Break-even is the occupancy at which your revenue covers your costs exactly: you neither make money nor lose it. It is the one number that turns “how are we doing this year?” from a feeling into an answer. And it needs only three things: your fixed costs, your variable cost per room and your rate.
The logic: fixed costs, variable costs and contribution
Every hotel cost belongs to one of two families. Fixed costs run whether you sell or not: salaries, the loan instalment or the rent, insurance, the accountant, maintenance. Variable costs come with every room you sell: cleaning, linen, guest supplies, breakfast — the variable CPOR.
So every room you sell leaves a contribution: its rate minus its variable cost. That contribution pays off the fixed costs, room by room. Break-even simply asks: how many rooms does it take to pay them all?
The fixed costs also come in two groups, and here the difference matters. The operating ones — management and front-desk salaries, the accountant, marketing, maintenance, fixed bills, IT — sit above GOP, the gross operating profit. The ownership ones — rent, loan instalment, insurance and property taxes — sit below it, as the USALI standard does. The first group gives you the operating break-even. Add the second and you get the cash break-even: the point where the bank account does not go negative.
The formula and an example in euros
Take the same 47-room hotel, with one difference from CPOR: here we count the fixed costs of the whole business, not only of the rooms department. Front-desk salaries and the accountant do not ask which department caused them.
Marketing / Advertising: €1,800
Maintenance: €3,900
Utilities (fixed bills): €1,250
IT & Telecom: €650
Fixed operating costs: €42,100
ADR €86 − CPOR €14 = contribution €72
Break-even = 42,100 ÷ 72 = 584.7 → 585 rooms
585 ÷ 1,410 available = 41.5% occupancy
Did you know? Break-even moves every time a rate or a cost changes. WisDom RM recalculates it every night from the nights you record and the month’s costs — and if you enter rent, loan instalments and insurance, the P&L also shows the cash break-even separately.
Try it free for 14 days →At an average rate of €86, this hotel breaks even from 41.5% upwards. In the example month, at 70% occupancy, every room above the 585th worked for profit, and the month closes with this operating result:
Variable costs: €13,820 · fixed operating costs: €42,100
GOP = 84,882 − 13,820 − 42,100 = €28,962 · margin 34.1%
How many rooms you would need for the same result at a different rate is a separate question: every euro of the rate changes the occupancy your target asks for.
Break-even is not one number — it moves
Same calculation, one change: every booking comes through an OTA at 20% commission. The rate in the system stays €86 — but only €68.80 reaches the bank.
Contribution: 68.80 − 14 = €54.80
Break-even = 42,100 ÷ 54.80 = 768.2 → 769 rooms
769 ÷ 1,410 = 54.5% occupancy
54.5 − 41.5 = +13 occupancy points
The commission raised the break-even by 13 occupancy points — from 41.5% to 54.5% — without a single hotel cost changing. It works the other way too: every euro your ADR gains brings the break-even down. Rate, channel and cost move the point all the time. That is why it is not a number for the business plan; it is a number for every month.
The seasonal trap: ownership costs run for 12 months
This is where a seasonal hotel trips up. In the example, the ownership costs — loan instalment and insurance — are €8,000 a month. They do not stop when the hotel closes.
They run 12 months: 8,000 × 12 = €96,000 a year
Spread over 6 open months: 96,000 ÷ 6 = €16,000 per open month
Cash break-even with one month’s charges:
(42,100 + 8,000) ÷ 72 = 695.8 → 696 rooms · 49.4%
Cash break-even with the whole year’s charges:
(42,100 + 16,000) ÷ 72 = 806.9 → 807 rooms · 57.2%
Count only the charges of the month you are open and the cash break-even looks like 49.4%. Count the winter too and it is 57.2% — almost eight points higher. Some operating costs also run in the closed months, such as the accountant and basic maintenance, and they work the same way. Ignore this and you get a “profitable” summer and a loss-making year.
The three most common mistakes
- Fixed costs only for the open months. Loans, insurance and basic maintenance are paid in winter too. They all go into the yearly bill, which is then spread over the months you work.
- Calculating with the gross ADR. If most bookings come through OTAs, a break-even at the list rate is an illusion — as we saw, the gap reaches 13 occupancy points.
- Once and never again. The break-even went into the business plan and stayed there, while energy, wages and the channel mix have all changed since. It needs recalculating at every real change in cost or rate.
Conclusion
CPOR tells you what each room costs, RevPAR what it brings in, and break-even where the two balance. Three numbers, calculated the same way every month, are enough to know where you stand at any time — so that every rate decision stands on solid ground, not on a feeling. And once a decision is made, it is worth keeping a record of what it was based on.
Mathematician with studies in hospitality management and years of night shifts in hotels. WisDom RM — and this blog — were born on the night shift.
LinkedIn ↗