Hotel Inventory is More Perishable Than a Banana, That's why being sold out is actually losing you money

I’ve always felt that the term "Revenue Management" doesn’t quite capture the essence of what we’re actually trying to do. Personally, I think Revenue Optimization Management is a far more fitting title.

Why "Optimizing" and not "Maximizing"? Because every hotel, resort, or villa on the planet operates under a hard, physical cap: your inventory.

It doesn't matter how brilliant your marketing is or how high the demand spikes—it is virtually impossible to sell more than 100% of your occupancy. (And yes, I know we can technically push past that with day-use bookings or reselling non-refundable no-shows, but for this conversation, let’s stick to the physical reality of the rooms.) You cannot sell a bed that doesn’t exist.

Logic would suggest, then, that a hotel hits its peak performance when it's consistently sitting at 100% occupancy. If every room is full, you’ve won the game, right?

Well, not quite. What if I told you that being consistently at 100% occupancy is actually a massive red flag? What if being "Sold Out" is actually proof that you’re losing money?

Price Elasticity and the 100% Occupancy Trap

Let’s talk about "Price Elasticity of Demand." It’s a fancy-pantsy way of saying a very simple thing: every time you increase your price, the number of units you sell goes down. Conversely, when you drop the price, you sell more. This is as true for a hotel room as it is for a loaf of bread.

Imagine you own a 10-room boutique hotel. You sell each room for $100 per night, and for the past three years, you’ve been consistently hitting 100% occupancy. That’s $1,000 a day, $30,000 a month. You’re happy. Life is good.

Then, you stumble upon an article by a group of data nerds called Revtank who claim they can boost your revenue. Intrigued, you arrange a meeting with their head honcho. After looking at your numbers, he tells you the first thing he’s going to do is raise your price to $120.

You’re horrified. "You’ll ruin my perfect 100% occupancy!" you shout.

But then he shows you the math. At $120, your occupancy drops to 90%. You’re selling 9 rooms instead of 10, but your daily revenue is now $1,080. That’s $32,400 a month—an extra $2,400 just for changing a number on a screen. Plus, with one less room occupied, your laundry costs, utility bills, and manpower needs all go down. Voilà! You’re optimized.

This works because the increase in price (20%) was greater than the drop in rooms sold (10%).

"But wait," I hear you ask, "what if I increase my price by 20% and my occupancy drops by 30%?"

That is exactly why you don’t do it in short, erratic bursts. You do it little by little. Start with a 5% increase—heck, even 3%. Hold that price for three months or even a year. Watch the data. If the occupancy drop is less than the price gain, you move again at the end of the period.

This is where your review scores, marketing efforts, and brand image step in. The stronger those are, the less "elastic" your demand becomes—meaning you can squeeze a few more dollars out of the stone before people start looking elsewhere.

For now, just remember this: 100% occupancy usually means you’re selling too cheap. "But Yohanes!" someone in the back asks, "My hotel is at 70% occupancy day in and day out. That means I’m 'optimized' and have plenty of room to grow, right?"

Oh, my sweet summer child. You are just on the other side of the same trap. You aren't "optimized"—you’re selling too expensive...

Bananas, Cinderella, and the Danger of Unsold Rooms

Contrary to popular belief, a hotel room is far more perishable than a banana.

Think about it: an unsold banana can still be sold tomorrow. It stays good for a week—maybe two if you put it in a fridge. Even if it gets a little brown, you can turn it into banana bread, smoothies, jam, or muffins. But your hotel inventory is more akin to Cinderella. Once the clock strikes midnight, the carriage turns back into a pumpkin, and your unsold room evaporates into the mists of history, leaving nothing behind but the faint, ghostly scent of a missed opportunity. There is literally nothing you or anyone else can do to recuperate the revenue of an unsold room from last Tuesday. It is lost forever.

Let’s go back to our 10-room hotel. If you are selling at $100 and consistently hitting only 70% occupancy, you are leaving money on the table. If you drop your price to $90 and that cause your occupancy to jump to 90%, you’ve just made more money. In this case, the increase in rooms sold outweighed the drop in price.

Because an unsold room is a total loss, it is—in an extreme sense—better to sell it for $1 than to let it sit empty. Better yet, sell it at your "Room Cost." You won’t make a profit, but you won't take a loss either. If you aren't sure what your Room Cost is, or have no idea how to calculate Fixed vs. Variable costs, stay tuned—I’ll be breaking that down in detail next month.

Beyond the daily loss, consistent 70% occupancy is a waste of your original investment. You spent a huge sum of money to build 10 rooms. If three of them are consistently empty, you might as well have only built seven or eight, right? Why pay for the construction and maintenance of space that isn't working for you?

This can spiral into all kinds of strategic rabbit holes, but for now, just know this: 70% occupancy means you’re selling too expensive.

I see one of you raising your hand in the back. Worry not, my friend, I know exactly what you’re going to ask: "If 100% is too cheap and 70% is too expensive... where is the sweet spot?"

The Balancing Act: Price vs. Occupancy

There is no "magic" number that applies to every single property. Every Revenue Optimizer has their own philosophy on what the perfect occupancy should be. Personally, I prefer the 85–90% range. If you manage a larger property with 100+ rooms, you can even aim higher, toward 90–95%.

By now, you’ve probably realized that Revenue Optimization is essentially a high-stakes balancing act between price and occupancy. But if it’s all just math, where do the alluring photos, the high review scores, and the social media presence come in?

This is where Perceived Value changes the game.

All those marketing efforts make your hotel more desirable. The more people want to stay with you, the less "price-sensitive" they become. When you have a 4.9-star rating and a stunning website, you can increase your price significantly and the drop in demand will be minimal—people aren't just looking for a bed; they are looking for your bed. Conversely, when a highly desirable hotel drops its price even slightly, people scramble for the deal because they know the "worth" exceeds the "cost."

So, what should you do if you aren't in that 85–90% "Sweet Zone"?

• If you’re above the zone (95–100%): Congratulations! Now, start increasing your price little by little. Remember, this isn’t a sprint; it’s a marathon. Keep a hawk-eye on your occupancy as you nudge the rate up.

• If you’re below the zone (Under 80%): Drop your price and get above the sweet zone as fast as you can. Don't just aim for 85%; aim for 95%. Once you’re consistently "too full," sit there for a while. Let the market settle. Stay there for at least a year. Patience is the secret ingredient here.

  
  

One final rule of thumb: Data needs time to breathe. You need at least 100 days of data to see a real pattern. Don't go changing your rates every week based on a "feeling." Keep your price steady for at least three months—ideally a year—to see how the market truly reacts. Remember, the occupancy levels I’m talking about are measured over a 12-month period, not a single weekend.

If this sounds like a lot of heavy lifting, it is. But you don't have to do it alone. My team and I at Revtank are more than happy to run the numbers for you. Feed us some pizza and a cold cola, and I’ll gladly be your human calculator.

Next month: I’m taking a detour into the realm of finance and accounting to talk about Fixed vs. Variable Costs, and why following your competitor’s pricing is a surefire way to get royally screwed.

---

Disclaimer: All thoughts and insights in this article are my own. I use AI to tidy up the grammar and make it more enjoyable to read.