Vacation Rental Revenue Management

The vacation rental industry is becoming more sophisticated. 57% of vacation rental property managers adjust their rates less than quarterly. Property managers must adopt more advanced revenue management strategies to maximise their profits and to stay ahead of the game.

▶ What is vacation rental revenue management?

Revenue management is the method of using analytics to examine availability and price, and predict guests’ behaviour with the aim of maximising revenue.

Vacation Rental Revenue Management is the key to maximizing profit. Revenue management is a pricing strategy that looks at the supply and demand to optimize profits. In short, vacation rental revenue management ensures that a property has the right rate, on the right channel, at the right time.

▶ History of revenue management? Marriot started in 1990s

The concept of revenue management was developed by Ken Littlewood and British Airways, (then the British Overseas Airways Corporation) in the early 1970s. Littlewood implemented a formula to optimize revenue depending on the supply and demand of airline seats. American Airlines followed in Littlewood’s footsteps, coining the term Yield Management and focusing on maximizing revenue through analytics driven inventory control, which led to profits increasing by 48%.

The success of Yield Management in the airline industry led to Bill Marriott, CEO of Marriott International, adopting a similar method to address issues in the hotel industry: unsold hotel rooms, advance room bookings, lower cost competitors and varied supply and demand. Marriott introduced revenue management to the hotel industry, and by the mid-1990s, their annual revenue increased by more than $150 million.

The vacation rental industry has emerged as a major competitor to hotels in recent years and $1 in every $4 spent on short-term accommodation is spent on vacation rentals. Nevertheless, revenue management in the vacation rental industry is a fairly nascent method.

▶ 2 components of revenue (ADR and Occupancy Rates)

The understandings of competitor rates and managing occupancy are essential components of revenue management. These two metrics have the most impact on a property manager’s revenue, defined by the following formula:

Total Revenue = Occupancy Rate x ADR

Vacation rental property managers look after the day-to-day runnings of the properties and tend to adopt different vacation rental business models. It is important to choose a manager that has a business model that fits with your strategy.

In vacation rental terms, the supply is the number of available nights and the demand is the number of visitors looking to rent. Prices are adjusted to make the maximum profit at a property and there are two main components to this strategy.

  • 1.To determine the highest price that can be charged without reducing occupancy
  • 2.To adjust the rate depending on the supply and demand

What to consider:

There are some important factors to take into account when thinking about revenue management and pricing your vacation rental.

  • Competition - such as the number of bedrooms and location
  • Seasonal demand and weekday/weekend demand
  • Events - check out the AB Apartment Barcelona, strategy on revenue management during events.

A revenue management strategy enables property managers to reach their goals. It is necessary to collate all historic, present and future data to compare occupancy and prices. Understanding historic data and forecasting performance is crucial in realising potential revenue.

The largest property managers tend to employ a revenue manager. Although revenue management is an extremely effective discipline, specialist knowledge is often required to make the most of it. Revenue managers have different KPIs, such as Roberto from Hintown who focuses on the availability of a listing, and different strategies, such as Djamal from Cocoonr who approaches each property differently. However, they all use data as an essential tool to get the most relevant information of the market and their competitors.

▶ Why is data essential for vacation rental managers?

By NOT using data, vacation rental managers often:

  • Set a fixed price and, therefore, do not update their prices regularly, leaving money on the table.
  • Attempt to alter their prices without all the information. This is incredibly time-consuming as they would have to review every competitor’s listings, prices and occupancy.
  • Trust a pricing software. This is expensive and often faulty.

Using data can help a vacation rental revenue manager:

  • Monitor competition to ensure that their rates are optimized and aligned with the market trends.
  • Save time: all the data will be complete, updated and ready for an analysis. If all the data is in one place, vacation rental revenue managers can look at all the necessary information in a single glance to get a better understanding of their market.
  • Stay in control with better knowledge of the market and pricing. This enables them to focus on what they do best: optimizing prices and maximizing revenue.

▶ Maximize your Vacation Rental Revenue

Pricing a listing is a complex topic. A listing’s rate should be sensitive to demand and its characteristics - who is booking, how, what and when are they booking? If we accept that the maximum rate that we can sell a unit at (whilst achieving a level of occupancy) under varied conditions fluctuates, it follows that our pricing must be intelligent to this and fluctuate accordingly.

Transparent provides property managers with all the necessary data in their vacation rental market. This allows property managers to easily decide on the best pricing strategy for their vacation rental business.

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