29 Replies Latest reply: Apr 9, 2019 3:08 AM by floridarob RSS

    Find out how to easily manage your vacation rental rates

    amanda_ha HomeAway Employee

      Hello Everyone!

       

      If your rates don't change along with the market, you may be leaving money on the table.

      Good news: there's a secret weapon that will help you manage your rates as the pros do,

      and it couldn't be easier to use. Check out this video to learn more!

       

       

       

      What are your experiences with MarketMaker?

       

      Thank you!

      Amanda

      HomeAway Marketing Manager

        • Re: Find out how to easily manage your vacation rental rates
          ashevillelookout Senior Contributor

          IMO, for the average homeowner, it is rather confusing to use Market Maker.  For example, here is what I am seeing on my listing:

           

          boostedandraised.JPG

           

          My original base rate for this week was $165 per night, and a month ago an opportunity took it to $175.00.  That is the blue line at the top of the graph. Now there is a new opportunity posted. How is it reasonable to raise my rent even more to $194.00 per night when the average rate of booked properties is $134 and un-booked properties is $123? I also tried to boost (could not get above 300, let alone into the top 50). I think the week will go empty.

            • Re: Find out how to easily manage your vacation rental rates
              feibus Senior Contributor

              How far out is that week in question?  can't see the month.  Is it next week?

               

              My experience of MM is that it's pretty good at giving me decent "signals" about dates that are further out and very conflicted on anything near-term, just because there's a huge burst of searches for near-term but it's almost always discount-seekers, so the extra searches make it think you should raise rates, but what books is always a lower rate than you'd normally do.

               

              One new thing I've noticed is that that green-ish cross-hatch area is indicating that Vrbo is not booking our market to historical norms this year.  Something to keep an eye on.

                  • Re: Find out how to easily manage your vacation rental rates
                    feibus Senior Contributor

                    what are current occupancy and expected occupancy?  Past rates are often a useless number; average of remaining stock is important but I'm finding a lot of people mis-price their homes (there's one I just ran into that had summer rates of $119 and September rates of $130... and September is totally dead in Orlando, so no idea why they decided to price that way, meanwhile, I'm getting $140 for summer).

                     

                    So, look at what's already rented and how much more they expect to get rented.  That tells you if supply is tight or you're fighting an up-hill battle.  My guess from looking at it is that you're priced too high right now, not because of everyone else's price, but because the amount of remaining bookings expected isn't high enough (compared to remaining supply) to justify raising your rates.

                • Re: Find out how to easily manage your vacation rental rates
                  wildiris Active Contributor

                  Market Maker may be a helpful tool for owners with vacation rentals in certain areas.  For whatever reason, it is not helpful to me in my area.  I've been renting in my area for more than 10 years.  Market Maker tells me I can have a higher price in April than in the peak months of July and August.  Absolutely incorrect.  No one comes to this area in April.

                • Re: Find out how to easily manage your vacation rental rates
                  amanda_ha HomeAway Employee

                  Hi ashevillelookout,

                   

                  Here are some helpful articles on Discovery Hub about Revenue Management goals, which are used by MarketMaker to determine whether your price should increase or decrease. This should explain why MarketMaker is asking you to increase your prices even though other listings are priced lower, it all depends on the original goal you chose when setting up MarketMaker.

                   

                  Let me know if you have any questions.

                   

                  Thank you,

                  Amanda

                  HomeAway Marketing Manager

                  • Re: Find out how to easily manage your vacation rental rates
                    floridarob Active Contributor

                    The video gets it wrong. Simply adjusting one's rates is not Revenue Management.

                     

                    The non-technical definition of Revenue Management is selling the right unit, at the right price, to the right customer, at the right time, in the right way, in order to maximize revenue... all for the lowest cost possible. (The technical definition involves the analysis of accumulated data to determine all of these 'right' numbers.)

                     

                    But even that definition makes a huge assumption; that the revenue achieved will be enough to cover expenses and generate a profit.

                     

                    Concerning yourself with what your competitors are charging is all well and good, but if they are losing money, what does it matter? The thing that I find so fascinating about Market Maker, or 'wheel-house' pricing or anything else like it, is that none of them start with the most important data of all; what does it actually cost you to run your vacation rental, and how much profit do you want to be making?

                     

                    Any discussion of pricing that doesn't include knowing one's costs is, in my opinion, completely irrelevant.

                     

                    It is reported that Henry Ford said "There are many factors that go into determining a selling price, the least important of which are costs." I don't know if it's true that he said that, but I'm **** sure that Henry Ford knew exactly what his costs were.

                      • Re: Find out how to easily manage your vacation rental rates
                        u0999 Premier Contributor

                        "

                        The thing that I find so fascinating about Market Maker, or 'wheel-house' pricing or anything else like it, is that none of them start with the most important data of all; what does it actually cost you to run your vacation rental, and how much profit do you want to be making?

                         

                        "

                        well they do not know if you bought your house for 150K or 450K or inherited it from Great-Grandma. All they "know" (more or less) is what the comparable size / location/ amenities properties rent for. They cannot know what it costs you to run a VR. You may be (for example ) using a property manager and paying them 30% . I am not. So off the bat it costs you 30% more than it costs me. Or you may own your property outright so you do not have a mortgage while I do and it cost me $X a moth to pay it.

                        also how much profit I want to be making. I may WANT to make a $1000 profit a day per property. But what I "want" is not very relevant if market will not support renting my property for $1300 a day to make a profit of $1000. So my want is only relevant within limits set by the market. It is not some arbitrary number I can will to be so.

