In Part 1, we discussed what RevPAN (Revenue per Available Night) is and why you should use it. Now, let’s take a look at a few examples of how RevPAN can help you maximize revenue for a short-term rental property.
What’s Wrong With ADR?
The average daily rate (ADR) for bookings at a short-term rental property can be a great data point to use when analyzing the value of a property. While this can be important, using ADR on its own to gauge performance of a listing can be detrimental to a good revenue management strategy.
Here’s an example of where an owner or property manager obsessed with growing ADR may not be able to see the bigger picture:
- For this property, April 2021 ADR was down 10% compared to April 2019. The owner of this property typically gauges current performance on year-over-year ADR growth, so this 10% decrease raises a red flag.
- The owner doesn’t care to review occupancy for April, however, which is actually up 20% compared to the same month in 2019. The low ADR is cause for concern that there may be an issue with the current pricing strategy.
- Looking at RevPAN for this listing, we can see that it’s actually 8% above April 2019’s RevPAN average. This means that even though ADRs fell significantly year to year, overall revenue was not harmed and the revenue manager was able to improve revenue performance.
- The owner was unable to see this from the beginning because they were focused solely on ADR.
Why Occupancy Isn’t Enough
One of the biggest goals of short-term rental revenue management is to maximize occupancy where possible without leaving money on the table. Some property managers may be too focused on growing occupancy and bookings year-over-year, however, while losing sight of ADR.
Here’s an example of focusing only on putting heads on beds:
- For April 2021, occupancy was down 10% compared to April 2019 and there was also a maintenance repair that blocked the property for 3 nights in April 2021.
- Upon initial review, the owner and property manager were upset at the lackluster occupancy performance compared to 2019. This year, however, pent-up demand drove ADRs 25% above the same period two years ago.
- This rise in ADR helped drive RevPAN up 26%, which shows how the 2021 revenue management and pricing strategy ultimately helped beat prior year data.
- Even with the blocked dates due to maintenance, the revenue manager was successfully able to maximize revenue potential for the listing.
Set Proper Owner Expectations
Year-over-year (YoY) revenue is one of the most common ways to measure short-term rental performance, and rightfully so. Owners aim to see a return on their investment.
But does year over year revenue growth prove that you’ve maximized a listing’s revenue potential? Let's take a look at one final example:
- For April 2021, revenue was down 15% at this property compared to April 2019. This alarmed both the owners and the property manager.
- Upon further inspection, however, the property manager found that the owners stayed at the property for nearly a week in April 2021. This key context flipped the script. Suddenly 2019 vs 2021 revenue was no longer an apples-to-apples comparison, because the property had not been available to book for 6 days in April 2021.
- While YoY revenue was down, RevPAN had increased 6%.
- Using the concept of RevPAN, the property manager and the owners were able to understand that their pricing strategy was successful in improving the listing’s profitability over the nights that it was available for bookings.
As the examples above illustrate, using RevPAN at the listing level can be helpful when reviewing performance and future revenue management strategy planning.
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