Newcomers to the vacation rental business might mistakenly believe that setting nightly rates is a straightforward process, involving merely adding a profit margin to cover costs. However, experienced Gulf Coast rental managers, like us, understand that many factors come into play.
Your rental type and size aren’t the only determinant factors when establishing a baseline nightly fee — your property’s competitiveness in your local market also matters. Besides, each market shows unique behavior and seasonality patterns.
At Luxury Coastal Rentals, we set minimum nightly rates for our properties, which we strictly stick to. This is an approach that sets us apart from most of our competitors. As a result, many property owners seek us out because they’re unhappy with the extremely low rates their previous managers were implementing.
Another key distinction of our services is our continuous pricing strategy. We view pricing as an ongoing process, not a one-time task. Even after reaching a baseline fee, we don’t simply leave it static, as doing so would leave potential revenue on the table. Our dedicated team of professional revenue optimization managers continually analyzes the market, ensuring we maximize earnings for each day on the calendar.
If you’re curious about the fundamentals of revenue management, this guide will introduce you to the seven core lessons our managers rely on.
We’ll delve into it, but, as always, first things first…
Revenue management involves setting the right price for the appropriate guest at the optimal time and continually optimizing beach rental revenue. Pictured: Phoenix 7 in Orange Beach.
What is revenue management?
As our revenue managers often say, revenue management is about setting the optimal price for the right guest at the right time. This process demands continuous monitoring of market conditions and the adjustment of fees to outperform competitors and ensure high occupancy rates.
Embracing a revenue optimization mindset can truly take your vacation rental business to new levels of success. Keep reading to discover the seven essential steps you should follow to unlock your full potential.
Step 1: Pick the right pricing tool
As we’ve mentioned before, pricing your vacation rental can be quite complex. The good news is that there are software solutions available to help with revenue management and dynamic pricing.
These are automated tools that gather historical and real-time data and analyze similar listings in your area to determine the optimal price at any given moment.
Believe us when we say that these tools can ease a significant portion of your workload, reducing it by 70-80%.
Among other things, they help with:
- Adjusting rates based on demand and occupancy.
- Finding the most competitive prices during high and low seasons.
- Identifying the ideal length of stay depending on seasonality.
- Managing vacant days.
- Identifying major events in your area that you might not be aware of.
- Handling last-minute cancelations and rebooking to minimize revenue loss.
Our favorite tools are Wheelhouse, PriceLabs, and Beyond.
Here’s a quick comparison of the three:
- Beyond: previously known as Beyond Pricing, this option is user-friendly and good for those looking for a more automated approach, although we still recommend that you stay involved. While it may lack better customization, it still handles many of the necessary pricing adjustments.
- PriceLabs: this is a great option offering high flexibility and customization, allowing you to maximize revenue without having to invest too much time into it. PriceLabs also integrates with many systems and provides you with great control over your pricing strategy.
- Wheelhouse: positioned somewhere between the first two, Wheelhouse is excellent for revenue optimization. However, it still requires regular monitoring and adjustments to track performance and make necessary tweaks. Wheelhouse’s open-source approach allows integration with other tools for enhanced efficiency.
These three tools come at a cost, of course; typically around 10% of your earnings.
Nevertheless, their returns outweigh their fees.
Keep in mind that while they can be highly beneficial to you, their effectiveness depends on your setup and dedication. To truly maximize your revenue, investing time and effort is crucial.
Step 2: know your competitors
As a long-term vacation rental manager on the Gulf Coast, we understand the benefits of closely monitoring your competitors. This involves identifying similar rentals in your market that share characteristics like location, size, amenities, target audience, and overall positioning. The goal is to consistently track their performance and make necessary adjustments to ensure your property remains competitive.
To make things easier, there are tools available to provide real-time data and aid in this task, such as the one we discussed, Beyond, PriceLabs, and Wheelhouse. However, it’s crucial to know what to focus on when watching your competition.
Here are some considerations:
- Amenities: evaluate the amenities you provide and compare them with similar properties in your area.
- Size and guest capacity: assess the size and guest capacity of your cabin in relation to other listings around you.
- Location: examine properties in proximity to yours to gauge local market dynamics.
- Performance: review factors like revenue, average daily rate (ADR), and occupancy rate. The mentioned tools offer comprehensive performance data, including information on your competitors.
- Quality: consider guest ratings and reviews for your property and similar properties to assess guest satisfaction.
Organizing this information in a comp set allows you to make data-driven improvements to enhance your property’s performance and guest experience.
Step 3: set your pricing metrics
Establishing pricing metrics essentially involves defining the guidelines and criteria for your nightly rates.
It all starts with determining your baseline price. Calculate your expenses to identify the minimum rate that ensures you don’t operate at a loss.
With a deep understanding of your competitors, you can leverage this knowledge to set your base price. It’s crucial to step back and assess your cabin objectively, as if through someone else’s eyes.
When setting your metrics, consider that your occupancy rates will fluctuate throughout the year. This is where the concepts of minimum and maximum pricing come into play, allowing you to use lower pricing during slow seasons and to fill last-minute gaps.