                          • Re: Find out how to easily manage your vacation rental rates
                            floridarob Active Contributor

                             

                            well they do not know if you bought your house for 150K or 450K or inherited it from Great-Grandma.

                             

                            None of that matters with regard to what you should be charging. You may not realize it, but your comments are proving my point.

                             

                            They cannot know what it costs you to run a VR.

                             

                            I'm not suggesting that they should know. But every time they put out some list saying "Here's how to price your vacation rental..." they always talk about looking at what your competition is charging. NEVER do they talk about comparing your rates to your costs, and NEVER do they instruct people on figuring out what their real costs are. It breeds ignorance and failure in the market, because people who don't know any better think that a voice like HomeAway is going to be two things; correct, and complete. But in reality it is usually neither of these.

                             

                            Or you may own your property outright so you do not have a mortgage while I do and it cost me $X a moth to pay it.

                             

                            I'm really sorry, because I know how this sounds, and I don't mean to attack you personally with my comments, but this is so fundamentally wrong it demonstrates the huge lack of knowledge on this subject out there.

                             

                            Whether or not you have a mortgage or not, own your property or not, does NOT affect your costs. ALL money has a cost. Whether you supply it, or the bank does, both should be paid for it. The difference between you and the bank, is the bank is unwilling to let you use their money without being paid for it. But lots of ignorant owners are willing to use their own money without being likewise compensated for it. They are ripping themselves off, but don't know it.

                             

                            The expense of the money tied up in your property and not generating you other income is referred to in accounting as 'opportunity cost'. It is the consideration for what that money could be earning you instead if properly invested in a different vehicle. You should not be ignoring that when analyzing the true cost of your vacation rental.

                             

                            People also love to ignore the depreciation of their real estate, (and I realize that I am getting into some complex information here, but very quickly, and excuse what is likely to turn into a long post) if you go into the vacation rental game with a brand new home, twenty five years later you will exit with an old 25-year old out of date and out of style home that is technically obsolete. The value may have gone up, but it won't compare to what a new home is selling for 25 years from now, UNLESS you have completely renovated and rebuilt that home over the 25 years to keep it current. That is necessary for two reasons; one, to keep your home current enough that it will still keep attracting rentals, and two; so that you can exit the business with what you went in to it with; essentially a brand new home.

                             

                            The reality of this is reflected in hotels which renovate and renew themselves every 7 years. Why do they do this when the existing fittings and decorations are still perfectly good and functional?  Because it is necessary to stay in the game and keep generating revenue, and to keep the value of their property up. Why does McDonalds tear down perfectly good functioning restaurants and replace them with new ones? Because it is necessary to keep generating revenue in an evolving market, and to keep the value of their property up. Vacation Rentals MUST do the same thing, or the rentals will disappear as much better, newer and nice properties keep entering the market, and meanwhile the wear and tear will destroy the house leaving nothing much left after 25 years.

                             

                            So here is the question posed by all of this; do you have opportunity cost and depreciation accounted for in your prices? Or do you just blindly ignore them? I guarantee you, 90% of vacation rental owners have not accounted for these expenses in their costs. Now, in some places it doesn't matter, because the 'going rate' is high enough to cover these things, and just 'charging what the guy down the street does' provides enough money to cover these expenses, but I can tell you that for thousands of owners in my market, they have not, and they are headed for a financial disaster and simply don't know it.

                             

                            So my fundamental point is this; putting forth this 'guidance' on vacation rental pricing, without properly educating owners about ALL things that need to be considered, or at the least making them aware of them and telling them to go get that education elsewhere, is irresponsible and misleading. Better to say nothing than to give people the wrong ideas.

                            also how much profit I want to be making. I may WANT to make a $1000 profit a day per property. But what I "want" is not very relevant if market will not support renting my property for $1300 a day to make a profit of $1000. So my want is only relevant within limits set by the market. It is not some arbitrary number I can will to be so.

                             

                            Actually it is completely up to you. What you may 'want' may not be realistic in a particular market with a particular property, but what you 'want' out of your property is a fundamental question that every owner must address, otherwise why be doing what you're doing? Your 'want' is central to the entire act of getting into the vacation rental game in the first place. And knowing what you want, your end goal, is fundamental to being able to achieve it. In a few rare cases, some people get lucky and get what they want without intention, but in the vast majority of cases, there are simply too many other opposing forces out there to allow people to end up where they wanted without specific intention and action to get there.

                             

                            Your 'want' therefor should be a driving factor behind what property you have and where it is, and how you price it. Not what the guy down the road who doesn't know what he is doing will settle for. Start with your 'want'. Then choose the right vehicle to get you there. So many folks get into the vacation rental game because the house looked good to them, but they weren't considering its marketability and ability to compete in their local market, or to generate the revenue they may want from it. But even after this, I have seen lots of owners who change and evolve their properties in order to make them able to generate what they want out of it. Or at a minimum, as close to it as they can get, and then they keep building from there.

                             

                            The 'limits set by the market' are actually set by the owners, not by the customers. Does anybody walk into Target and tell them how much they are willing to pay for a TV? No. Target sets the price. They are the seller. They determine how much they are willing to accept for what they are offering. And you can be sure that Target knows that Walmart is selling a TV for less, and the customer could go there, but they don't care, because they know that on that particular day, with that particular customer, they can sell that TV for twice as much PROFIT as what Walmart is getting by undercutting them. And they are fine with that. Sell less TV's, make enough money without the stress or fuss that Walmart has to go through to give them away. Different business model, and each has their benefits.

