Revenue Management Strategies to Implement
In the last few years, revenue management has become very important for Vacation Rental Management Companies (VRMC) to stay competitive, maximize revenue, and increase occupancy. Determining the rates your vacation rental management company should be charging is a complex and difficult task without a pandemic taking place. Fast forward to March 2020 when reservations are pacing downwards, urban markets are seeing as high as 70% cancellation rates, and the travel industry hits uncharted territory making revenue management less of a luxury and more of a requirement to stay afloat and create a thriving future for your company. Here we will talk about the trends in cancellations and reservations this month, understand how the United States is tracking compared to the rest of the world, and determine practical strategies you can implement starting immediately to help your VRMC succeed.
What is happening in market trends currently is very important when navigating your revenue management for your VRMC. Most revenue managers base their prices off the historical data of average daily rates (ADR) of previous years to determine current and future rates, but when a financial crisis takes place that is not possible. The best way during a financial crisis is to analyze current trends. According to Beyond Pricing in their most recent webinar, here are the trends we uncovered to help you with your revenue management. Beyond Pricing has analyzed their data in real-time from over 240,000 individual listings through property management systems.
US Cancellation Trends
- Urban managers have been hit especially hard.
- The trend continues to have a lesser impact in ski markets
- Drive-to markets (Florida Panhandle, Oregon Coast, Hilton Head Island, Smoky Mountains) in the US have held up relatively well in comparison to the other cancellation trends.
- 30% to 40% cancellations in Drive-To Markets
- Within the US, there was a relatively late increase in cancellations which began in early March
- May and on there is a cancellation rate that returns back to normal.
Worldwide Cancellation Trends
- Europe and Japan saw cancellation trends begin mid-February
- Travelers are canceling their trips much farther out into the summer months
- The United Kingdom took a similar approach as the United States and you can see that they are more similar trends
- The key element is regulation is playing a massive role in this data
Practical Strategies to Implement
When going through a crisis creating immediate, short term and long term plans is critical when it comes to revenue management. Tess Brown, Customer Success Manager at Beyond Pricing, has put together four steps to help your VRMC navigate through this uncharted territory.
When looking at action to take immediately, this is applicable to any property manager regardless of your market. Either being closed down, lower occupancy, or extra time on your hands, you are able to utilize that time by reviewing your annual and seasonal minimum pricing. The minimum price is the absolute lowest price your owners will go throughout the year. If you are not analyzing this yearly, there is a chance it is incorrect data in your Property Management and Revenue Management system that could be hindering potential bookings. When looking at reviewing your minimum seasonal and annual pricing, set up a time with your owners to go over their mortgage, utility costs, their turnover costs, and determine the overhead cost at its lowest point to set your minimum pricing strategy.
Going hand and hand with minimum pricing, you can use this time to analyze your minimum stay requirements. If you are able to determine your operational capabilities and minimize your required minimum stay you are giving more flexibility to your guests and increase your demand pool for more bookings.
Short Term (Next 2 Weeks)
Taking 2-week increments during a crisis is beneficial to implement discount codes that automatically are applied to your predicted ADR. This is helpful because you can utilize this as a bulk action versus using a manual override for each reservation. A current example of utilizing bulk discount codes would be COVID-19. Putting an automatic discount on all bookings between March 17 through March 31st at 20% off the predicted ADR to gain more traffic and bookings to your property. When the date is closer to March 31st your team would analyze the current crisis and market situation to determine if it should be extended or changed for another 2 week period.
Medium Term (30-60 Days)
When looking out to the next 2 months a great strategy to implement includes last-minute discounts. Verify your occupancy in the near term than market to your drive-to markets with discount codes. You do not want your discount code to go lower than the minimum booking price you decided on in the immediate term, but you are able to fill empty rooms last minute up to that price. Rolling out a tiered pricing fashion might be the best route to take to increase your occupancy rates with urgency.
Long Term (60+ Days)
In the long term, you can look at a more aggressive strategy of lowering your base price. A base price is the starting point for all fluctuation for 365 days of rolling rates all from the starting point of the base price. If you were to lower this base price, it will holistically lower all prices throughout the year. If you are a drive-to market or have longer lead times for reservations, it is advised to adjust your base prices for this coming summer throughout next year.
After reading this article you and your team should have a general idea of the cancelation trends, reservations, and immediate, as well as long term, steps to take regarding your revenue management for your VRMC. If you’d like to learn more about your Vacation Rental Revenue Management from the team at Beyond Pricing, please sign up at https://beyondpricing.com/sign-up