There are many questions short-term rental owners and managers face when trying to figure out how to make as much money as possible from their investment. One of the biggest questions is where and how to list it? There are basically two ways to do so—indirectly and directly. Let’s explore both ways to see what can work best for you.
Indirect Bookings Vs. Direct Bookings
Indirect bookings are when properties are listed on large online travel agencies (OTAs) like Airbnb or Vrbo. Direct bookings occur when a customer books directly with the property owners and managers, usually through their own website or over the phone by a reservationist.
In general, direct bookings net you more revenue per booking because you aren’t having to pay OTA fees, while indirect bookings net you more eyeballs because the volume of traffic on their platforms are significantly larger than what you could expect on your own, single website.
Direct bookings also require purchasing and maintaining a website, but also provide the ability to connect directly with your customers and get their repeat business without depending on OTAs.
An increase in indirect bookings from OTAs can help drive occupancy during low season by increasing the potential booking audience for your portfolio of properties, while an increase in direct bookings helps to drive net ADRs for property managers to maximize revenue during high season when there is a lot of demand.
Understanding Distribution Costs in a Revenue Management Strategy
Let’s dive a little deeper into distribution costs in order to get a better understanding of how and where you should invest resources towards generating more bookings.
Distribution costs are constantly on the rise in the travel industry. As OTAs look to drive more revenue, they will likely look to increase the distribution fees on their platforms. Property managers and owners understand that the power of the OTAs (marketing, audience reach, etc.) is incredibly valuable and will need to fight, or at least plan for, these increases as best as possible. Since we now know that all bookings are not created equal, it’s important to understand how distribution channel factors can have an impact on net ADRs.
First off, the fee structures differ per OTA. Some charge a flat fee, while others use a percentage model, and within the percentage model, the total percentage of OTA fees can vary by market.
At the end of the day, someone has to pay for those fees. That's either a visible line item to the guest, or a hidden cost property managers have to absorb or decide to “pass-through” to the guest (in essence, increasing the base price to take into account the OTA fee).
Let’s look at an example—say you get two $100/night bookings for 3 nights, one on Airbnb and the other through your direct booking website. Are you taking in the same amount of revenue?
In effect, you aren’t. When taking into consideration all aspects of managing a short-term rental, the difference between OTA vs. direct bookings can become noticeable.
Effectively Managing Vacation Rental Distribution Costs
Understanding how distribution costs can impact the bottom line of a short term rental business is only half the battle for property owners and managers. It's also important to have the right tools and know-how to be able to effectively manage booking distribution for specific properties.
Performing a basic distribution cost analysis is the beginning. Questions to ask yourself can include:
- How much does an average booking cost on each channel that you sell on?
- Who is currently eating the cost of that fee?
- Is it being put on the guest and built into their overall booking total?
- Are you charging owners per booking to cover the additional costs?
- Are property managers eating the cost of distribution after owners are paid out?
- How can you limit the impact of distribution fees?
The ultimate goal should be to make the guest pay without having an impact on booking pace. One option to accomplish that could be to explain to the owners how the landscape is changing and distribution fees need to be taken into account at some point. The alternative is for property managers to pay for it. As distribution costs rise, property managers should be focused on minimizing those costs and ensuring that they do not eat into their bottom line.
Channel Managers Can Help “Bake Fees Into the Cake”
If you’re using a channel manager—like Relay—you can use the channel markup features to automatically increase pricing only on certain channels to help cover the cost of that OTA’s distribution fees.
Higher prices on OTA channels will either help cover the cost of the distribution fees, or, with a good direct marketing campaign, higher OTA prices will train guests to book via direct channels instead.
Be aware, however, that having different prices for the same listing on various online channels places your listing out of price parity. While OTAs do not currently “punish” listings for having a higher price on their channel versus another, this may be a tactic that the OTAs use in the future to discourage price disparity.
Incorporate Both to Maximize Revenue and Occupancy
Whether or not you use indirect or direct bookings, or a combination of both, it's important to understand how distribution fees work and fluctuate. Having a strategy in place to ensure you’re maximizing revenue is essential for the health and success of your short-term rental portfolio.
We recommend that you use both a direct and indirect booking strategy, combined with a dynamic pricing tool like Beyond’s tool, in order to maximize the revenue and occupancy for your short-term rental property.
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