                             

                            If all TVs suddenly cost $100 more overnight, the exact same number of TVs would be sold, but everyone in the TV selling business would make a heck of a lot more money, because people still want TVs and would still be willing to pay for them. Just think about what TVs used to cost vs. what they cost now. It is not whether or not people have the money and will spend them on TVs – they will, at practically any price they can afford. The question is, how much money are the sellers willing to accept for their TVs? Due to technological improvements they can make them for a lot less now, so they are willing to sell them for a lot less now and still make the same money they made 20 years ago. But if their costs were higher, you can be sure that the prices would be higher too. Why? Because people smart enough to make TVs are smart enough to not sell them at a loss.

                             

                            But in my market at least, and I certainly understand that this isn't the case everywhere (but as other markets mature like mine has, they will undoubtedly follow because the owner's generally aren't smart enough to know their costs), most of the owners are not asking enough to cover their costs. This is true for two reasons; 1) they don't know what their actual costs are (as evidenced by the discussion above), and 2) they don't understand that when it comes to vacation rentals, the idea is not to look at what others charge and try to beat them on price, but to create something that people desire and beat the competition on marketing.

                             

                            People absolutely WILL pay a MUCH higher price above the 'market'. Not everyone, sure, but even the lowest priced buyers in the market would pay more if the lowest price offerings were priced 20% higher. They pay less because they CAN pay less and get what they want. But if the owners setting the prices didn't give it to them at that price, they would pay more. They would have no choice. So it really is the owners who set the prices in a market. Not the 'market', and not the guests. It doesn't matter what the guest is willing to pay. If they don't pay what it costs, they don't get the keys to the place. That is pretty simple.

                             

                            Do owners need a backbone to say 'no' a few times, and let the lowball price guests go stay in the lower priced place down the road? Sure they do. But that place will get booked, and low and behold, the next guest who comes along won't find a cheaper place to stay (because they are all booked) and pay more. But only if the owner ASKS them to. How much does the owner ask? What do they desire? What is their want?

                             

                            And meanwhile, the owner down the road will look at how much THEY are getting and raise his price, because he sets his price on a mistaken belief that his competition, and the 'market' control what he can get. "Well if that guy is getting THAT much for his place, then I can get more for my place..." he'll say. So the prices go up, because the owners both decided they wanted more. One with intention, because they lead, and one who just follows. But the market will move if the owners say it should. The owners just have to be smart enough to understand this.

                             

                            If the owner prices with intention, and then builds their property, service and marketing to justify the price, they will get it. The right price, from the right customer, at the right place and time. And the right price is a price that allows the owner to be profitable – truly profitable, based on actual costs, and reach their goals too.

                             

                            Where is all of that being explained by so-called experts advising vacation rental owners on how to price their properties?

                              • Re: Find out how to easily manage your vacation rental rates
                                u0999 Premier Contributor

                                I think you completely misunderstood me. You were critiquing their tools , quote from your post: " The thing that I find so fascinating about Market Maker, or 'wheel-house' pricing or anything else like it, is that none of them start with the most important data of all; what does it actually cost you to run your vacation rental, and how much profit do you want to be making?"

                                 

                                Underline is mine. I simply countered your statement that these tools are not meant to, have to, need to (and cannot) take the underlined part into consideration. They can suggest rental rates that market can bear based on their data. That is ALL they do.

                                  • Re: Find out how to easily manage your vacation rental rates
                                    floridarob Active Contributor

                                    u0999 wrote:

                                     

                                    I think you completely misunderstood me. You were critiquing their tools , quote from your post: " The thing that I find so fascinating about Market Maker, or 'wheel-house' pricing or anything else like it, is that none of them start with the most important data of all; what does it actually cost you to run your vacation rental, and how much profit do you want to be making?"

                                     

                                    Underline is mine. I simply countered your statement that these tools are not meant to, have to, need to (and cannot) take the underlined part into consideration. They can suggest rental rates that market can bear based on their data. That is ALL they do.

                                     

                                    Thank you for your patient (with me) response.

                                     

                                    I understand that is all that they can do. I don't disagree with what you are saying. My point (made in a very long winded way) is that just like drug company ads, they need to practice full disclosure. They need to explain that what they are presenting is not ALL there is to consider when it comes to pricing. Then, in my (sometimes) typical fashion I went on to discuss in detail why the point I am making is so important; that most owners don't truly understand their costs.

                                     

                                    You are right, they can't provide the specific information I am talking about, but what they CAN do is make owners aware that the considerations I'm talking about are equally important, and tell owners that they need to determine those factors in addition to the market data they are providing. But I always see market data being presented as if it is the be all, and end all... everything an owner needs to arrive at a proper price, as if it is a complete answer. It isn't. Couldn't they have a qualifier? Something like:

                                     

                                    "Here are our pricing recommendations based on the data we have for your market at this time. It is very important to keep in mind that this pricing information is based only on market data and does not include everything that should be taken into account when setting a price for your property. Operating costs, your property and its unique attributes, your service, operations, history and experience, marketing ability, and goals must all be considered in arriving at the right price for your property. For help with these topics, please see (fill in the blank here) or search on Google."

                                     

                                    Why isn't this done? Well, in the case of the market data companies I think it's pretty obvious; people would be a lot less inclined to pay them for their services if they understood that it is only a small part of what they need to be considering in arriving at a proper price. People want things to be easy. "Just tell me what to charge!"

                                     

                                    I have no problem with HomeAway or these automated pricing companies providing market information. I have a problem with them making it sound like 'the market' is the ONLY thing that should be considered when setting a price. Having, or claiming, a voice of authority carries with it an implied responsibility to provide correct and complete information. If one can't do that, then at a minimum steps must be taken to ensure that the user understands that the information provided is not going to be complete. That is what I don't see happening, what I have a problem with, and what I am pointing out.

