Rates & Pricing - Lodging Newsletter March 31st, 2019
By Wm. May
Published: 03/31/19 Topics: Lodging Newsletter, Vacation Rentals, Vortex Managers Comments: 0
Everyone aggress that the very best reason for buying a second home is to love it, to bring family and friends to a favorite place, and for everyone to enjoy themselves.
The internet has made another trend possible, and that is for everyone to make better use of their assets.
For example, instead of owning a car that sits parked most of the time, you can share one (so to speak) with your Uber driver only when you need it. If you own a vacation rental home, you can earn money from it when you are not there.
The high mucky mucks of finance would call this "asset utilization" with the acknowledgement that achieving better utilization is always the goal.
Many people jump into vacation rentals with the misconception that the simple way to get maximum income is to set the highest rates. Unfortunately, setting rates has become a strange amalgam of art and science.
So this month, we will dip into the arcane area of rates and pricing.
- Who sets the rate, the owner or the manager?
- What would the nightly rate be for my home?
- How many nights will it rent?
In the simplest form, answering those questions may sound a bit too glib. "No one sets the rate. The market sets the rate". or "The number of nights will be dictated by the rate."
This does not mean that rates must be low because that leaves money on the table, but setting rates too high on some dates will cause occupancy to crash. The only technique that works is to charge the "very right" price for every day of the year. That is easier said than done. Here is how we go about that process.
DYNAMIC PRICING - The use of seasonal rates has been around forever, albeit in a rudimentary fashion. Set high season rates higher and low season rates low, weekend rates higher than mid week. With dynamic pricing, different rates can be set every day of the year. Rates may need to be adjusted frequently, sometimes as often as daily.
EXACT INSIGHTS - Third party research services sample millions of units every day of the year, for many months or years in advance, querying billions of points of data daily. This reveals what competitors are doing as well as global, regional and local trends. IT builds a graph of price short term and long term to visualize trends and pick optimum yield.
LOCALIZED STRATEGY - Globally based managers get lost in the details and seldom know local events that allow us to tweak prices for better rates and occupancy. Combined with dynamic rates even changes of 5 to 10% can yield more income to owners.
PERSONALIZED STRATEGY - Even within a geographic market, there are rate differences between homes. Luxurious places get higher rates, but there are guests for every type of property. This is done by determining the relationship between homes, those we manage and those we do not.
UPGRADES: Should owners change amenities, add a hot tub or make other improvements, we must revise photos, descriptions, and then anticipate up ticks to capture more income quicker.
OWNER GOALS: Generally rates are within fairly narrow ranges and when science is employed, every home produces more net income than before. Our job is to find the sweet spots between "supply and demand."
We start with the premise that every owner wants to achieve the maximum net income for their property. We understand that some owners present ulterior motives. Some feel they must have a higher rather than a neighbor feeling that their home is superior, or they set a "Rock Bottom" rate that is so high those cut down the number of bookings.
Our approach is more scientific than local competitors and more intricate than the national firms can deduce. The goals is to have the right price every night, and to have it every night in advance, to attract early and late bookers alike.
Clients should buy a second home because they will love and use it. Now with our efficient pricing tools and daily attention to rates and occupancy, they will get the highest asset utilization for the days they do not use the home.
Author: Wm. May, Vortex Managers
Blog #: 0658 – 03/31/19
Sponsor: Vortex Organization – We train quality people to help run unique Inns, Resorts and Vacation Rental Management companies, in an industry that has been a webby net of technology combined with good old fashioned property, guest and owner services. – VortexManagers.com
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