How can property managers leverage rental policies to generate more rental revenue?
Cancellation policies have long been a property manager’s first line of defense to protect rental revenue, not just for their business but for the homeowners they represent as well. Cancellations can make it difficult to rebook stay dates for the same price especially within a shorter booking window.
Because of this, many professional managers have strict policies that offer limited or no refunds and require payment in full well in advance of arrival. They may also encourage guests to purchase travel insurance to protect their vacation funds should they need to cancel.
Over the last few months, the Covid-19 pandemic has devastated every sector of the travel industry globally. Cancellations skyrocketed and travel restrictions brought the pace of new bookings to a screeching halt. Property managers were faced with a lot of difficult decisions.
When it came to revenue, two questions were at the front of every property manager’s mind: 1) How do I manage existing cancellations with the least amount of damage to my business, my owners, and my guests? 2) how can I get my properties booked now, with demand so unpredictable?
Many property managers found ways to compromise with cancelling guests by rescheduling stays, offering credits or future discounts, or making exceptions to their standard policies for refunds. Others held fast to the terms of their policies on behalf of their owners, leaning on their travel insurance providers to make guests whole.
To compete for new reservations, vacation rental managers have lowered their nightly rates, offered discounts for longer stays, or opened calendars further into the future. Yet in the aftermath of heavy cancellations that left many guests with an unexpected financial loss, vacation rental managers have cause to re-examine their cancellation policies.
In a recent Gallup poll, Americans remain risk averse in their readiness to return to normal activities. Just 20% of those polled said they would return to their normal activities once the government restrictions were lifted, while 71% were going to take a wait and see approach. 10% said they would likely continue limiting their normal activities indefinitely. As we have seen, travelers are taking it day by day when it comes to booking travel, which is why getting creative with your cancellation policy may give guests the additional confidence they need to book.
Cancellation policies traditionally include four main components: deposit, cancellation windows, payment schedules, and cancellation fees. Let's examine each of these and how you might use them to create more competitive post-pandemic policy strategies for your company.
What it is: This is the initial down payment required at the time of booking to confirm a future reservation. It could be a percentage of the total, a flat dollar amount, or a certain number of nights to be paid. Vacation rental providers may also require other types of deposits such as a pet deposit, a damage/security deposit, or perhaps an event deposit.
How to leverage: Reducing the amount of deposit required when booking can help entice new bookings. Limited time promotions that offer the opportunity to book now with little or no money down can boost future bookings without necessarily having to lower rates.
Potential risks: A lower down payment means less money that can be retained should they cancel outside of your cancellation window.
What it is: This is the period of time a guest has to cancel a reservation with little or no penalty. Vacation rental managers, especially in leisure travel markets, often do not offer cancellation windows. While this practice is great for protecting your homeowners, it may be prohibitive in attracting new guests.
How to leverage: Consider a risk-free cancellation period for guests. Cancellation windows are often associated with either how far in advance the arrival is or how long it has been since booking. For example, would you refund a guest who cancels more than 6 months in advance of arrival? What about any reservation made in the last 24 hours? Even a small cancellation window can help potential guests overcome fear of loss when making a reservation.
Potential risks: Avoid cancellation windows that are close to the arrival date for reservations booked well in advance, or for larger properties that are more difficult to rebook in a short time.
What it is: This is the schedule of payment(s) to be made after an initial deposit has been made. Final payments are often required 30 or more days before arrival. New reservations booked within a certain number of days are required to be paid in full at the time of booking. Historically, payment schedules were used because guests often paid by check and the manager needed time for checks to clear prior to the guest’s arrival. Though checks are rarely used these days, you can still often see payment schedules that reflect this antiquated practice.
How to leverage: Finding ways to be flexible with payment schedules can help potential guests feel more at ease making a reservation during these uncertain times. Consider a property’s average booking lead times and make sure the final payment schedule is compatible with this. For example, if most guests are booking your property within 14 days of arrival but your policy requires all payments in full within 30 days, you could see more bookings happen further in advance by adjusting your final payment due date to 14 days. Modifying payment schedules by season, property, or length of stay can better match your policies to specific vacation rental demand and increase overall bookings.
Potential risks: Anytime a scheduled payment is declined, it takes additional time to collect the balance from the guest. Scheduling payments closer to arrival means the timeline for collection is shorter. Guest service agents must be vigilant to ensure payment has been made before check-in.
What it is: This is a fee (percent or flat dollar amount) charged to a guest in the event of a cancellation. It enables vacation rental managers to recoup some administrative costs when it comes to a reservationist’s time.
How to leverage: Aligning your cancellation fees with your cancellation window is the best means to accomplish this. For example, if they can cancel without losing their deposit, ensure your cancellation fees are covered, conversely waive the cancellation fee, if you are keeping the deposit or rent.
Potential risks: If a cancellation fee is payable entirely to the property manager, homeowners could feel like they lost revenue if the stay dates do not get rebooked. If the cancellation fee is too high it can be a booking deterrent. If it is too low, guests may not try hard to avoid cancellations.
Utilizing data & additional considerations
Using the Insights within your Beyond Pricing is a perfect way to look at your portfolio’s Average Booking Lead Time. This is a great way to protect you and your homeowners, while also understanding the point at which it becomes difficult to rebook should a cancellation occur. You can even take it a step further and look at it by property size or type to have several cancellation policies for your vacation rental business based on those factors.
Having a competitive cancellation policy can also help you stand out when it comes to direct bookings. Online Travel Agencies that are the merchant of record ultimately have the final say in whether or not they will refund the guest, which can leave you and the homeowner without a booking and no revenue to show for it. Additionally, be sure to understand consumer protection laws, travel insurance sales laws, potential chargebacks, and regulations that may affect your policy.
Ultimately, no cancellation policy is one size fits all. Get creative with the four components that make up a cancellation policy and use the data provided to you in your Beyond Pricing Insights or property Stats tab. Understanding what works best for you as a business owner and your homeowners, will enable you to take the necessary steps to optimizing your cancellation policy or policies to help you attract new guests post-pandemic.