The vacation rental industry is expanding and it is becoming more important than ever for property managers to ensure that they are maximising their revenue. With professionalism and regulation on the rise it is increasingly difficult to create points of difference and grow, and pricing strategy is one of the few remaining levers for PMs to impact their bottom line, and one of the greatest challenges.
In October 2018, Transparent published its first annual European Vacation Rental Market Survey. The survey, composed of 27 key questions, was answered by 552 Property Managers across Europe. This data has provided us with key insights into current pricing strategy in the short-term rental market.
PMs were initially asked how often they update their rates. The results show that more than 50% of PMs claim to update their rates at least once a week, however, one-fifth of PMs only update their prices yearly! Although this is fairly positive, there is still room for improvement as 48% of property managers update their rates once a month or even less.
A further investigation into how frequently PM’s update their rates relative to their size showed interesting results. For example, 32% of PMs with 50-99 properties update pricing for their listings only once a year. It is no surprise that there is a direct correlation between the number of properties a PM has and how often they update their prices: larger PMs tend to update their prices more often. However, the results demonstrate that many PMs have little or no active pricing strategy, and are likely leaving money on the table.
What is the problem with not updating your pricing? How ADR changes through time:
This graph shows us that the average rate that a night is sold for can change dramatically as the check-in date draws closer. In other words, the demand and value of the booking is fluctuating through time.
This is largely because as a vacant date approaches, the opportunity to sell it decreases, and so it often makes sense to offer a discounted rate to increase demand and therefore the likelihood of selling. On the other hand, with enough days before arrival and ahead of peak demand, it makes sense to offer a rate in excess of the expected ADR for that given date.
Think about it, if the ADR in your competitive set is $50 higher 3 months prior to check-in, any sale you make at overall ADR is losing you $50/night. Meanwhile, if the average advertised and booked rate 3 days before arrival is $50 lower than ADR, setting rates at ADR will leave your property with a lower perceived value relative to your competitive set and therefore lower demand.
However, an alternative situation may see PMs hold stronger rates close to check-in dates if demand is strong enough, for example if there is a local event and occupancy levels are already satisfactory.
Ultimately, it comes down to the demand for an available night and this will fluctuate through time. Our pricing should be sensitive to demand, and so it is easy to see that the rate we can achieve for a given property on a given date may look different at different points in the booking window. Updating your rates regularly is crucial!
Overall, PMs are faced with an ongoing and challenging question: what is the best pricing strategy for my vacation rental? If prices are too high, they risk low occupancy rates. But too low prices result in PMs losing out on revenue. Understanding what underpins optimised rates and implementing an informed strategy is instrumental in the success and growth of any PM.
How can Transparent help you?
- Are you interested in learning how to strategise and optimise your rates? Work through our online course in short-term rental revenue management and maximise the revenue from your inventory. Join through this link and the first 25 will get free access to the full course, valued at €249.
- Already have the know-how but need the right tools to track your performance and your competitors? Ask us for an online demo here (https://www.seetransparent.com/pms.html) and see how Transparent can help you maximise your revenues today.