                              • Re: Find out how to easily manage your vacation rental rates
                                feibus Senior Contributor

                                How much you need to run your business isn't the point of these tools.  That's for you to care about, but the market isn't going to tell you how much you can make your home cost, but how much other people are willing to pay for your home.

                                 

                                If you equate it to real estate sales, the tools provide the "comps" for you to consider when you price your home.  It doesn't tell you what price you have to offer it, it offers you a number that might maximize your revenue or get it booked for those particular nights.

                                 

                                I find there are times MM is too low or too high.  I don't take its information as anything other than a signal to look closer at my rates, what has been booking, what's still being offered, and what percentage does HA expect my market to book for the dates in question.  That last number is really important, because if your market is expected to book at least 80% for a particular night, that means you have more price control than you might expect, provided you are patient.

                                • Re: Find out how to easily manage your vacation rental rates
                                  tahoelodgingonline Contributor

                                  I'm not sure where you got these ideas, but all of my education in business and economics and all of my experience indicates that they're wrong, or at least that using these factors to set your prices is not the best way to maximize your revenues. 

                                   

                                  Your costs and the profit you "want" to make are entirely irrelevant to the guests, who are evaluating the relative merits of your property against the competition and the price you charge for what you offer.  Nobody cares what your costs are or what you want your profits to be, and they have nothing to do with the rate the market will bear for your property.  Period. 

                                   

                                  Market prices are determined by the interaction between supply and demand.  Demand depends to a great extent on guests' perceived value of your property (how much satisfaction they get divided by their costs to obtain it).  Your costs are relevant to you only to the extent that you decide whether or not you want to be in business and you can decide whether or not you want to accept guests that are willing to pay prices that do or do not cover your costs and your desired profits.

                                   

                                  If you set your prices based on your costs plus your desired profits, you can expect that there will be times when you will significantly overprice or underprice your property relative to the the rates the market will bear, and by doing so you will fail to maximize your profits.  You'll accept bookings from travelers who would have paid more than you asked, and you'll sit empty when you've priced your property above what travelers are willing to pay.

                                   

                                  Why should I accept my costs + some arbitarily desired profit percentage when my guests are willing to pay twice that sum?  (This actually happens in Maui over Christmas / New Years)  On the other hand, if I refuse to accept less than the rates I'd "like" to charge for my Lake Tahoe property in the low seasons of May and October, those are going to be very lean months because the demand is much lower in those months in that market, while the supply remains about the same, which dictates a market price of less than I'd like to get.  Of course, we can (and I think we often should) have times when we accept that our occupancy will be lower, and we refuse to accept the market rates in some seasons because the wear and tear on our properties and the hassle involved doesn't justify those rates in those seasons.  It is this sort of tradeoff that led to me lowering the number of people I'd allow in my Tahoe property from 12 to 10 on VRBO and from 10 to 8 on Airbnb.  I've just decided that I'd rather lose bookings from these larger groups than deal with the hassles and damage that they tend to come with.

                                   

                                  In my view, the essense of our jobs as managers is to constantly evaluate the perceived value of our properties relative to the competing supply provided by our competitors and to price our properties so that we are charging exactly what the market will bear, and no less.  It is also important to find ways to add value to our guests' experience and distinguish the vacation experience we provide from what is being provided by our competitors.

                                    • Re: Find out how to easily manage your vacation rental rates
                                      floridarob Active Contributor


                                      tahoelodgingonline wrote:

                                       

                                      I'm not sure where you got these ideas, but all of my education in business and economics and all of my experience indicates that they're wrong, or at least that using these factors to set your prices is not the best way to maximize your revenues.

                                       

                                      They are absolutely not wrong. They are factors necessary to consider in arriving at proper prices. I didn't say they were everything that needs to be considered.

                                      Your costs and the profit you "want" to make are entirely irrelevant to the guests, who are evaluating the relative merits of your property against the competition and the price you charge for what you offer.  Nobody cares what your costs are or what you want your profits to be, and they have nothing to do with the rate the market will bear for your property.  Period.

                                       

                                      This is the kind of 'ignorance' (sorry, but by that I only mean a lack of knowledge) that pervades the industry that I am fighting against. Of course the guest doesn't care what your costs are. But 'nobody' cares? The owner bloody well should.

                                       

                                      If the 'market' won't pay a rate that allows the owner to achieve what they want by renting a property in it, then why should an owner bother to do so? Are you suggesting that owners should rent at a loss because that is 'all the market will bear'? That's ridiculous.

                                       

                                      Either renting a vacation rental allows the owner to achieve their goals or it doesn't. If it doesn't, then an owner shouldn't do it.

                                      Market prices are determined by the interaction between supply and demand.

                                       

                                      This is old style economics thinking that has been largely disproven over the last thirty years. Companies like Apple and many others have demonstrated that competitive prices are largely irrelevant in determining pricing. Create something that people will want, market it properly, and the price almost becomes secondary. Stress 'almost'. But the lesson here is that price is not nearly as important as everyone always understood it to be in determining what people will buy.

                                       

                                      The influence of price on the buying decision varies greatly between different businesses. It is huge in commodity items, but almost irrelevant in other industries. And most vacation rental owners, who have no outside business experience, don't understand that vacation rentals, which are almost always fairly unique in their attributes, should never be sold on price, like TVs are.

