The vacation rental industry has exploded in the past few years because you can make more money with less hassle with a short-term rental over a long-term lease. But vacation rental management is still a business with the goal to maximize revenue. That’s why it’s important to understand the key points and tips for vacation rental revenue management.
The simple solution is to increase your nightly rate, right? Not quite. It’s an intricate dance between marketing, pricing, and demand. Vacation rentals are businesses, as such, they are still subject to the basic economic principle of supply and demand. The market wants to buy something (demand) and businesses sell it to them (supply). It’s not a unicorn industry where we are exempt from this principle. According to VRMintel in their article, Revenue Management Essentials for the Vacation Rental Industry, inventory is king but pricing is queen and you need to be versed in both for successful vacation rental revenue management.
Know Your Data
As the cliché goes, “if you fail to plan, you plan to fail.” No one wants that, right? When starting to make strategic plans you first need to know your numbers. For most people math is hard but we aren’t talking rocket science here. You need to know a few KPIs (Key Performance Indicators) that will help you track what’s going on. Knowing your numbers will help you make better decisions so you can maximize your vacation rental revenue.
- Occupancy Rate: This is the number of nights you’ve sold divided by the total number of nights you have to sell. While a high occupancy rate is good, too high might indicate that your rates are too low because you are selling out.
- Nights sold/total nights = occupancy rate
- Average Daily Rate (ADR): Your total unit revenue divided by the nights sold will give you the average daily rate. The higher the rate the more money you are making. But if it’s too high then your occupancy rate will decrease indicating that your rates might be too high for the market. See the delicate dance that is forming here?
- Total unit revenue/nights sold = ADR
- Revenue per Available Rental Night: To start to see how this dance works you can take the occupancy rate times ADR to understand your revenue per available night. To maximize your vacation rental revenue you’ll want to find that sweet spot where you are getting the most per night you can and the highest occupancy. Refer to this article by KeyData Dashboard to see a great example of this in action.
- Occupancy x ADR = RevPAR
Adjust Nightly Rates on the Fly
Understanding your data is important but adjusting your rates is a key player in vacation rental revenue management. If on Monday you have availability for the coming weekend, it might be time to lower your rate and get bodies in your beds (and not in a serial killer kind of way). Isn’t it better to sell your unit at a lower rate and make some money than to have no one stay and make zero money? Adjusting rates on the fly is the art to the science we talked about above. Monitoring and adjusting nightly rates should start a few weeks prior so that you have some time to sell at the new rate but reviewing rates weekly is smart so you can fill your units for the most money.
Personalize Your Marketing
We can’t talk about vacation rental revenue management without talking about marketing. While supply and demand is real, we don’t live in a world where “if you build it, they will come”. You have to let people know that you have a vacation rental. We have all kinds of great blogs where you can dive into marketing strategies for Instagram, websites, and email. But personalizing your marketing to really connect with your guests will help them make the decision to say, “yes, I want to stay there!” Everyone wants to feel special. One of the easiest ways to personalize your marketing is to segment your list. This way you send personalized emails and specials to guests that would be interested. For example, you don’t want to send people in Florida a winter email promotion to get out of the snow. If you have your list segmented you can send that winter special to those that are getting snow, and encourage them to book a stay in your warm, sunny, location.
There is an art to the science of vacation rental revenue management. The science is in the numbers but the art is in going with your gut to price and promote. With a few simple data points, a couple of great tools, and some marketing savvy, you have a recipe for maximizing your revenue. Download our KPI worksheet to get some of the calculations done and let us know some of your best revenue management tips.