Is your attraction operating at its full potential?
The capacity utilization metric can help you find out.
Measuring your capacity utilization rate can highlight your most and least popular listings, as well as which time slots are selling out.
In this post, you’ll learn how to use a capacity utilization formula to better understand your inventory and make informed decisions to boost your profit margins.
- Ideal Utilization Rate
- Calculating machine capacity utilization
- Calculating occupancy and utilization
- Calculating headcount utilization
What is capacity utilization?
Capacity utilization is a measure of a company’s actual output compared to its potential output.
A capacity utilization report can, for instance, show you how many of your listings were booked at or above 75% in the last month — and highlight those operating under 25% capacity.
With this information in hand, your attraction could then make informed staffing and pricing decisions to maximize your revenue and profit margins.
This sophisticated pricing and inventory technique is also known as yield management. It was initially pioneered by the airline industry to help maximize revenue per airplane seat.
A booking platform like Xola can provide you with a detailed capacity utilization report that breaks down your most popular tours and experiences at any time slot. If you operate an escape room attraction, for instance, you could find out how often your rooms are booked at full capacity.
When you have a good grasp on your inventory, you’re able to better allocate resources like equipment and staff, as well as make smart pricing decisions to boost your revenue.
The key differences between capacity utilization and operational efficiency
As you now know, capacity utilization is an advanced inventory and pricing technique used to boost your profit margins.
It’s the relationship between potential maximum output and the actual number of tours or tickets you’re selling.
Measuring your capacity utilization can help you make decisions about your resources — such as knowing when to hire new staff or adjusting tour guide schedules to meet tour demands. Let’s say you run a food tour company and find that your capacity is reaching 100%. Your tours are sold out, and your guides are fully booked.
To accommodate additional guests, you’d likely need to add a new time slot and hire a new guide.
Operational efficiency, on the other hand, is the relationship between an attraction’s output and input.
It refers to completing a task with fewer resources, whether that be time, equipment, staff, or capital. An attraction that’s able to decrease operational costs while hosting more guests will see a boost in its operational efficiency.
For example, if you run a museum, one way to increase your operational efficiency is to ensure you’re making the best use of your current staff.
After studying employee schedules, you realize that you have 15 staff members working on your slowest days, while the same number of employees are working over the weekends. To boost your operational efficiency, you decide to decrease the number of employees working during the week.
Instead, you shift one or two of them to Saturday and Sunday to assist with your current staff. As a result, you’re now using your resources more efficiently.
Why should travel and tourism companies care about measuring capacity utilization?
Can you name your most popular tours or experiences off the top of your head? Now, can you tell us how often those tours or experiences are fully booked? Xola’s capacity utilization report can help you figure this out.
Measuring your capacity utilization can tell you how many of your listings were booked at or above 75% capacity in the last month. Perhaps more importantly, it can also show you how many were operating under 25% capacity.
This means you can track how specific listings, tours, or experiences are faring over time. You can then make any necessary adjustments to pricing, staffing, or resources based on that data.
For example, a zoo operator might run a capacity utilization report and find that its afternoon shifts are running at near-full capacity, while no one is visiting in the morning.
After finding this out, you decide to open later in the day and keep the zoo open into the evening. You might also launch a marketing campaign focused on driving more visits during your slow hours.
Another benefit of measuring capacity utilization is being able to change your prices to match ongoing fluctuations in supply and demand.
For example, you might offer a discounted rate for the morning slots every time someone lands on your website. This Lightning Deal might persuade more people to book the less desirable time slot so that you’re operating at full capacity.
What’s the simplest capacity utilization formula?
The easiest way to find your capacity utilization rate is to divide the actual capacity of your tours by the total capacity, then multiply by 100.
Capacity Utilization Formula: (Actual Capacity Being Used / Total Capacity) x 100
Any number under 100% indicates that your attraction is operating at less than its full potential. Below, we’ll talk through ideal capacity utilization rates based on industry benchmarks.
Additional ways to calculate capacity utilization
Let’s take a look at a few different ways you can measure capacity utilization.
Ideal Utilization Rate
Many businesses want to find the best capitalization rate for their particular company. While some look to industry benchmarks, others calculate an ideal rate based on business costs, pricing, and profit.
With this formula, you can better determine the ideal utilization rate for your company to reach its desired profit margin.
Ideal Utilization Rate Formula: ((Resource costs + overhead + profit margin) / Potential capacity x Billable rate) x 100.
Let’s say you run an escape game company. Your employee costs you $50,000 per year, and the overhead costs for that employee amount to $500. The billable rate for this employee is $55 an hour, and they have the capacity to work 25 hours per week for 48 working weeks per year. Meanwhile, your ideal profit margin is 8%. What’s your ideal utilization rate?
($50,000 + $500 + $4,040) / (1,200 hours x $55 an hour) x 100 = 82.6%
Therefore, your ideal utilization rate would be 82.6%.
Calculating machine capacity utilization
Machine capacity utilization is a manufacturing metric that shows how well a company’s machinery is being utilized. It can be used to identify problems in a manufacturer’s production line, such as having too many or too few working machines.
You can calculate it by finding the actual output of a machine and dividing it by its potential output, then multiplying by 100.
For example, if a manufacturer’s performance is low, it might look into whether one of its machines needs to undergo maintenance.
Calculating occupancy and utilization
To measure occupancy and utilization, you could use the formula:
(Actual Occupancy / Potential Occupancy) x 100 = Utilization Rate
For example, if you run a helicopter tour company and each day you have two flights with four seats in each one, you have a maximum occupancy of 8 people per day.
If you sell 6 spots, you can figure out your utilization percentage by dividing 6 by 8. This means that you are operating at 75% capacity.
Calculating headcount utilization
Calculating your employee utilization rate can help you see how well your current staff is being utilized. You’ll then be able to determine if hiring new staff members is necessary.
- Calculate the number of hours an employee is on the clock during a standard week.
- Calculate how many hours the employee is actually working, such as how many hours a tour guide is actually giving tours.
- Divide the hours worked by the total hours the employee was available during the week.
Capacity utilization benchmarks
While it varies by industry, most companies and economies strive for a capacity utilization between 85% and 100%. Headcount or employee utilization rates should be around 85% to 90%, according to HubSpot.
In conclusion, measuring your capacity utilization rate can help your attraction reach its full potential.
You can not only leverage Xola’s capitalization report to sell out your tours but also maximize your profits.
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