February 25, 2022
4 Data Points for Pricing Vacation Rentals
The Top 4 Data Points Property Managers Should Use to Price Short-Term Rentals
When you’re using a dynamic pricing strategy to run your vacation rental management business, data is the fuel. And thankfully, in this day and age, it’s pretty easy to come by. Not only do you have your own rich source of historical data, but you can also tap into third-party data to flesh out your understanding of your market and the industry as a whole.
Dynamic pricing relies on flexibility and adjusting rates just so in order to attract the right guest to the right property at the right time. These key data points can act as guides when pricing your short-term rentals.
One of the first sets of data points you’ll need to price your vacation rentals is your own historical ADR (or average daily rate). With this data point you can also calculate your historical occupancy rate for certain periods of time, as well as your historical RevPar (or Revenue per Available Room). This data point can act as a base expectation for certain seasons, weekends, and holidays, as well as quieter times of year. Then, you can make adjustments to optimize your return on those specific days by raising prices when the market demand is high, or lowering rates and removing other restrictions, like minimum or maximum stays, to capture more bookings.
Minimum and Maximum Rates
While not all vacation rentals have formal minimum or maximum rates, most vacation rental homeowners and their property managers agree that the property should make a certain amount of money in order for it to be worth renting. These data points, alongside your historical occupancy rates, can help you spot any gaps in your calendar where a rate adjustment could have increased the chance of a booking—and make the proper modifications for next season.
When pricing your short-term rentals, it’s helpful to compare a property to similar ones on the market. These comp sets should have the exact same number of beds and baths, have similar amenities, and be in close proximity to each other. This can provide a good temperature check for your rates—are your rates reasonable, or are you pricing too high (or low)? In other words, if a guest was choosing between your rental and one that was identical, would your rates or other restrictive practices (like a high minimum stay requirement or exorbitant fees) be the deciding factor?
Revenue management tools like Rented’s Automated Rates Tool, or Art, can also show users “forward-looking occupancy.” This means it can show you a model of what your dynamic pricing strategy could look like in the coming years, based on things like your own historical data as well as minute factors in the market. With demand metrics, property managers can plug in their minimum and maximum rates to see how it compares to Art’s recommendations, and compare historical occupancy to predicted demand to make adjustments to maximize revenue. And if you need a little extra guidance, our team of revenue experts is here to help add a human point of view, spotting trends and factors that an algorithm may not catch.
Ready to set your pricing strategy for your short-term rentals? Schedule a demo and meet the Rented Team today!
What is ADR?
Average Daily Rate (ADR) is the calculated average nightly rate for a property or group of properties. We calculate by dividing the total rental revenue by total nights sold. Knowing the ADR of the property, or groups of properties can help identify potential pricing issues and helps to maximize revenue. When comparing your inventory ADR to the market, this can also show you trends in pricing that you will take into account when adjusting your pricing. Also, take into consideration that ADR is not inclusive of all revenue, so will not include fees or taxes, only looking at the base rental rate per day booked.
Why are min and max rates important in pricing listings?
When you’re setting prices for your vacation rental, it’s important to first determine the absolute minimum and maximum price you’re willing to charge. This decision is based on what you believe is a fair price for your “brand” or “product”. If you want to be seen as a luxurious brand, for example, you wouldn’t want to charge anything lower than $1500 per night. However, if you’re going for a laid-back no-frills vibe, or have a listing that is not updated, a low minimum price would be more appropriate.
Once you’ve set your minimum and maximum prices, it’s time to calculate what your ideal occupancy rate would be. This will help you determine the price range you should be aiming for. For example, if you want to achieve an occupancy rate of 50%, then your rates should be between $100 and $250 per night. Keep in mind that occupancy rates vary throughout the year, so you’ll have to adjust your prices accordingly.
Charging too little or too much can hurt your business, so it’s important to find the right balance. By setting a minimum and maximum price and aiming for an ideal occupancy rate, you can create a pricing strategy that works for your vacation rental.
What is the importance of using forward-looking or demand-based data when creating a pricing strategy?
Setting prices for vacation rentals can be tricky. You could either use historical data to set your prices, or you could use demand data. Historical data is information about how much people have paid in the past for similar properties. Demand data is information about how many people want to book a property and how much they are willing to pay. And the last two years of uncertainty in travel because of COVID has shown that historical data can be difficult to use as a basis for your pricing strategy.
Using demand data is a better strategy because it helps to price based on the actual activity in the market. By using specific comp sets, and geographic market data, pricing a listing in accordance with the habitability is the way to maximize revenues. You can use tools like Rented’s Art to help you visualize the right data.