Setting your rates optimally makes the difference between getting every dollar possible and leaving money on the table. An hour or two spent studying your competition and developing your pricing strategy will pay back and often in a big way. A “set it and forget it” strategy will net you less or worse yet reduce your bookings while your competition beats you!
Having great rates does not necessarily mean the cheapest. Hospitality pricing should reflect value which is seen most prominently in hotel. Guests who stay at Motel 6 know they are getting something different than the Ritz Carlton. Also, Ritz Carlton guests gladly pay top dollar for what they get.
The reality is that the rent by owner crowd tends to be price sensitive. Understandably, many travelers look to get a “good deal” even when they are spending big money. Thank goodness there are many reasons rent by owner guests choose to go that route, however cutting out the rental companies to get a better price is likely high on the list for many.
There isn’t a one size fits all rate setting strategy to follow. The important thing is that you are purposeful with your pricing. For your best shot at optimal rates, study the following factors.
- Competitors rates and booking performance
- Vacation rental demand and supply in your vacation area
- Seasonal fluctuations in demand
Competitor Rates & Booking Performance
This is by far the most important area to study. If your property is highly unique or in an area with little competition, getting competitor data will be challenging. Choose 6 or more properties that are as similar to yours as possible. Now it’s time to capture data to better understand the market. The Vacation Rental Goldmine Pricing Analyzer provides a powerful and simple tool for this analysis. http://www.vacationrentalgoldmine.com/pricing-analyzer/
With your six properties, capture the rates for each season. You have the option for nightly, weekly, or monthly. If the rate structure is complex, use averages if needed to simplify things. Once you add your property, you can easily see comparison of where your rates stand in relation so your competition. While this is useful, the real power of the model is applying ratings. Here is a sample comparison that shows your rate differences versus averages:
The first rating is how similar this property is to yours. This is important so you really are comparing “apples to apples” as the saying goes. Second, rate the property on booking performance. This is critically important so you can see if their pricing structure is working. View their listing calendar to see how booked the property is. Lastly, scan their reviews to make sure the guest experience they deliver is on par or similar to yours.
Focus your analysis particularly on properties that are very similar with excellent booking performance. How does their pricing compare to yours? Do you have opportunities to increase? You have decisions to make here which is the strategy part. Do you want to price at the average market rate, slightly higher, slightly lower? Based on your property, reviews and booking performance you could make a variety of decisions. The important thing is that you set your strategy with good data and purpose.
Area Vacation Rental Supply and Demand
Is your property in a highly desirable destination? Does it have significant name recognition amongst travelers? If the answer to both of these questions is yes, then demand in your vacation area is likely high. You may be able to price your property higher and especially so during peak season. That decision however cannot be made without considering vacation rental supply. If you go to a major listing site like HomeAway or VRBO, look at the number of listing in your area. If you see listing numbers in the high hundreds or multiple thousands, you are in a competitive market. That makes your competitive analysis above that much more important and may mean you should price aggressively in the off season.
Seasonal Fluctuations in Demand
As you set your pricing strategy, it’s important to take seasonal demand and supply into account. Much of this will be covered in your competitive analysis, however make sure you know when guests shop for their vacations in your area. The best way to do this is to track web volumes to your listing throughout the year as outlined in the Vacation Rental Goldmine Dashboard http://www.vacationrentalgoldmine.com/goldmine-dashboard-web-tracking/
On average, I suggest aggressive pricing in the off season. This will help to book the most nights possible and especially if you are in an area where offseason demand drops significantly. As long as the numbers make sense economically, set rates to be a good deal when supply is way up and demand down.
After studying these factors, you are prepared to declare your pricing strategy and use competitive data to help set rates. Pricing well is about being a good value for guests, so set your rates with purpose and don’t be afraid to experiment. Finding that perfect price point that is a great value for guests and puts the most money in your pocket takes some trial and occasionally some error.