March 22, 2022
What is Vacation Rental Revenue Management?
Part 3: Revenue Management for Vacation Rentals Defined
Welcome to Part Three of the Ultimate Guide to Revenue Management. You can download the full guide here.
Here is our definition of vacation rental revenue management:
Proactively maximize 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.
The following factors make this definition work:
- Flexibility. With an industry as volatile as VRM, it pays to stay on your toes.
- Optimization by occupancy. An impactful vacation rental revenue management strategy focuses less on the amount of money you earn each night, but how many nights your rental is occupied.
- Up-to-date based on data. Similar to flexibility, vacation rental revenue management does not rely on what worked best last year to predict success this year. Each year is new, and therefore each year’s strategy has to be, too.
Key Aspects of Vacation Rental Revenue Management
The foundation of a vacation rental revenue management strategy is driven by setting and obtaining KPI goals for the following:
- 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.”
What Makes Vacation Rental Revenue Management Different?
While more traditional forms of hospitality, like hotels, inns, and bed and breakfasts use some of the same factors to form their own revenue management strategies, one thing separates them from vacation rentals:
Every vacation rental is unique.
Part of the draw of vacation rentals is the wide variety of options to choose from. There are huge beachside mansions and luxurious ski chalets, but there are also off-grid yurts and treehouses, condos with basic interiors but an amazing list of HOA-managed amenities, and cute cottages in residential neighborhoods. No two vacation rentals are alike.
Let’s think about our 50-room hotel again. Let’s say it’s owned by a parent company, which has several other 50-room hotels in a 100-mile radius. A hotel conglomerate is going to offer a homogenous experience at any of their hotels (similar room types, similar amenities) and therefore fuels little competition between each individual hotel. This means that the pricing strategy can remain fairly uniform across all the hotels.
Now imagine a vacation rental property owner with 50 vacation rental properties in a 100-mile radius. With the variety of vacation rentals under that one property manager—all with different layouts and amenities—the market demand between properties will be vastly different. This fragmentation means that blanket assumptions about pricing factors don’t work, nor will blanket adjustments.
The Defining Difference in Vacation Rental Revenue Management
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.
Modern Revenue Management
One of the biggest areas of growth has been the proliferation of property management systems over the past 10 years. Back in 1988, there were only two options for property management systems.
Today, vacation rental revenue management is much more common, mostly because the technology is now widely available, easier to use, and much more affordable for property management companies of all sizes.
These days, there are several major competitors in the revenue management landscape. New ones are still regularly introduced, and current software providers frequently iterate and redefine their capabilities. No matter what system you use for your property management business, there’s one tool that everyone needs in order to execute an effective vacation rental revenue management strategy: DATA.
Technology for property managers continues to increase in features and functionality, and because of the competitive landscape, SaaS pricing has become an option for ALL managers. Tools for property and revenue management today allow all to compete with even the largest or national companies.
This article is the introduction to Rented’s Ultimate Guide to Revenue Management for Vacation Rentals – 2022 Edition. You can download the full guide here.