HOTELS GUIDE
How to Calculate Hotel Break-Even Occupancy
Break-even occupancy estimates the occupied room nights required for room contribution to cover fixed operating costs.
In this guideWhat the analysis measuresCalculation frameworkUnderwriting reviewHow to use the result
What the analysis measures
Subtract variable cost per occupied room from ADR to calculate contribution. Divide fixed cost by annual room contribution capacity.
Calculation framework
Adjust available room nights for closure or out-of-order rooms. Include contribution from F&B and other departments only when modeled consistently.
Underwriting review
Accounting break-even, debt-service break-even and cash break-even are different. Add debt service and required reserves for a financing test.
How to use the result
Use the result to assess downside operating resilience and ramp. Compare it with realistic seasonal occupancy, not only the annual average.