                                       

                                      And this is also one of the huge differences between vacation rentals and hotel rooms (which ARE a commodity because the big chains have turned them into that) and Expedia often appears to fail to understand this. They seem to think you can sell vacation rentals like you sell mass produced hotel rooms, and you don't. They both provide accommodation, but the means, method, and application are completely different. And that means that people desire them, and buy them, for different reasons. It is like selling cars and running an airline; both provide transportation, but they are not the same thing, and not used in the same way for the same purpose.

                                      Demand depends to a great extent on guests' perceived value of your property (how much satisfaction they get divided by their costs to obtain it).  Your costs are relevant to you only to the extent that you decide whether or not you want to be in business and you can decide whether or not you want to accept guests that are willing to pay prices that do or do not cover your costs and your desired profits.

                                       

                                      All very true.

                                      If you set your prices based on your costs plus your desired profits, you can expect that there will be times when you will significantly overprice or underprice your property relative to the the rates the market will bear,

                                       

                                      There is no reason to expect that at all. Your costs plus desired profit are completely independent of the 'going rates' in an area. Your costs plus desired profit may produce a loss at market rates, it may produce a windfall.  The statement is also predicated on the idea that there actually is such a thing as 'rates the market will bear' yet many businesses are proving over and over again that in reality there is no limit to what 'the market' will bear.

                                       

                                      Part of the problem with 'what the market will bear' is that this largely falls to perception, not reality. No one knows what the market will bear unless they actually test it. And of course, what the market will bear is completely dependent upon what is being delivered to that market. People will always pay for what they truly want. That doesn't always mean that someone is out there providing it.

                                      and by doing so you will fail to maximize your profits.  You'll accept bookings from travelers who would have paid more than you asked, and you'll sit empty when you've priced your property above what travelers are willing to pay.

                                       

                                      None of that is necessarily true; one doesn't follow the other. But I do understand the point that you are trying to make. But we can hold that discussion for now.

                                      Why should I accept my costs + some arbitarily desired profit percentage when my guests are willing to pay twice that sum?  (This actually happens in Maui over Christmas / New Years)  On the other hand, if I refuse to accept less than the rates I'd "like" to charge for my Lake Tahoe property in the low seasons of May and October, those are going to be very lean months because the demand is much lower in those months in that market, while the supply remains about the same, which dictates a market price of less than I'd like to get.

                                       

                                      What you are referring to is varying rates based on seasonal demand, which is a completely separate issue from everything I am talking about above. In my process, one must analyze one's costs, desired profit, goals, etc. (everything I have discussed above) which then produces what I call a 'base line' rate, which is the equal or average rate that one would need to achieve if every single night of the year was booked out. Once that is determined, then the next step is to analyze the seasons during the year, based on customer demand, and vary the base line rate up or down based upon it, in order to still allow one to achieve their goals. The final step in this process is looking at 'going rates' to see where other suppliers have pushed or allowed their rates to end up. It may be that opportunities exist to charge far more than what the first analysis provided, and at the same time, it may even be necessary to sell below one's actual costs during a low season in order to maximize the total revenue achieved.

                                       

                                      I have no problem with analyzing seasonal demand, and allowing it to influence nightly rate variation throughout the year, but this must be done once one knows exactly what one's costs are, not after. Otherwise the tendency is to not do the cost analysis, assuming that others have done it, and that if they have they have done it correctly. What I consistently see is that if owners are honest, they haven't done the analysis, or if they have, they have done it wrong, in the majority of cases.

                                       

                                      So what you get is the blind leading the blind, and together they determine 'what they market will bear' because they are the ones collectively setting rates for a market.  The fact is, that a good portion of guests will only pay so much because of what they can get a price to stay at from a competitor, not because that is all they are willing to pay. They would have easily and happily paid more, if only the owners collectively had asked for it.

                                      Of course, we can (and I think we often should) have times when we accept that our occupancy will be lower, and we refuse to accept the market rates in some seasons because the wear and tear on our properties and the hassle involved doesn't justify those rates in those seasons.  It is this sort of tradeoff that led to me lowering the number of people I'd allow in my Tahoe property from 12 to 10 on VRBO and from 10 to 8 on Airbnb.  I've just decided that I'd rather lose bookings from these larger groups than deal with the hassles and damage that they tend to come with.

                                       

                                      This is a form of revenue management. Where the price doesn't cover the costs (you call it 'hassle' but every hassle is worth a certain amount of money if it is large enough) you have elected to not allow what you think the market will bear to be able to rent your properties. You have done what I am advocating! You've looked at the entire picture, and drawn a line in the sand and said that you won't accept 'market rates' because it isn't worth it to you, based on the hassle (or costs) involved.

                                       

                                      In my market, owners are all running around chasing each other's prices into the ground, and no one is making any good money, in the mistaken belief that that is all the market will bear. But the vast majority of them are dead wrong, and dead broke as a result. I know of many owners who have, with the encouragement of myself and others, raised their rates to a sustainable level and discovered that what they thought about 'the market' was completely wrong. That many people will pay sustainable rates, and that the owner can get far more for their properties than they thought they could. They didn't improve them or do anything except simply ask for a higher price. And they still were booked anyway.

                                       

                                      Here is the fundamental point that leaves me sounding stuck like a broken record that won't get on to the next song. No one knows what the market will bear unless you actually test it. And the truth is, the vast majority of owners are terrified to test what the market will bear, because they can't afford to leave their one property sitting empty if they push it too far. Ask them, discuss it with them on a forum, and they will get angry with you... insisting that they know 'what the market will bear' when in reality they have actually never tested it. They just 'know'.

