Vacation Rental Business Models

▶ Why market listings?

Vacation rental management services are on the rise as property owners continue to invest in them to secure bookings, optimize revenue and increase customer service. Vacation rental managers look after the day-to-day running of vacation properties. In general, property owners tend to adopt 1 of 3 main business models: Fixed Rent, Gross Price or Net Price.

Fixed Rent Model: the property manager pays a yearly and guaranteed fixed amount to the owner and then collects all the income that the unit generates.

Gross Price Model: the property manager gets a commission equal to a percentage of total revenues.

Net Price Model: the property manager sets the price in order to meet the owner’s expectations of yearly rent. The property manager nets the difference of Total Income minus Rent Expected by the owner.

▶ Gross Price Model

The majority of managers operate on a commission based structure, taking a percentage of the bookings they make. The commission percentage can range from anywhere between 10% and 50% depending on the company and the location.

The Gross Price model, usually includes flat rate fees for additional services, such as cleaning and maintenance, which is not included in the commission. Usually, vacation rental managers offer marketing and channel distribution as free.

According to the 2018 European Vacation Rental Survey, 50% of property managers follow a Gross Price model. Additionally, although 33% of property managers follow a mixed model, it must be noted that 68% of the time Gross Price was used more than any other model amongst those that followed a mixed business model. However, despite the Gross Price model continuing to be the most followed method amongst property owners, other models are gaining popularity.

▶ Fixed Rent Model

A Fixed Rent contract ensures that the owner has a guaranteed monthly income, regardless of whether the property is rented or not. The property manager will earn anything above the owners fixed rate. The 2018 European Vacation Rental Survey confirmed that, although less common than the Gross Price Business Model, 9% of vacation rental management services followed this method.

This allows the vacation rental manager to have more control over the property, the ability to choose how to rent it and it gives them the opportunity to earn 100% of the rental income above the monthly rental sum that will be paid to the owner. This also gives property owners a sense of security, guaranteeing them a fixed income.

▶ Net Price Model

The Net Price model, although the least popular, with only 8% opting for this method, is still prevalent in the vacation rental industry. In this case, property managers have an already agreed upon income.

Conclusion

It is important for property managers to choose a business model that works for them. Some property managers prefer a fixed rate and guaranteed income, whereas, others choose a more flexible option that gives them the freedom to decide.

Nevertheless, it is important to ensure that your property manager has a well-thought-out revenue management strategy to ensure your listings’ pricing and occupancy are optimized. Transparent’s Dashboards allow you to monitor your competition to ensure that you are optimizing your rates and staying up to date with market trends. It gives you all the data you need in one place, so that you can focus on what really matters.

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