Optimal Airbnb Occupancy Rate: How to Calculate It?

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

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

Even in the best tourist apartments in the most dynamic and competitive Airbnb market, the occupancy rate will have an inverse relationship with your Airbnb's nightly price. What does this mean? It means that the nightly price at which your tourist apartment generates maximum profits is not at 100% occupancy. In fact, in this post, you will find that a lower Airbnb booking 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 nightly price, the lower the booking rate, and vice versa. As a corollary: accommodations with very high occupancy rates are likely leaving money from their bookings. That is, guests would be willing to pay more than they are currently paying. Take a look at this illustrative graph. It shows the relationship between the average nightly price 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 decrease, the booking rate increases. The problem for many new hosts is that having unbooked nights is easier to digest than realizing they are 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 do these hosts who do not optimize profits stay? Within the area that, at first glance, seems to be operating at its maximum – the grey area we have included in the graph:

Occupancy rate too high (grey area)[/caption] When a host is in this space, they have a booking rate for their apartment above 90% but, most likely, they are pricing their property too low. You may feel good having the apartment booked more than 26 days a month, but you are leaving money on the table. So, how do you know if you are in that false profit trap zone? Very simple. Run a test.

Increase the average nightly price 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 nightly price until you see that the Airbnb occupancy rate drops. You will 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 are charging an appropriate price for your Airbnb.

How to calculate the optimal Airbnb occupancy rate

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

Optimal Airbnb booking rate.[/caption] The ideal point for optimizing the profits of your apartment is that maximum price where the occupancy rate allows you to have the highest total profits from your Airbnb. And it will never be 100% occupancy. Typically, that optimal point will depend on three factors: which market you are in; the season of the 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, for example – exhibit very high demand, so their minimum occupancy rates will be higher than those in other markets – for example, Guadalajara or Segovia – with lower demand. Knowing the average occupancy rate for your type of tourist accommodation in your market is the first step to setting a target rate.

Seasonality is important for your Airbnb bookings

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

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

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

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

• If you don't pay attention in high season – and don't raise prices – you will get guests 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 will see that your booking calendar looks like a wasteland.

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

Does your Airbnb require a premium price?

If your tourist accommodation is superior to the competition, you can increase your rental profits through more bookings, a higher nightly price, or both simultaneously. Take a look at your apartment and compare it with direct competitors. Do you have extra services of better quality? Or do you rely on low pricing to attract guests? In any case, be honest when positioning your Airbnb and be consistent with the definition of your tourist apartment's target customer. Do not try to sell features that your accommodation does not have. But don't be too modest. Enhancing the advantages your accommodation can offer is a way to justify a higher nightly price. This way, you can achieve the optimal Airbnb occupancy rate.

Conclusion

Achieving the ideal occupancy rate for your tourist accommodation will result in the highest revenue. The truth is that it is easier said than done because it requires continuous monitoring. Sometimes, the characteristics of your Airbnb have not 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 – if necessary – the nightly price. You will ensure you are earning the maximum amount of money.

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