As children, we’ve all heard older people say things like, “when I was a kid, gasoline was only 50 cents a gallon (that’s about € .10/liter for our European friends)!” At the time, we rolled our eyes because we didn’t understand the power of money. Now, as adults, we know it all too well. Everything is priced according to its value — a value that is constantly changing. It’s a lesson we learn regularly in short-term vacation rental management. Seasons, special events, locations and regular upkeep all have effects on the rate we can charge to book our properties, and all of these elements are in a state of constant change. We now know that the key to gaining mastery over your pricing strategy lies in revenue management.
The active practice of the concept was started by the airline industry after a period of deregulation in the 1970s. BOAC (British Airways) began offering discounts for advance purchases with some success. Then, American Airlines began a program of analytics-based inventory control that led to modern revenue management. Today, using this type of information, all airlines are able to price each seat, based on a number of criteria, to make the absolute most revenue possible.
While we in short-term and vacation rentals are a fairly young industry, short-term property managers have been quick to adapt to successful techniques that help us wrest every last dollar of revenue from each property. After all, that is our job, aside from regular operations and maintenance.
The foundation of successful revenue management in short-term rental rests on collecting data to identify a property's strengths and weaknesses. While you likely already know them, it's important to record and track them so that you can constantly hone your model to maximize your profit.
Here are some things to consider:
- Booking patterns based on your current reservation system
- Exact season start and end dates (peak, shoulder, off)
- Temperatures (patterns, as well as extreme highs and lows)
- Geography (mountains, beaches, natural areas)
- Events (concerts, festivals, sporting events)
- Types of guests (when do they go on vacation?)
- Consistent periods of vacancy (are you always vacant around certain dates?)
We would be remiss if we didn’t tell you that this type of data collection becomes far easier with a vacation rental software system like Kigo. Managing revenue on your own requires computing power, organization, and time that could be better spent elsewhere.
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Now that you have your data, use it to create a pricing guide—highest at your peaks and lowest during vacant times. The benefit of revenue management software is that it doesn’t just look at broad periods of vacancy, but finds even short periods. For example, the weekend after a holiday or major event is usually a difficult weekend to fill. A good revenue management program would know that months ahead of time and price that weekend appropriately, helping you fill that weekend at a discounted rate.
Next, track your results and alter your prices accordingly, raising prices where demand is high and looking at possible discounts or other offers to lure travelers during "off" periods. You can also evaluate which channels reap the most rewards for which travelers.
Revenue management is a constant process of forecasting, optimizing, controlling and monitoring. While that concept isn’t difficult to understand, the execution will likely require a revenue management system based on the time it requires. The benefits usually outweigh the rewards though, as you can raise prices while adding new revenue streams. In addition, a system like Kigo’s integrates revenue management with your channel manager and reservation system, helping you maximize revenue across both time and channels. It also helps bring consistency and clarity to your pricing structure so you don’t create an illusion of unfair business practices.
For more on this subject, check out this ebook on understanding revenue management, for vacation rental managers.