While it can be tempting to undercut competitors for bookings, always be cautious. At Luxury Coastal Rentals, once we establish a minimum rate, we never go below it.
Besides seasonality, special events in your area can influence pricing, and weekdays often differ from weekends. Dynamic pricing tools prove invaluable for factoring in these variables and automating rates across all your booking channels.
Step 4: set specific rules
You can apply custom rules to optimize your pricing strategy. Here are some examples:
- Extend booking window prices: consider raising prices for bookings that fall outside your typical booking window.
- Last-minute Discounts: if you have vacant slots close to the desired check-in date, offering discounts can encourage last-minute bookings and fill those gaps.
- Orphan day discounts: reduce prices for short gaps (orphan days) in your rental calendar that occur between longer bookings.
- Minimum and maximum night stays: tailor the ideal length of stay for your market.
- Weekday discounts: typically, demand for vacation rentals is lower on weekdays compared to weekends. Attract more bookings during less busy periods by offering lower prices for weekday stays.
- Longer stay discounts: encourage extended stays by providing discounts for a week or longer. This not only fills vacancies but also reduces cleaning and operational costs.
After implementing these rules, analyze their impact on your rates and fine-tune your pricing using a data-driven approach.
It’s important to remember that the more rules you apply, the more restrictive your rental becomes for potential guests. Maintaining flexibility when needed is crucial to accommodate a broader range of bookings.
Extra tip: when your rental is still new, the trick is to look up similar rentals in your area and set your nightly fee slightly lower than theirs. If you want to gain momentum, you can offer a 20% discount on the first three bookings made through Airbnb and Vrbo. Both give a boost to new listings to compensate for the lack of reviews.
Step 5: pick your channels
Remember the saying, ‘If you build it, they will come’? Well, forget that in vacation rentals. In today’s world, everything happens online, so it’s crucial to list your rental on multiple platforms to reach a broader audience. This is in addition to having your own website if you choose to have one.
Online Travel Agencies (OTAs) like Airbnb and Vrbo attract millions of visitors daily, and listing your rental on these platforms significantly boosts your visibility. The more exposure your listing gets, the more flexibility you’ll have in setting higher nightly rates.
The first step is to decide which platforms to use for listing your property. For beach vacation rentals, the most popular channels are Airbnb and Vrbo. A typical split might be 75% on Airbnb and 25% on Vrbo. Booking.com also brings in many visitors, making it a valuable marketing tool for your rental.
Here’s a comparison of these platforms:
• Airbnb: this platform is user-friendly and handles many tasks for you, including payment processing and insurance. Airbnb is an excellent starting point and is often the go-to platform for most renters.
• Vrbo: in the United States, Vrbo is a popular alternative to Airbnb, especially in traditional vacation rental markets. Listing on Vrbo also provides exposure on Expedia and Hotels.com, which is a significant advantage.
• Booking.com: while it mostly focuses on hotels, Booking.com has a vast reach and is an excellent marketing option. If you’re already listed on Airbnb and Vrbo, adding Booking.com to your portfolio can expand your potential guest base.
Remember, when you create your online rental listing, it becomes a representation of your property, so be sure to include all essential information about your rental and rental conditions.
Selecting and periodically monitoring your performance across booking channels is essential for maximizing your rental revenue. Picture: Lime in the Coconut in Gulf Shores, listed on Vrbo.
Step 6: track your performance and gain traction
Once you’ve established your metrics, rules, and chosen channels, it’s crucial to closely monitor the unfolding of your rental operation. Pay close attention to your booking activity during the initial days and make pricing adjustments as needed.
At first, a useful approach is to research similar rentals in your vicinity and set your nightly rate slightly below theirs. To kickstart your rental’s visibility, consider offering a 20% discount on the first three bookings through Airbnb and Vrbo, as both platforms tend to boost new listings without many reviews.
However, avoid keeping your prices low indefinitely. Once you’ve garnered positive reviews and built a reputation, it’s best to reserve this strategy for the off-peak seasons. Favorable reviews will provide you with more flexibility to experiment with price increases.
Step 7: review your revenue management strategy regularly
Step 7: review your revenue management strategy regularly
Maximizing your Gulf Coast rental potential requires consistent monitoring of your performance, comparison with your competitors, and performing the necessary adjustments as the situation demands.
Here’s some practical advice from our revenue management team:
- If your 60/90-day vacancy rate lags behind the market, consider reducing your base rate by 5-10%.
- Conversely, if your 60/90-day vacancy rate exceeds the market by over 10%, you can increase your base rate by 5-10%.
- If your 60/90-day vacancy is satisfactory, but your 30-day vacancy rate is too low, manually apply a discount for the next month to fill those vacant dates.
Extra tip: boost your revenues by partnering with a property manager
By now it’s clear that getting optimal returns from your beach rental involves more than simply adding a profit margin to your costs, isn’t it?
Don’t worry; if you’re truly committed to maximizing your beach rental’s potential, assistance is at hand. Rental property managers like us in Fort Morgan, Gulf Shores, Orange Beach, Pensacola, and Perdido Key fully grasp the nuances of pricing strategies and can significantly boost your earnings while also helping you with many more aspects of short-term rentals.
