August 8, 2021
Vacation Rental Revenue Management Basics
Maybe you’ve started researching on your own, or heard through the grapevine (and from services like ours!) that vacation rental revenue management is incredibly important for the profitability and sustainability of your vacation rental business. And you may have found yourself wondering: Why?
Revenue management within the context of the short-term vacation rental industry is a fairly new concept and is different from revenue management in other sectors of the travel industry. And it requires a little context-setting for you to get the most out of your own revenue management software and/or team.
Let’s break it down.
A (Very) Brief History of Revenue Management
Though revenue management has always been around in one form or another, it didn’t become a true strategy of the hospitality industry until the modern era when hotels reigned supreme.
For a long time, hotel owners and investors viewed the industry from a “cost-focused” perspective: Hotel owners would assess their costs, both fixed and variable, come up with a sum, and set a price per room that would cover those costs with enough left over to please investors and earn a living.
Later, there came a shift. Instead of focusing on cost, hotel owners started thinking about increasing revenue, which they could use to renovate their buildings, improve operations, and even open additional hotels.
Vacation rentals came into play in the late 70s, when industry experts started looking for ways to increase and capture revenue in traditionally seasonal markets. Vacation rentals were the perfect middle ground between a hotel (where people may stay for a week or less) and a long-term rental (where people may stay for a year or more). Because of the nature of seasonal markets like beach towns and ski resorts, property managers and homeowners had to think from a revenue perspective in order to make their endeavors profitable.
The introduction of computers, the internet, and more modern advertising tactics made vacation rental revenue management even more impactful, particularly with the access to more data to better inform pricing.
What is Revenue Management?
Generally speaking, revenue management uses data to predict consumer behavior to optimize product availability and price for maximum revenue growth.
Highly optimized, vacation rental revenue management relies on dynamic pricing, or a system of adjusting prices based on market fluctuations and consumer demand, and a deep understanding of VRM best practices.
So with that in mind, at Rented, we define vacation rental revenue management like this:
Proactively maximizing your revenue by ensuring a vacation rental property is listed for the right price, in the right place, in the right way, and at the right time for the right customer.
Why Vacation Rental Revenue Management Is Different
The defining difference of vacation rental revenue management is the following idea:
Every property you manage is its own unique system, with its own unique pricing requirements and market sensitivity. Sticking with what worked last year doesn’t mean it’ll bring you success this year.
Unlike hotels or bed and breakfasts or other hospitality options, vacation rentals can vary widely from one another, from glorious beachside mansions to off-the-grid treehouses to basic condos. The variation can make vacation rental revenue management more complicated than a standard hotel with three different room sizes and all the same amenities.
Key Components
Vacation rental revenue management also relies on different sets of metrics and data in order to price effectively and competitively.
- Average Daily Rent (ADR): This is the average nightly rent for a property (or a cluster of properties), calculated by the total rental revenue divided by the total nights sold.
- Occupancy Rate: The number of occupied nights for a property or a group of properties.
- Revenue Per Available Room Night (RevPAR): This number is a more accurate way to judge the performance of a rental (or cluster of rentals) because it takes the occupancy rate into account. It also excludes nights that aren’t bookable by guests for operational reasons, like an owner hold or maintenance blocks.
- Gross Rent: What you charge a guest before deducting expenses.
- Gross Revenue: The sum of rent, fees, and any other income considered “revenue.”
Hotels track very similar KPIs for their revenue management. The big difference? In vacation rental management, gross revenue omits the amount of money owed to homeowners each month.
Partner With a Vacation Rental Revenue Management Service
Vacation rental revenue management can help you maximize your revenue, essentially, by booking more rooms more often. If you’re prices change with the season, the demand, and real-time events, then you’re more likely to get your properties in front of guests looking to book.
One of the best ways to keep up with dynamic pricing is to utilize a vacation rental revenue management service, like Rented. Not only does Rented’s Automated Rate Tool (Art for short) make minute adjustments based on a highly sophisticated algorithm, but the Rented Revenue Experts step in to provide that human QA that a computer simply can’t accommodate. You can get started today for free right here!
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