OCCUPANCY-BASED PRICING: WHAT IS IT?

When calculating nightly rates for a room, occupancy-based pricing is used to take into account the potential number of guests. Occupancy-based pricing comes in a variety of forms.

Firstly, the nightly charge may be calculated per guest. Each visitor is required to pay a nightly charge, so two identical apartments (or the same unit) may have varied pricing based on the number of visitors expected that night.

Secondly, the intended or maximum occupancy of a unit may be used to determine the nightly fee. As a result, a unit with a maximum occupancy of four would probably be more expensive than one with a maximum occupancy of two. However, regardless of the number of people occupying each unit, the cost of two similar apartments would be the same.

WHY SHOULD OCCUPANCY-BASED PRICING BE USED?

Expenses are usually any vacation rental manager’s first concern when they explore occupancy-based pricing. Pricing on a per guest basis allows managers to recoup any variable costs that also vary on a per guest basis (as opposed to a turn or on a per stay basis) without overcharging smaller parties who would incur lower variable costs.

Revenue is the other monetary factor that occupancy-based pricing might affect. A family of four anticipates paying more for a hotel than perhaps a lone visitor would. When splitting the cost of a unit, two couples can be more ready to pay for it than a single couple would. This means that occupancy-based pricing for vacation rentals would be a logical fit given the per-person costs and the greater willingness to pay for larger parties.

Further, the hallmark of an effective revenue management strategy is when arrival, departure, length of stay, booking window, and the number of guests for any given reservation don’t really matter because the rates, discounts, and stay restrictions are set up in such a way that the revenue manager is willing to accept any of the reservations received.

The price is determined by how many guests are accommodated in the room. It is treated as either a single or a double room for the base cost. This affects how much the rate is. The cost of the room-only and breakfast-only options is determined by the total number of guests.

Example: Let the following be the case.

Pricing model: Occupancy-Based

Breakfast rate: 15€ / per person

Single/Double Difference: 10€

Third Person Difference: 30€

According to this, the rates would be as the following:

Single Room Only: 90€

Double Room Only: 100€

Single Bed/Breakfast: 105€

Double Bed/Breakfast: 130€

Note: With this pricing model, you should not ignore the fact that there are many price variations: 4 room types (Standard, Superior, Deluxe, Executive) 4 rate types (Room Only, Non-Ref Room Only, Bed/Breakfast, Non-Ref Bed/Breakfast) there are 3 occupancy types for each room (single, double, triple).

In such a scenario, your property’s standard room would have these types of rates:

1. Standard Single (Room Only)
2. Standard Double (Room Only)
3. Standard Triple (Room Only)
4. Standard Single (Room Only/ Non-Refundable Room)
5. Standard Double (Room Only/ Non-Refundable Room)
6. Standard Triple (Room Only/ Non-Refundable Room)
7. Standard Single (Bed/Breakfast)
8. Standard Double (Bed/Breakfast)
9. Standard Triple (Bed/Breakfast)
10. Standard Single (Non-Refundable/Bed, Breakfast)
11. Standard Double (Non-Refundable/Bed, Breakfast)
12. Standard Triple (Bed, Breakfast/Bedroom)

We see above that there are 12 rate types for just one room.

This means that for 4 rooms this is 48,

For 5 rooms this is 60,

For 6 rooms this is 72 different rates.

Advantages of Occupancy Based Pricing (OBP)

The OBP model enables properties to:

Enhance visibility in search results: More travelers can see rooms with OB pricing. This is so that more travelers’ searches will match your room rate.

Increase the occupancy of more valuable rooms: The biggest and most expensive rooms can now be sold to more visitors thanks to this price structure. Additionally, it makes it simpler to leave your more affordable rooms open for future visitors.

Boost revenue: According to statistics provided by one of the world’s leading booking channels Booking.com, occupancy-based pricing can result in an average 3.5% increase in revenue.