By George Volsky
This is the fourth in our series of pricing primers. It introduces some pricing tools that are used by some vacation rental managers. Pricing is complex enough to warrant multiple articles.
- Our “Pricing Overview” article introduced the many complexities of pricing.
- Some “what and why” discussion of pricing was covered in the first two articles in this series, “Pricing Vacation Rental Home Series—Setting an Advertised Price” and “Pricing Vacation Rental Home Series—Adjusting Rent in Response to Changes in Demand or Competitors’ Pricing."
- This article will introduce pricing tools and their benefits.
- Succeeding articles will drill down to specific tools or topics with “how-to” advice.
Pricing tools supply information and perspective that helps identify the maximum rent level that will attract a renter —price too high, stay vacant; price too low, give away money.
No pricing tool can overcome the importance of pricing experience and good judgment. But experience and judgment alone are insufficient because pricing is an interactive sport.
Because every home competes with others, you participate in a market place. Pricing requires a sense for how many homes are competing with yours, how many renters are looking for homes, and what your competitors are charging on a particular day.
Below, we introduce tools that provide this information. Most of these cannot be purchased as off-the-shelf shrink wrapped applications because there has been too little commercial demand to entice software companies to invest the resources required to create and maintain them.
You can find the data required for these tools in your vacation rental software system and on your competitors’ websites.
You can harvest this data and build tools on spreadsheets. Or you can hire someone to build custom tools. Tools are nice to have in that they generate more profits. They are only critical where your competitor has better tools and is using them to book more rentals. Included below are some tool snapshots. These are illustrations. Create what you can.
Year-to-Date Booking Pace. Before changing prices, you want to know whether bookings are up or down over last year in various categories:
- Individual Homes. Compare year-to-date bookings for each home against its bookings for the past two years. Two years’ history tells you when a home’s slower booking pace is okay because last year was unusually good.
- Neighborhoods. Compare year-to-date bookings for a building or neighborhood—if year-to-date bookings for a neighborhood are down 20%, any home in that neighborhood is doing well if it is down just 10%.
- Rental Program. Compare year-to-date bookings for your rental program against its bookings for the past two years—if year-to-date bookings for the entire program is down 20%, any home that is down less than 20% is doing well.
- Key Competitors
Illustration of a report that tracks a home’s rental history over the past few years:
Illustration of a report that compares year-to-date performance to prior year:
Lead Time. The advance booking time varies for different homes, and some weeks are more popular than others. This can be measured by calculating the lead time for each booking (subtract booking date from arrival date).
- Average lead times have declined in recent years as consumers use the Internet to bargain at the last minute because availability calendars reveal a multitude of vacancies. Nevertheless, lead time history—when combined with booking pace information (prior category) can help indicate when it is too early to discount a vacant rental home.
- It is useful to have lead-time history for individual homes, specific buildings or neighborhoods, and your company’s rental program as a whole,
Illustration for Lead Time tracking (above) and Discount tracking (next section):
Source: HomeAway Webinar: Monitoring Competitors, Slide by Scott Leggat, VP Marketing & Administration – Outer Beaches Realty
- Discounts. If your company has repeat renters, they remember discounts and may expect the same price this year. But many rental companies don’t track discounts. Every company should—discounts signal that renters wouldn’t pay last year’s advertised price.
- Calculate/store discount details for each home: dollar amount; % of advertised price, arrival date, date the discount was first offered; and date the booking was made.
- Calculate/store the same details for all rental homes combined. On a 53-week grid, this can identify weeks where the company discounted prices last year. More importantly, it indicates which weeks did not require discounts to book last year.
- See the foregoing illustration for an example of how this can be tracked.
Market Share. You should count the number of rental homes managed by your company and each of your key competitors, and track this over many years. This tells you which companies are adding or losing homes. A market share analysis is a good report card that reflects how homeowners regard each competitor. Apart from deliberate downsizing (which can be good where a company has decided to specialize in high-end homes), a company that is losing inventory is not as well regarded by homeowners as a company that is gaining inventory. Use these reports to investigate why market share is changing.
- Is a competitor growing because it offers lower commissions, better service, has a reputation for handling upscale homes, gets more renters, etc.?
Illustration of Market Share Report:
Occupancy Rates. A management company can calculate its own occupancy rates for each week of the year simply enough (divide the total homes booked for each week by the number of total homes available during that week).
- Go to the rental manager’s website
- Count the number of homes and record this on a spreadsheet
- Search for a home for a specific week (don’t specify number of bedrooms
- Record the number of available homes on the spreadsheet
- Do the same search every week (on the same day)
- If there are 126 homes available out of 400, this company’s occupancy for the week of 6/16 is 68% as of the day of the search.
- If next week’s search shows 120 homes available, you know (1) that the company booked 6 homes during the past week, and (2) that its occupancy rate is then 70%.
- This system can feed the following type of reports:
There are many other reports, but these are some of the most useful. However you get there, you can only know whether your pricing is right by looking at data:
- Compare your booking pace for this year against last year. If your bookings are behind, look to see whether this is because your homes are priced too high.
- Compare your occupancy rate to that of your key competitors. If their occupancy trends are better than your, check whether their prices are lower for comparable homes.
Other pricing tools can be seen via the various pricing webinars offered on HomeAway Community.