the split.

1. 1Add up the month's fixed costs.
2. 2Work out the cost of each room sold: the month's variable costs divided by the rooms sold.
3. 3Take it from your average room rate. What is left is what each room sold puts towards the fixed costs: accountants call it the contribution of each room.
4. 4Divide the fixed costs by that contribution: the answer is the rooms you must sell in the month.
5. 5Divide those rooms by the rooms available and multiply by 100 for your break-even occupancy.

The calculator on this page opens on the same month. Put in your own fixed costs, cost of each room sold, average room rate and rooms available to see yours.

• A lower price raises it, fast: each room sold puts less towards the same fixed costs.
• Commission raises it: a room sold through a booking site costs more to sell than one sold on your own website.
• New fixed costs raise it for every month to come: a loan, a new salary, a lease.
• A longer month lowers it a little: the same rooms needed are a smaller share of more rooms available.

• Knowing your floor for a quiet night. A price below the cost of a room sold loses money on every extra room.
• Planning the quiet months. The rooms you need tell you how many groups, companies or offers you must find.
• Judging a discount or a promotion: work out how many more rooms it must sell to leave you as well off as before.
• Planning a loan or an extension. More fixed costs raise break-even every month after.
• Running a seasonal hotel. Work it out for the whole year as well as each month, because the busy season has to carry the quiet one.

The same sum works for one night, with a night's share of the fixed costs. For pricing a single night, though, the question is narrower. Once the month's fixed costs are paid anyway, any price above the cost of a room sold puts something towards them.

That is why a hotel can sensibly sell a late room on a quiet night below its usual price, as long as the price stays above the cost of the room sold, and as long as guests don't learn to wait for it. On a busy night the opposite holds: a room sold cheaply is a room that could have sold for more.

• Anything better than your split of costs. Put a cost in the wrong half and the answer moves a long way.
• What happens to the rate. It assumes one average rate; if you discount to reach break-even, the rate falls and break-even rises.
• The rest of the hotel, unless you add it. Profit from the restaurant and events lowers the rooms you need.
• Whether the hotel is doing well. Break-even is the floor, not the goal: covering your costs leaves nothing for repairs, for the owner or for a bad month.