Rented is made up of revenue management experts and, together, we’ve priced thousands of listings for vacation rental managers across every market and for every unit type.
Dynamic pricing is the key to unlocking the potential of every rental and increasing the revenue potential for every vacation rental business. Here are our biggest takeaways from pricing thousands of vacation rentals (no, really) for hundreds of property managers (actually).
Takeaway No. 1: “Set and Forget” Pricing Is Dead
If you’re new to revenue management or haven’t heard much about dynamic pricing, here’s the nutshell version: For much of the industry’s existence, vacation rental managers relied upon setting a fixed price for a property to ensure the maximum return on the investment for homeowners. Plus, fixing a rate meant less time or fuss for the manager (particularly if a homeowner was previously managing a property themselves).
But fixed pricing, we’ve learned, leaves money on the table. If your rates are the same every night—whether someone is booking a month in advance or two nights before, whether it’s a holiday, weekend, or just a Wednesday—then you’re really not optimizing the property’s potential or making it appealing to a wide audience.
While dynamic pricing has been a popular practice in the hospitality industry for years, we can credit online travel booking sites (OTAs) like Airbnb and Vrbo for bringing the practice to vacation rental management. OTA algorithms tend to reward property managers who use dynamic pricing strategies by moving their listings higher up in a search, granting them coveted visibility to more potential bookers. And since so many short-term rental managers use OTAs as a means of promoting their inventory and reaching as many guests as possible, dynamic pricing has become table stakes.
Dynamic Pricing Requires Human Intervention
Great, you say! You’re off to find yourself a dynamic pricing tool. But don’t expect to “set and forget” your dynamic pricing tool, either. Dynamic pricing does not happen on its own, no matter how sophisticated the software might be. However, a dynamic pricing tool is a great start and on its own often leads to a dramatic improvement in revenue generation. That being said, the tool only unlocks a portion of the full potential.
Getting into the nittiest and grittiest factors of dynamic pricing—the kinds of details only a human with experience in a particular market with a particular inventory of properties would know—is what can take your revenue management strategy from good to amazing. But it requires an expert touch, either in-house or outsourced.
Takeaway No. 2: Price Management Is Only the Beginning
Revenue management strategy goes beyond dynamic pricing. It’s a holistic approach that touches everything from calendar restrictions and fees to listing details. When you can effectively manage all of these various aspects, you can tap into your return on investment in a whole new way.
Optimize Your Listings
To begin with, making your listings appealing and informative is what turns lookers into bookers. So, put your property’s best foot forward. Add high-resolution photos (and plenty of them, including some cute “scene-setting” shots to help the potential guest see themselves in the property). Include a scannable description that highlights the property’s best features, as well as area “must-sees” and a direct booking option for user-friendliness.
Set Your Rates up for Success
In order for your dynamic pricing tool to work its magic, you have to give it a little information first. This starts with measuring a property’s market sensitivity—in other words, creating a profile of the property (its size, seasonality of the area, and peak days), and then comparing it to similar listings to price the property accordingly. Once you have a grasp of where the property fits into the market, you can tailor your base rates to make them even more precise. These will help guide your dynamic pricing tool’s (and revenue managers’) recommendations for adjustments.
Keep Your Calendar Flexible
Like fixed rates, minimum stays were a popular tool in the early days of vacation rentals. Requiring guests to stay for a certain period of time at a certain price was a way to lock down a minimum amount of profit. But the practice can be incredibly restrictive, limiting the types of guests who can feasibly afford to book a vacation for that amount of time and money, which could leave you with big gaps in your calendar.
If you have a five-night minimum and 60 percent of searches are for three-night stays, your homes aren’t even getting in front of potential guests. Know what your guests and potential guests want today and adapt accordingly.
Takeaway No. 3: X’s Are Better than O’s
Getting $X amount for a night (so long as it clears your profitability hurdle rate) is better than $0. More bookings equals more revenue. It’s that simple.
Let’s do a little thought experiment. Imagine a two-bedroom, one-bathroom beach rental. It’s late summer, the final few glory days of the season for this property. You could set a rate at $300 a night and a minimum stay of five days (and take a booking for Saturday through Thursday) and earn $1,500 on one stay.
But what if, instead, you offered something more flexible, with several different prices like:
- $550 on the weekend (Friday/Saturday) with a minimum stay of two nights
- $250 Sunday
- $200 Monday through Tuesday
- $150 on Wednesday
- $300 Thursday
If you booked the weekend alone, you’d earn $1,100. And without the five-day minimum stay, you allow more bookings to occur, which only increases your revenue, even at a lower nightly rate. Booking this entire week could earn you $2,200, $700 more than you would have made in the first example.
Allowing a more flexible calendar and strategically changing your prices can also help fill in gaps in the calendar, making it more likely that the property will hit (or exceed) occupancy goals. More nights booked means more money.
Takeaway No. 4: The More Flexible Your Pricing, the Bigger Impact You Have
Using dynamic pricing to drive your revenue strategy offers more ways to impact your bottom line. A dynamic pricing tool can help keep your properties in line with the rest of the market, ensuring that your units are never too expensive or underpriced. The more “accurately” your properties are priced (for the market, for the time of year, for the day of the week, for the amenities provided, for the events that draw travelers), the more likely guests will be to book, which will increase your revenue and net income.
Save yourself the exercise of pricing thousands of properties. With a little help from a dynamic pricing tool, you’ll be well on your way to achieving and exceeding your revenue goals.
Debi Steigerwald has been a marketing leader at high-performing technology-focused startups for over 15 years, and a strategic leader with tactical knowledge in planning, directing, and implementing multiple successful teams and large budget projects with measurable ROI. With several years of marketing leadership at Vacasa, Xplorie, and Rented, she has experience as both a property manager and a vendor/supplier to the industry and has presented at many industry conferences.