"Is it worth selling it for €70 or not?" Every hotelier asks this, especially in low season, faced with a group request or a corporate deal. To answer, you need two numbers many hotels have never calculated: the variable cost of an occupied room and the full cost, which includes a share of fixed costs.
In this article we look at how to calculate the cost of a hotel room simply, and how to use it to assess any rate.
Two types of cost
- Variable costs: they only exist if you sell the room. Cleaning, linen and laundry, toiletries, breakfast, extra energy and water, commissions.
- Fixed costs: you pay them anyway, full or empty. Permanent staff, rent or mortgage, insurance, routine maintenance, software fees, basic utilities, marketing.
Step 1: variable cost per occupied room
Example for a double with breakfast (indicative values — use yours):
| Item | Cost |
|---|---|
| Cleaning (time × hourly cost) | €8 |
| Linen and laundry | €6 |
| Toiletries | €1.50 |
| Breakfast (2 people) | €9 |
| Extra energy and water | €3 |
| Variable cost | €27.50 |
On top of this come any commissions (OTA, agencies, cards), which are a percentage of the price. On a €100 OTA booking at 17%, that's another €17.
Variable cost is the absolute floor: below this figure (net of commission and VAT), every room sold loses you money.
Step 2: full cost
Now add the share of fixed costs. Example: a 30-room hotel open 200 nights a year, with €300,000 in annual fixed costs.
- available room nights: 30 × 200 = 6,000;
- at an expected 70% occupancy: 4,200 room nights sold;
- fixed cost share per room sold: 300,000 ÷ 4,200 = €71.40.
Full cost per room sold: 27.50 + 71.40 = about €99 (before commissions and excluding VAT).
This means that on average across the year, net price must exceed about €99 for the hotel to make a profit.
Step 3: using the two numbers to assess a rate
| Net price (excl. VAT, after commission) | What it means |
|---|---|
| Below variable cost (€27.50) | You lose money on every room sold: avoid |
| Between variable and full cost (€27.50–99) | You contribute to fixed costs: acceptable in low demand, if it doesn't damage your rates |
| Above full cost (€99) | You make a profit |
So, the €70 room? If that's net, in an empty period, it contributes to fixed costs (70 − 27.50 = €42.50 contribution margin). If it includes VAT and comes through an OTA, net drops below €52: still worthwhile, but much less so.
Break-even point
How many rooms must you sell to cover fixed costs at a given average price?
Break-even nights = Fixed costs ÷ (Average net price − Variable cost)
At an average net price of €110: 300,000 ÷ (110 − 27.50) = 3,636 room nights, about 61% occupancy of the 6,000 available. Above that, you make money.
How to use these numbers every day
- assess group requests and corporate deals: does the net price cover at least the variable cost plus a sensible contribution?
- set the minimum price for each period;
- decide on last minute. See how to sell rooms still available at the last minute;
- compare channels, accounting for commissions. See direct bookings vs OTAs: how to compare net revenue;
- decide whether to stay open in low season. See how to fill a hotel in low season without selling rooms short.
Frequently asked questions
Should I include VAT in the calculation?
Work with prices excluding VAT: VAT collected goes to the tax office and isn't your revenue.
Are staff a fixed or variable cost?
It depends: permanent staff are a fixed cost; overtime or seasonal staff linked to occupancy can be treated as variable. Pick a rule and stick to it.
How often should I update costs?
At least once a year, and whenever major items change (energy, wages, laundry).
Want to know your hotel's real costs?
With our free marketing audit we analyse your hotel's costs and revenue and help you set minimum prices and your break-even point. At our own hotels we use a custom cost and revenue analysis tool for exactly this.