                                       

                                      "You can't put your property at that price, you'll be left sitting empty!!"

                                       

                                      Will you? How do you know? Have you ever actually charged rates like that?

                                       

                                      "Anyone foolish enough to do that will be left sitting empty with no bookings at all!"

                                       

                                      And yet, many owners have discovered (at least in my market) that they could have been charging twice as much, and they still would have been booked anyway.

                                       

                                      And in many cases, in the vacation rental game, just as you suggest, it makes sense to have some vacancy.  If an owner charges twice as much as their direct competitor (same house, same costs) who is booked every night of the year, they can actually produce the same results as the low cost competitor being booked only about 40% of the year. This is because if they were booked only half the nights, they would have the exact same revenue as the low cost competitor, but their costs would be much lower with being booked only half as much. So the 40% occupancy figure is about right to produce the same results as the half-price guy booked 100% of the time. But in reality, the low 40% occupancy doesn't happen. And every single booking that the high-priced owner gets above the 40% base line produces big profits because the costs have been covered.

                                       

                                      Charging more, and being willing to let your property sit empty sometimes as a result, is actually a big part of revenue management in the vacation rental game.

                                      In my view, the essense of our jobs as managers is to constantly evaluate the perceived value of our properties relative to the competing supply provided by our competitors and to price our properties so that we are charging exactly what the market will bear, and no less.

                                       

                                      That is one approach, and I'm not saying it isn't valid. Just like my Target vs. Walmart example, there is more than one winning approach to any business. But what I often see is people assuming that their's is the only correct approach. I know I often sound like that too.

                                       

                                      I do have a problem with the idea of trying to charge 'exactly what the market will bear, and no less' because who decides what the market will bear? Unless you are constantly testing it, you really don't know. And even if you do, you only know what the market will bear for your own properties, when something else, or the same thing better marketed than what you can do, could produce even more.

                                       

                                      I see too many people using the concept of 'what the market will bear' as a crutch, or an excuse, that limits what they achieve. I'm not saying that is you, because I know nothing about your business, but I do see this all the time.

                                       

                                      I also have a problem with being focused on the competing supply. Who cares what your competitors are charging if they aren't making any money? After a decade in this business I have been around long enough to see vacation rental properties in my neighbourhood go through three separate owners – each one was going to set the world on fire and have a fully booked property with their competitive rates. And each one sold out after three years because they got fed up with losing money trying to be competitive with other 'competitive' properties. And I just keep chugging along, charging twice as much, with my properties having higher than average occupancy rates, and re-investing and improving my properties to make them even more desirable to guests.

                                       

                                      A big part of my success is completely ignoring what my competition is doing, and your 'formula' as stated above pays way too much attention to the competition for me. To be fair, and completely honest, I pay very close attention to what my competitors do, otherwise I wouldn't know so much about how their strategies are failing them, but I don't let what they do influence my decisions. I want a different result (my goals, not theirs) than what they are producing, so I set my own course and ignore them. And still the bookings come, and every guest helps move me to where I want to be. Meanwhile, every booking they take is moving them closer to being out of the business.

                                       

                                      For me, I would change your statement to this; Our responsibility as managers is to constantly be improving our property, operations and service to maximize the revenue and profit we can achieve. This requires a commitment to operational and service excellence, constantly looking for ways to improve, and determining through testing, and then achieving, high revenues, all for the purpose of generating maximum profits and return on investment.

                                       

                                      Competitors, occupancy rates and the market be damned!

                                  • Re: Find out how to easily manage your vacation rental rates
                                    calicalling Active Contributor

                                    What's helpful about MM is the assimilated data, although as y'all have all pointed out, the data is of questionable accuracy.

                                     

                                    The problem with the pricing suggestions is that (as I've indicated before on the forum) they don't seem to be more than a percentage based suggestion which relies on our strategy setting to calculate if we should increase or decrease.

                                     

                                     

                                    ashevillelookout, my guess is that you have a strategy that is somewhere in the upper 'revenue' to 'top dollar' area, which is why you are being encouraged to raise rates, even though you aren't booked and nights are renting to competitors for much less.

                                     

                                    When I played with on my listings, I found that the 'opportunities' appear to be a simple percentage based calculation up or down, depending on my strategy setting. I was hoping for more than is available on Air, and in a sense it is because you can set strategy (not available on Air). But the suggestions (just like Air) seem to be a basic percentage based increase/decrease that do not appear to be connected to real-time occupancy or demand data.

                                      • Re: Find out how to easily manage your vacation rental rates
                                        ashevillelookout Senior Contributor

                                        Here is the setting:  I did not change it.  It is what HA set on my behalf.  I would not even know where to put the marker, as I do not understand the scale.  I am an intelligent, college educated person, but I cannot make heads nor tails out of these graphs, strategies, opportunities, boosts and whatever. 

                                        Revenuestrategy.JPG

                                          • Re: Find out how to easily manage your vacation rental rates
                                            calicalling Active Contributor

                                            Yep. There's a default setting, but you can place that circle anywhere you want from "heads in beds" (Occupancy) to "priced out of the market" (top-dollar).

                                             

                                            Try pulling that circle down to the purple 'occupancy' area ... just for kicks and clarity, pull it all the way down to dark purple. And see what kinds of 'opportunities' you get.

                                              • Re: Find out how to easily manage your vacation rental rates
                                                calicalling Active Contributor

                                                Oh, dear. I forgot that no one can use the word c i r c l e. Trying again.

                                                 

                                                Yep. There's a default setting, but you can place that c i r c l e anywhere you want from "heads in beds" (Occupancy) to "priced out of the market" (top-dollar).

