March 30, 2023
5 Vacation Rental KPIs You Should Be Tracking
Key performance indicators (or KPIs for short) are the most helpful points of data to better understand the ins and outs of your vacation rental management business. This data is a quantifiable aspect of your business. They can help you make important decisions about resourcing and strategy and make adjustments to maximize profit and guest satisfaction.
Here are the top five KPIs you should be tracking to better understand your vacation rental management business.
Occupancy Rate
The average occupancy rate for a property is the percentage of nights rented within a specific window of time—a month, a season, or even a calendar year.
To better understand this calculation, it’s helpful to differentiate the days on a vacation rental calendar:
- Available days refer to days that are open for guest reservations
- Booked days are days that are reserved by paying guests
- Blocked days are days when a home is unavailable to rent by the public and is not earning revenue—for example, when the property’s owner is using it or during a period of maintenance
You calculate the occupancy rate by dividing the number of booked nights by available nights within a specific window of time. Some short-term property managers like to subtract blocked days in order to calculate occupied nights that earned income.
For example, let’s say you want to calculate the occupancy rate over a 90-day period. Thirty of those days were booked, and 14 of them were blocked. You may choose to subtract the 14 blocked days from the 90-day period, coming out to 76 available days where paying guests could have booked. Then you divide 30 booked days by the 76 available days to get an occupancy rate of 39%.
Why Does It Matter
You can use your occupancy rate to better understand operational costs versus revenue and guest acquisition strategy. If your occupancy is high but your profit margin is low, it means your rates aren’t high enough to offset the cost of maintaining the property. If your occupancy rate is low compared to competitors in the area, then your rates might be too high or you’re not effectively marketing to guests.
ADR (Average Daily Rate)
The average daily rate refers to the amount of money you’re making per night on a booking. To determine the ADR of a booking, you divide the total revenue by the number of nights booked.
For example, if the rental earned $1500 on a 10-day booking, your ADR would be $150 per night.
When you use a dynamic pricing strategy that keeps your pricing flexible, your ADR will go up and down based on market conditions like overall demand, seasonality, drivers like events or holidays, and even day-to-day changes like the weather.
Why Does It Matter
ADR is a useful metric to analyze the overall appeal of a property and whether current rates are meeting your proposed revenue targets, especially if you track it over the course of a season, a quarter, or a year. This can help you better understand when the property is earning the most revenue when it’s earning the least, and how you can make adjustments to improve revenue. You can also use the ADR in comp sets to see how your property stacks up against a competitor with properties of similar size.
Revenue Per Available Room (RevPAR)
Once you’ve calculated your ADR and occupancy rates, you can calculate revenue per available room or RevPAR. This metric assesses your ability to fill available rooms at the average daily rate without taking other costs into account, such as commission, general upkeep costs, and so on. Since you calculate RevPAR by multiplying your ADR by your occupancy rate, the more your RevPAR trends up, the better a vacation rental property is performing.
For example, let’s say a property had 20 days booked out of 30, and it earned $2000 over the course of the month.
- The ADR ($2000 total revenue / by 20 booked days) would be $100.
- The occupancy rate (20 days booked / by 30 days in a month) would be 66%
- RevPAr (occupancy rate x ADR) would be $66.
Why Does It Matter
A high ADR but a low occupancy (or visa versa), can signify poor performance. With this calculation, you can make strategic, data-based decisions to lower rates and increase outreach OR raise rates to lower the amount of wear and tear on the property.
In the example above, if you were able to achieve the same occupancy rate but increase your ADR to $200, your RevPAR would increase to $132. This may indicate that you’ve been underpricing your property and that you can safely increase rates without losing bookings.
Average Length of Stay
The average length of stay refers to the average length of a guest reservation. You calculate this by adding up all the booked days and dividing by the number of bookings. If you had five bookings in a month and 20 of those days were booked, you’d average four nights per booking.
Why Does It Matter
Calculating the average length of stay can help you make important decisions about maintaining a property. Short stays mean more turnover cleans and potentially more wear and tear. This may increase if the property allows pets or has high-maintenance amenities like a pool or a hot tub that require additional cleaning and maintenance. You can use the average length of stay to justify specific cleaning fees or add minimum stay requirements.
Booking Window
The average booking window refers to the number of days between a guest booking a property and the actual check-in date for that reservation.
Booking windows can vary quite extensively between markets and even between properties in the same portfolio. For example, a one-bedroom cabin may receive frequent last-minute bookings (meaning a guest is making a reservation for the following day or even on the same day), while a four-bedroom mountain chalet may see a booking window of multiple days or even weeks. Vacation rentals in markets like Hawaii may have booking windows as far out as a year, due to the expense of the property and the travel, whereas markets that are driveable, like Lake Tahoe to the Bay Area, may see shorter booking windows because the properties are easier to access for a specific audience.
Why Does It Matter
Tracking a property’s average booking window can help you make adjustments to your dynamic pricing strategy to encourage more bookings, either by lowering the nightly rate, offering special deals (like the fifth or seventh night free), or removing particular restrictions like a minimum or maximum stay.
These five data points can help you better understand how to make adjustments to improve revenue and increase bookings, particularly when it comes to tweaking your pricing. Dynamic pricing tools like Rented’s Automate Rates Tool (or Art for short) make adjusting your prices (and looking forward to what those adjustments might accomplish) easy with batch editing and customizable automatic adjustments. With the help of Rented’s dedicated team of revenue management experts, these KPIs can help you push your vacation rental management business to new heights. Speak with our team now to learn how dynamic pricing can earn you more revenue than ever before>>
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