Is my rental profitable? Break-even occupancy and price

Why break-even is the first number to know

A busy calendar can hide a loss. You can be booked most of the month and still lose money if your price is too low for your costs. You can also be half empty and doing fine. Occupancy on its own tells you very little.

Break-even turns your costs into two numbers you can act on:

• Break-even occupancy: the share of nights you need to fill, at today's price, just to cover your costs.
• Break-even nightly price: the price you need, at an occupancy you think is realistic, just to cover your costs.

Anything above break-even is profit before tax. Anything below it, you are paying for guests to stay.

Step 1: list every cost

Go through your bank statements for the last few months and list everything the rental costs you. Then sort each cost into one of two groups.

Fixed monthly costs stay the same whether you have zero bookings or a full month.

Per-stay costs happen every time someone books.

Some costs sit in between. Utilities rise a little when the home is busy. Keep it simple at first: put each cost in whichever group it mostly behaves like. The two biggest mistakes are leaving costs out entirely and forgetting the annual ones, such as insurance and licences.

The platform fee is a per-stay cost too, but it is a percentage of the price, so it gets its own step.

Step 2: your take-home per night

Your nightly price is not what you keep. Airbnb takes a service fee first.

Airbnb's service fee page describes two structures (help 1857). Under the single fee, "the entire fee is deducted from the host's payout", and it says "Most hosts pay 15.5%". Under the split fee, part is paid by the host and part by the guest, and it says "Most hosts pay a 3% service fee, but some pay more." The same page says the single fee is mandatory for most hosts, including hosts who use property management software.

So:

Take-home per night = nightly price × (1 minus your fee rate).

Use your own rate, not a blog's. The fee you actually paid is in your earnings report, covered below. If you list on more than one platform, work out a take-home for each.

Step 3: per-stay costs as a per-night amount

Your per-stay costs happen once per booking, not once per night. To compare them with your nightly take-home, turn them into a per-night amount:

Per-night share of per-stay costs = per-stay costs ÷ average nights per stay.

If you charge guests a cleaning fee, take the cleaning fee you keep after the platform fee off your per-stay costs first. If it covers more than your cleaning, the difference helps cover your fixed costs.

Step 4: break-even nights and occupancy

Now you have what each booked night contributes to your fixed costs:

Contribution per night = take-home per night minus the per-night share of per-stay costs.

Then:

Break-even nights = fixed monthly costs ÷ contribution per night.

Break-even occupancy = break-even nights ÷ nights in the month.

Round break-even nights up, because you can't book part of a night.

Step 5: break-even nightly price

The other way round is often more useful. Pick an occupancy you think is realistic for your home and season, based on your own history, and find the price you need:

Target nights = nights in the month × target occupancy.

Break-even nightly price = (fixed monthly costs ÷ target nights + per-night share of per-stay costs) ÷ (1 minus your fee rate).

That price only covers your costs. If you want a profit, add the profit you want per month to the fixed costs before you divide.

A worked example

The numbers below are round, invented numbers to show the arithmetic. They are in your currency and they are not data about any market. I've used a 15.5% fee rate as the example because that is the rate Airbnb's page says most hosts on the single fee pay. Use your own.

The example home:

• Fixed monthly costs: 2,000 in total.
• Per-stay costs: 60 per stay (cleaning, laundry and consumables).
• Average stay: 3 nights, so the per-night share is 20.
• Nightly price: 150.
• A 30-night month.

Now the other way round. Suppose the host thinks 60% is realistic for this month. That is 18 nights.

So in this example, at 150 a night the home needs about 63% occupancy to break even. At 60% occupancy, it needs about 155 a night. Neither number includes any profit or any tax.

The free break-even calculator does these sums for you: put in your monthly costs, nightly price and platform fee, and it gives you your break-even occupancy and break-even nightly price.

Check it against your real payouts

The formula is only as good as the numbers you put in. Your earnings report is where the real ones live.

Airbnb's page on downloading your earnings says you can get a report from Earnings, and that the spreadsheet includes your earnings, host service fees, cleaning fee if you charge one, "as well as gross earnings and any taxes withheld" for each earning (help 3632). The PDF report adds performance stats such as nights booked and average length of stay.

A quick check once a month:

1. Download the report for the month.
2. Add up the host service fees and divide by gross earnings. That is your real fee rate.
3. Count booked nights and divide by nights in the month. That is your real occupancy.
4. Use the average length of stay to check your per-night share of per-stay costs.
5. Put the real numbers back into the formula.

Payouts don't always line up neatly with months. A stay that crosses the end of a month, a refund or an adjustment can move money from one month to the next. If a month looks odd, look at the individual bookings before you change your price.

Seasons change everything

One month tells you little. Many homes have busy months and quiet months, and the quiet months still carry the full fixed costs.

So work out break-even for each month, not just for an average month. A home that clears break-even easily in summer can fall short in winter. The answer might be a higher summer price to carry the winter, lower costs in quiet months, or accepting that some months lose money as long as the year comes out ahead. That is a business decision, and it is yours.

Keep records as you go

Break-even is easy to work out when your records are tidy and miserable when they aren't. For every booking, write down the booking amount, the fee, any cleaning fee and what reached your bank. For every cost, keep the receipt and note which property it belongs to if you have more than one.

If the fee change is your main worry, the guide on pricing around the host-only fee shows how to reprice so your take-home stays the same.