                                                 

                                                Try pulling that c i r c l e down to the purple 'occupancy' area ... just for kicks and clarity, pull it all the way down to dark purple. And see what kinds of 'opportunities' you get.

                                              • Re: Find out how to easily manage your vacation rental rates
                                                feibus Senior Contributor

                                                For me, the "default" was on that line between the occupancy and revenue areas.  I moved mine slightly into the revenue area; you're pretty far into that area, so I'd expect you're trading off price for vacant nights during some periods if you followed its advice.

                                                 

                                                So... recommend adjusting the marker down closer to occupancy, since you want your home to be more occupied.

                                                  • Re: Find out how to easily manage your vacation rental rates
                                                    ashevillelookout Senior Contributor

                                                    Thank you for the suggestion.  I am very definitely not about heads in beds, and have an occupancy target that I have exceeded every year so I do not fret about vacant nights -- my marketing plan works well, my revenue stream is steady and exceeds need, and two families (besides my own) are supported by my efforts.  It has been harder to book since the advent of Expedia and I have fewer HA/VRBO guests -- skyrocketing my prices on their platform is probably not going to improve that.  I have a good product at a marketable and competitive rate -- these boosts and strategies just give me a headache.  HomeAway does not have a handle on my market -- they have lumped me in with a unwieldy (45 mile diameter) demographic that has nothing to do with where my guests wish to be.

                                              • Re: Find out how to easily manage your vacation rental rates
                                                ohst8er Premier Contributor

                                                I've been sort of off the grid for a week or so, enjoying our VR for a change instead of readying it for everyone else's enjoyment

                                                 

                                                At any rate, there's lots of wordy things above, some that I am sure I agree wholeheartedly with, so I'll just leave this little nugget, as a hotel person, I trusted the rates managers at my competitors at the Hiltons, Hyatts, Marriotts and Westins of the world.  In VR land however, I find that most of my competitors either aren't savvy about rate structure, don't care to be, don't need to be, don't choose to be, think that they might be, whatever it is, which means, the data on MM is only as good as the people feeding it, and I don't trust that my competitors are feeding it in an accurate enough manner for it to be of use to me.  Maybe a few are, but not all 86 comps.

                                                 

                                                All that said, I have a self imposed project ahead of me.  I'm going to make a grid with 4 columns, 2 bedrooms on my side of the street, 3 bedrooms on my side of the street, 2 bedrooms across the street (waterfront) and 3 bedrooms across the street (waterfront).  I want to know what their bottom line rates are compared to mine, not just their nightly rate.   I've raised my rates every year religiously, and pretty aggressively this year.   I want to know where I officially stack up with all these.  WHY?  To avoid this conversation:

                                                 

                                                "Honey, check out this condo!  I love it, I'm gonna book it.  Oh wait, by the time I add in the cleaning fee, and the tax and the VRBO fee, for just a few hundred dollars more we could stay oceanfront."

                                                "Oceanfront sounds great dear, but for that price we will only get a 2 bedroom. What about the twins?"

                                                "When I was a kid, me and my younger brother were lucky to have sleeping bags on the floor.  For that view, the twins can sleep in the pull out."

                                                 

                                                Before I push my 2020 rates I want to know where I stack up against those 2 bedrooms. BEFORE THAT CONVERSATION HAPPENS.  I also want to know at what price point I become the outlier on MY side of the street.   It will take several hours of digging, but it will be worth the effort.

                                                 

                                                Edited:  I spent a few minutes on my rate project.  Here's what I found:

                                                 

                                                First column:  2 bedroom oceanfront, I looked at 25 units.  Total rental amount is all over the board, from a crazy low $209 a night, to $552 a night.  All in a .25 square mile radius.   By way of comparison, the local Marriott resort is renting for $689 a night, which comes out to $764.79 a night with tax.

                                                 

                                                What does this tell me?  The person who rents for $209 a night (inclusive of all taxes and fees), doesn't know how to market his/her condo and should not be allowed near sharp objects either.  Unless of course, they also own a lakehouse in Michigan and spend their summers there, away from the crazy beach dwellers.  Maybe they don't really CARE what they rent their condo for, they just want to cover the costs.

                                                 

                                                And the person who rents for $552 a night?  They are either savvy business people who know what their place is worth, OR they are mortgaged up to their eyeballs and have to out charge everyone.   Six of the 25 listings are in the 200ish a night range.  10 are in the 300ish a night range.  4 are in the 400ish a night range, and 6 are in the 500ish a night range.  Again, this is the price once all fees are built in.   The "average" of all of these is $380 a night.  But what does that average rate really tell me?  Do I throw out all 6 of the 200ish range AND all 6 of the 500ish range as outliers?  Maybe the 200ish, but not the 500ish, because if you ask ME, they are the ones who are priced accordingly.  MM shows the average, which is $380 a night.  To me, if you price anywhere NEAR $380 a night in my market in a 2 bedroom oceanfront condo you are leaving money on the table.  Unless your place is a dump. 

                                                  • Re: Find out how to easily manage your vacation rental rates
                                                    feibus Senior Contributor

                                                    The average tells you that about half your competitors are below that rate and about half are above (I know, it's not the "median", but with enough data points, it'll be close enough for making a decision).  The ones that are below average are competitors even if your rate is above average, just because a traveler will book that place instead of your place.

                                                     

                                                    That's why I think the MM numbers showing how busy an area is one any date is a great value for determining whether you can be well above average or just slightly above average when you set your rates.  We have dates on the graph showing 99% occupancy... I can pretty much dictate my rates those nights as long as they're not reaching into the prices for larger homes with larger pools and more amenities.  We have dates with only 50% occupancy, and those are the ones where I'd better be near enough to average if I want to be booked.

