Optimal Airbnb occupancy rate: How to calculate it?

The Airbnb occupancy rate or reservation rate is the percentage of nights that your tourist accommodation is rented out over a period of time. What percentage is optimal to maximize your profit? Many hosts believe that a 100% Airbnb occupancy rate is perfect: Hanging the 'no vacancy' sign is a fetish that many professionals cling to... From a profit management perspective, is it optimal to have a 100% reservation rate?

Short answer: No, 100% occupancy rate is not ideal. You're leaving money on the table.

lower Airbnb reservation rate is ideal for maximizing your profits.

Airbnb occupancy rate and price are inversely related

This means that even for the best tourist accommodation in, for example, Barcelona, the higher the price per night, the lower the reservation rate, and vice versa. As a corollary: properties with very high occupancy rates are likely leaving money on the table from their reservations. That is, guests would be willing to pay more than they are paying. Take a look at this illustrative graph. It shows the relationship between the average price per night and the occupancy rate in a month for a hypothetical Airbnb:

Relationship between Airbnb occupancy rate, nightly price and profit.[/caption]The green line is the average nightly price and the blue line is the occupancy rate. As nightly prices drop, the booking rate increases. The problem for many new hosts is that having unbooked nights is easier to digest than realizing they're not charging enough. However, having a free night worth €100 is the same loss of profit as charging €100 per night when you could have charged €200 per night.

Airbnb occupancy rate too high

Where are these hosts who don't optimize profits staying? Within the area that gives the impression, at first glance, of being at maximum capacity - the gray area we've included in the graph:

Too high occupancy rate (gray area)[/caption]When a host is in this space, they have a reservation rate for their apartment above 90% but, most likely, they are setting a very low price for their property. You may feel good having your apartment booked more than 26 days a month, but you're leaving money on the table. So, how do you know if you're in that false profit trap zone? Very simple. Do a test.

Increase the average price per night by 5-10% for a month and see how your occupancy rate changes.

If nothing happens, then you definitely had a very low price. Continue increasing the average price per night until you see the Airbnb occupancy rate drop. You'll find that profits will increase during that period. However, if you see that your booking rate decreases significantly when you slightly increase the price, then you'll be charging an appropriate price for your Airbnb.

How to calculate the optimal Airbnb occupancy rate

It's not easy to find and maintain the optimal Airbnb occupancy rate. However, before exploring how to do it, let's understand this magic point - the green area in the graph below -:

Optimal Airbnb booking rate.[/caption]The ideal point to optimize the benefits of your apartment is the maximum price at which the occupancy rate allows you to have the highest total benefits from your Airbnb. And it will never be 100% occupancy. Normally, that optimal point will depend on three factors: the market you're in, the time of year, and how your Airbnb is positioned in the market.

Not all markets are the same

Each market and each type of tourist apartment will have different minimum booking rates. Some markets - such as Madrid or Barcelona - have very high demand, so their minimum occupancy rates will be higher than those of other markets - such as Guadalajara or Segovia - with lower demand. Knowing the average occupancy rate of your type of tourist accommodation in your market is the first step to establishing a target rate.

Seasonality is important for your Airbnb reservations

Do you have an apartment in a very seasonal market? Maybe the city where your Airbnb is located has a very high demand in summer but very low in winter?

Types of demand (stable vs. seasonal)[/caption]If you are able to maintain a relatively linear occupancy rate without changing your average price per night (i.e., lowering the price in certain months or weeks), then your market probably has a stable demand throughout the year. However, if your situation is such that having a similar price per night throughout the year, the reservation rate varies greatly, then your market presents an inconsistent or seasonal demand.

💡 Does your market have seasonal demand? Discover how you can earn money with Airbnb during the low season.

Why is seasonality so relevant when optimizing profits? Mainly because you may not be earning as much money as you should in two ways:

• If you don't pay attention during the high season –and don't raise prices–, you'll get customers who pay less than you could charge per night due to high demand in your area.
• If you ignore the low season –and don't lower prices–, you'll see that your reservation calendar looks like a wasteland.

Not paying attention to demand seasonality can make you lose income during high and low season.

Does your Airbnb require a premium price?

If your tourist accommodation is above the competition, you can increase the benefits of your rental through more reservations, higher price per night, or both at once. Take a look at your apartment and compare it with direct competitors. Do you have extra services of better quality? Or do you appeal to the low price to attract guests? In any case, be honest when positioning your Airbnb and be consistent with the definition of the target customer for your tourist apartment. Don't try to sell features that your accommodation doesn't have. But don't be too modest. Enhancing the advantages that your accommodation can offer is a way to justify a higher price per night. This way you can achieve the Airbnb occupancy rate at the optimal point.

Conclusion

Obtaining the ideal occupancy rate for your tourist accommodation will result in higher income. The truth is that it's easier said than done because it requires continuous monitoring. Sometimes, the characteristics of your Airbnb haven't changed, but either demand or your competitors have. Pay special attention to the occupancy rate and your total income to monitor. This way, you can constantly adjust the nightly price as necessary. You'll ensure you're earning the maximum amount of money.

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