Whether you’re using Airbnb, HomeAway, or VRBO, how you set the ideal vacation rental rate can be a mystery. Most vacation rental managers already vary their prices based on high season, low season, weekends, and by using last-minute discounts. However, demand can be extremely elastic and will fluctuate daily. If your pricing strategy is not dynamic to capitalize on these fluctuations, you’re probably missing out on thousands of dollars.
Let’s take a step back. There are two basic strategies that vacation rental managers can do to make “free money.”
- Raising prices during peak periods and micro-periods to drive higher average daily rates.
- Lowering prices when demand is low, and shoulder periods (or days of the week) to drive higher occupancy.
The chart above shows the neighborhood occupancy rate over the previous year in Hilton Head, South Carolina. As you can see, demand varies every single day. There are fundamental trends with higher occupancy during early spring and mid-summer as well as low periods post-Labor Day through mid-December. There are also micro-periods of increased demand with dramatic spikes in occupancy around Spring Break, Labor Day, Fall Break, Thanksgiving, and Christmas.
We took the same neighborhood in Hilton Head and looked at the average pricing of HomeAway listings over that same period. Just by looking at the charts, you can see that pricing is not nearly as dynamic as demand. The dramatic increase in demand during peak times is not reflected in the pricing of those listings. So are vacation managers leaving money on the table as a result?
To get to the bottom of this, we analyzed the cluster of vacation rentals in Hilton Head during Thanksgiving weekend and then Fall Break. We wanted to find the amount of “free money” users made by adjusting their rates based on market demand. We pulled a sample of advanced bookings who did not use dynamic pricing in 2017, and then the same listings in 2018. We first took a look at Thanksgiving weekend.
- 2017 – 363 bookings, $214,478 in revenue
- 2018 – 364 bookings, $318,706 in revenue
Year-over-year, there was a 33% increase or $104,000 in “free money” versus the previous year. Based on the spike in occupancy rate, the price is less elastic during the Thanksgiving holiday. So by raising the rate, vacation rental managers did not see any significant decrease in bookings. The $104,000 in “free money” was driven raising prices during peak periods to drive higher average daily rates.
We then took a look at fall break (2 weeks) in late September thru mid-October.
- 2017 – (2 weeks) – 459 bookings, $398,282 in revenue
- 2018 – (2 weeks) – 534 bookings, $489,462 in revenue
Year-over-year, there was an 18% increase or $90,000 in “free money.” What drove revenue or “free money” during fall break was much different than what drove additional during Thanksgiving. Occupancy rates over fall break fluctuated dramatically, and during certain days, prices was lowered during low demand to drive higher occupancy. The average daily rates was close year-over-year, and what actually drove revenue or “free money” was the number of bookings.
Demand for your Airbnb, HomeAway, or VRBO listing varies daily, so your pricing strategy must be dynamic to capitalize on these fluctuations. If not, you could be missing out on thousands of dollars. Dynamic pricing has been used by the hotel, ticket, and airline industry for decades, which leverages pricing based on supply and demand. Learn more about making "free money" by downloading our entire slideshow presentation from VRMA International 2018.
Beyond Pricing calculates daily property prices based on macro and micro-level factors. Our advanced algorithm removes the guesswork out of the pricing process and allows vacation rental managers to increase revenue and save time. Beyond Pricing can help you earn more 10% - 40% more, but don’t believe us, enter your Airbnb, VRBO, or HomeAway listing and see for yourself.