May 3, 2022
Top 5 Performance Metrics for Vacation Rental Managers
We live in a data-driven world, and that is an amazing thing. With tools like a property management system (a PMS), a customer relationship management (CRM) system, and reporting tools from third-party booking sites, you can track a variety of different data points across your vacation rental management business. This wealth of knowledge can help you better understand how well your business is doing and where you can improve efficiency, spending, and revenue.
These five performance metrics are particularly telling of the health of your vacation rental management business and can help you better see where you’ve been and where you’re going.
Clearly, your guests’ opinion of your business matters—they’re your bread and butter after all! There are a few ways you can collect feedback and impressions from guests to use as guideposts for future changes. And don’t forget that Owners are a customer too! So we’ve included a metric for tracking Owner Satisfaction.
Guest Reviews (Guest)
One of the best ways to glean insight into your guests’ satisfaction is to ask directly for feedback. Positive guest reviews make for impactful marketing on your website and on social media and can help guide potential guests’ decisions. Make sure to strategically source your reviews by asking for feedback at regular intervals throughout a guest’s consumer journey.
Third-Party Ratings (Guest)
Online travel agencies (or OTAs) like Airbnb or Vrbo have their own specific ranking systems: host ratings. These ratings are a culmination of a few different metrics, including average guest reviews and rankings, cancellation rates, and inquiry response times. The better your rankings on these sites, the better your listings will perform. In fact, “hosts” (or vacation rental managers like you) with higher ratings are rewarded by getting better hits for searches and showing more prominently to potential guests.
Similar to guest reviews, a net promoter score (NPS for short) is a metric used to measure customer loyalty. NPS surveys can be particularly helpful for transactional moments in a customer’s journey, like right after booking or check-out.
This single-question ranking system with a space for long-form answers divides guests into three categories: promoters, or people who are the most enthusiastic about your brand, passives, or people who are satisfied but not crazy in love, and detractors, or people who are unhappy with their experience.
If you use NPS during transactional moments for guests, like during booking, you can use an NPS score to hone in on issues with your booking process and make the appropriate changes. Overall NPS survey results, like at post-check out, can help identify guests who may book with you again, giving you an opportunity to engage them further through relevant marketing, referral programs, or deals.
Customer (Guest) Acquisition Cost
This piece of data measures the total cost to acquire a booking. Calculate this cost by adding up all of the efforts that go into attracting a guest to book a property:
- Marketing cost: organic and paid efforts, direct mail, OTA fees
- Sales cost: the operational costs for sales efforts, call center, or similar activities
- Labor costs for each of these tasks
Understanding the guest acquisition cost can help vacation rental managers determine which are the lowest-expenditure channels to acquire guests, as well as the true profitability of guest revenues. From there, you can develop a specific strategy and focus.
For example, let’s say that you learn that Airbnb is your highest CAC. On the other hand, your customer acquisition cost for social media and email marketing is significantly lower. With that information in mind, you could shift more resources and budget to social media and email marketing efforts and away from Airbnb. A strategy like that could improve profitability and decrease cost at the same time.
Lifetime Value of Owner Contracts
Measuring the overall value of your homeowner contracts can give you fodder for homeowner marketing efforts—both to current owners and new ones. For your current owners, it can demonstrate how much money they’ve made with you historically, and how new strategies like dynamic pricing or updates to their properties could increase that revenue. For prospect owners, it shows how much they could earn with the help of your vacation rental management expertise.
To calculate, take the gross annual revenue of a property, subtract your commission amount, and multiply that sum by the number of years of the owner agreement.
For example, a homeowner’s property is generating $35K a year for the past six years and you take a 30% commission (in this case, $10,500 a year). The lifetime value (LTV) of that owner contract is $63,000. Understanding the LTV of owner contracts is a critical metric because if your LTV is increasing, this indicates success in several other measurements such as increased revenue, longer agreements, and generally happier owners.
The better revenue a listing earns, the more likely an owner will stay under contract (and the more money your business makes off the property). Dealing with owner churn can be really costly. In fact, it costs much more to attract new owners than it does to keep the ones you already have. So having concrete numbers of revenue generated can help assure owners that they’ve made the right decision to partner with you.
Inquiry-to-Booking Conversion Rate
Similar to the guest acquisition cost, your inquiry-to-booking conversion rate can help you better understand where to best put your resources. Take the number of distinct inquiries you receive in a given time period (six months, a year) and divide it by the total number of bookings for that property that resulted from the inquiry. Start by tracking inquiry to conversion, and then set a goal to improve this metric for OTA, phone, and email inquiries as they will have different conversion rates. A low conversion rate could mean that you and your team aren’t fast enough to respond, or that you might need to coach the team on messaging.
Once you have a grasp of this metric, you can make some decisions about how best to improve it. For example, if your conversion rate is low because your inquiry response time is low, then this might indicate a need for more outbound work to convert inquiries, whether through phone calls or better booking deals on your own website.
ADR stands for Average Daily Rate, or exactly how much you and the owner are earning per booked night after operating costs. You calculate this average by totaling the revenue received, subtracting operating costs like booking fees and cleaning fees, and taxes, then dividing by the total number of nights reserved.
Understanding your average daily rate can help inform a dynamic pricing strategy because it gives you a historical understanding of a property’s earnings. You can use that to build comp sets, or models comparing your property to others in the market that are similar, and use it as a guiding light when making projections. It can also help you have conversations with your owners about pricing, giving them a concrete example of how adjusting your prices at the right time can capture more bookings and therefore, more revenue.
We’re big fans of data here at Rented, especially when it comes to revenue management. If you need a little help tapping into the data that informs your pricing strategy, hit us up. We’d be happy to support you. Talk to an expert right now about the best data to inform your dynamic pricing strategy by booking a demo here.