Working out what your B&B actually earns: cost per night and break-even occupancy

Most owners know their turnover to the euro. Ask about profitability and it turns vague. "It's going well", or "the summer has to carry the winter." That is not a number, and without a number you cannot properly justify a single decision: not on your rates, not on that extra room, and not on whether a channel charging 18% commission is actually worth having.

The arithmetic is simpler than it looks. You need three figures: your variable cost per night sold, your fixed costs per year, and your average net revenue per night. Out of those falls your break-even occupancy — the number of nights you have to sell before the year has paid for itself. Everything above that line is margin.

Step 1: the variable cost per night sold

Variable costs only exist when somebody sleeps there. They scale with every booking. Work them out once and you have them for years.

What usually belongs in the list:

• Laundry and linen. Per stay, not per night — a two-night and a five-night stay use roughly the same towels.
• Cleaning. If you pay a cleaner per turnaround, that is a hard number. If you do it yourself, still charge yourself an hourly rate; otherwise every booking looks free.
• Breakfast or welcome pack, if you offer one. Count per person, not per room.
• Consumption: water, electricity, heating you only use when the room is occupied. A rough estimate is fine.
• Consumables: soap, coffee, toilet paper, dishwasher tablets.
• Payment fees and commission. This is the big one. A booking through an OTA at 15% is a completely different product from the same booking taken directly at 1.5% in card fees.

Add it up and divide by the number of nights in an average stay. You end up with an amount per night sold — for many small properties that lands somewhere between 15 and 35 euro, but yours is the only one that matters.

Note that commission belongs here but differs per channel. So calculate two cost prices: one for a direct booking and one for an OTA booking. The gap between them is exactly why direct bookings hit your bottom line so much harder.

Step 2: the fixed costs per year

Fixed costs run whether you are full or empty. This is the part people systematically underestimate, because it consists of many small amounts leaving at different moments of the year.

The usual suspects: insurance, property tax, subscriptions (internet, TV, software), maintenance contracts, accountant, bank charges, website and domain, and the share of your utilities that runs regardless. Then the less visible ones: depreciation on furniture and mattresses, the annual repainting, replacing the one appliance that always fails in July. Loan repayments belong here too if the business has to carry them.

Simply take last year's accounts and add up. If you are unsure about an item, round up. A break-even that is too optimistic is worse than no break-even at all.

Step 3: your average net revenue per night

Not your rack rate — your actual average. If you list a room at 120 euro but give early-bird discounts, length-of-stay discounts and the occasional last-minute deal, your real average is lower. That average is your ADR, and together with occupancy it makes up RevPAR — the two metrics explained in occupancy, ADR and RevPAR.

Subtract your variable cost from that ADR. What is left is your contribution per night: the amount each night sold contributes towards your fixed costs.

The formula

Break-even nights = fixed costs per year ÷ contribution per night

A worked example with round numbers, purely as an illustration — fill in your own:

Say four rooms, open 300 days a year, so 1,200 sellable room nights. Fixed costs 42,000 euro. Average net revenue per night 105 euro. Variable cost 28 euro per night. Contribution: 105 − 28 = 77 euro.

42,000 ÷ 77 = 546 nights. Against 1,200 sellable nights that is a break-even occupancy of 45.5%.

Everything above those 546 nights earns you 77 euro a night. Sell 700 and your result is (700 − 546) × 77 = 11,858 euro. Sell 500 and you make a loss — even though you were busy all year and the calendar looked reasonably full.

What you do with that number

This is where it gets interesting, because one figure suddenly changes four decisions.

Rate versus occupancy. In the example, 10 euro more per night (105 → 115) lifts the contribution to 87 euro. Break-even drops to 483 nights: 63 nights less work for the same result. A ten-euro rate increase almost always outweighs ten percent more occupancy — and it costs you no extra laundry.

Giving discounts. A 10% length-of-stay discount sounds modest, but against a contribution of 77 euro, giving away 10.50 euro costs you 14% of your margin. That can be entirely worth it if the night would otherwise stay empty, but it is not a free gesture.

Channel choice. Run your break-even again using the OTA cost price instead of the direct one. At 15% commission on 105 euro, almost 16 euro disappears from your contribution and break-even moves from 546 to roughly 688 nights. That is nearly 30% more nights for exactly the same end result.

The floor for last-minute deals. As long as a night brings in more than your variable cost, it contributes. In the example, anything netting above 28 euro beats an empty room — though that is an argument for the odd orphan night, not for your standard rate.

Getting the figures out of your system

This exercise usually founders on the data, not the maths. If your bookings are spread across three extranets and a spreadsheet, producing a single reliable average costs you an evening — and you will still double-count something.

In BedFlow PMS every booking from every channel sits in one overview, showing the gross price, the commission and what is left net per booking. Your average revenue per night and your occupancy per period are there to read off, and you can compare them per channel. The variable cost price and your fixed costs remain your own homework — your accountant knows those better than your PMS does — but you no longer have to assemble the revenue side by hand. How to pull up those overviews is described in the manual.

In short

Work out your variable cost per night sold, add up your fixed annual costs, subtract the cost from your average nightly revenue and divide. You get one number: how many nights you have to clear. Put it on your desk, look at it in October rather than in March, and your pricing decisions get considerably easier.

Want those figures compiled for you? BedFlow PMS is free to try for 30 days at bedflow.eu — every channel, every booking and your net revenue in one overview. What it costs afterwards is on our pricing page. No credit card required.