                                                     

                                                    But never average unless we have about 2 weeks to go before those nights are lost...

                                                      • Re: Find out how to easily manage your vacation rental rates
                                                        ohst8er Premier Contributor

                                                        feibus, right, I get that it's the average.  But the data is only as good as the people supplying the data (us owners).  I do agree that it's helpful to have the occupancy percentage available. I also see that forecasted occupancy is back, it appeared some time ago, then quickly disappeared, and is now back again (atleast from my vantage point.)  Does anyone recall where the data comes from that determines forecasted occupancy?  I recall asking and getting an answer about that when I first noticed the forecasted occupancy, but I don't recall what the answer was. 

                                                          • Re: Find out how to easily manage your vacation rental rates
                                                            feibus Senior Contributor

                                                            I recall it's from historical data.  But I could just have false memories too.

                                                             

                                                            The data is good (it comes from people's current rates), the value of the data is what you're objecting to, because you have competitors who are terrible at pricing their homes.  But I'd say that really doesn't matter, because those competitors are getting booked (usually) before you.  So those competitors and their pricing matter in terms of eating up available demand.  They matter less when there's ample demand (high season); they matter more when there's not so much demand (low season)... if you want to be booked.

                                                             

                                                            Your own knowledge of your market and your ability to gauge demand on any particular date is going to end up taking precedence over any data presented... that's just human nature.  We know what we know, usually unless the data is dramatically different from our own expectations.

                                                             

                                                            But for newbies, they just don't have enough market knowledge and need the data.

                                                          • Re: Find out how to easily manage your vacation rental rates
                                                            floridarob Active Contributor

                                                            feibus wrote:

                                                             

                                                            We have dates on the graph showing 99% occupancy...

                                                            How interesting, because despite being only 10 minutes away from you, the highest I ever see (for Orlando) is usually around 65%.  So obviously the data being shown in MM is derived from one's primary market.

                                                             

                                                            I'm not questioning what you say, because you know your business, but as far as being able to 'dictate rates' on nights with 99% occupancy, even if you do have 99% occupancy in Windsor Hills, if one only needs to drive across the road to find hundreds of possible locations with only 65% occupancy, wouldn't that have some dampening effect on how much you can command? I understand the loyalty to Windsor Hills that you have described, but at a certain point, whether driven there by high prices or low availability, people would start to look outside the gates for alternatives, and find them.

                                                             

                                                            I wonder what ability, if any, there is in HomeAway's systems to account for the fundamental truth that your primary market is still in actuality a subset of my primary market? Are the conclusions/recommendations being presented in 'your' market maker taking into account what is happening in the primary market across the street?

                                                             

                                                            Questions... questions... (It is not really worth it to spend much time on this, as it has to be posted under 'things I can't control' anyway, but you did set my head wondering).

                                                             

                                                            On another topic; I thought forecasted occupancy was based on the current number of searches for those particular dates at any given point in time.

                                                        • Re: Find out how to easily manage your vacation rental rates
                                                          ohst8er Premier Contributor

                                                          Here's the problem as I see it.  We aren't hotels.  And even if we WERE, you still have different markets to consider.  I recall my first ever hotel job.  Cleveland, Ohio.  The Flats were hopping, the Indians just moved into their new stadium, the R&R Hall of Fame just opened, and the place was abuzz.  The rates manager at our hotel was very savvy about working the system to maximize profits AND occupancy.  He knew exactly how to manage our inventory.  We had 237 hotel rooms, but he built our inventory in the system to show we had 248 rooms.  On any given night you could expect 5% cancellation, and he was determined to capitalize on this. And he did.  Except... there were atleast 5 different times in the years I worked there where it was all hands on deck trying to find hotels to move people TO, because playing the odds that 5% would cancel was always a potential gamble, sometimes people just DIDN'T cancel and you wound up with 242 checkins on that night.  And a few times we found no place to walk these people TO, because our competitors were playing the same game.    Compare that to working in Buffalo in winter time, and the rates from winter to summer saw a huge discrepancy.  In February you couldn't DROP the rates enough in that 436 room hotel to dig yourself out of 25% occupancy.    But what you COULD count on, in all the markets my husband and I have worked in .. from San Diego to Providence Rhode Island and many points in between was, the Marriott, the Hilton, the Holiday Inn, the Westin, the Omni, the Radisson etc ALL were in it to make a profit.  Heads in beds.  They had rate managers.  They had weekly rates management meetings.  They had savvy corporate people who were always pushing for more, more, more. 

                                                           

                                                          Compare that to my competitors.  And YOURS.  I started a FB page for owners who rent for my condo complex, so that we could get to know each other better.  Here's what I can tell you.  WE bought as a future retirement place, but we only get to use it about 2 weeks out of the year.  The other 50 the place is up for rent.  We have a mortgage, not a huge one, and also HOA fees and insurance, and etc etc.  I'd love to make a profit, but my ultimate goal is to cover my costs AND have enough for ongoing improvements.  I've friended a guy and his wife who are retired and spend several MONTHS a year in their condo.  They rent it out the rest of the time on VRBO, but not aggressively.   One of the owners has two condos and her and her partner want to make a profit.  They live about 5 hours away and do all of the work themselves, except cleaning.  They keep their decor pretty bare bones, all second hand stuff.  I think that they ultimately want to retire there too.  They also rent out on VRBO. Some manage 100% themselves, cleaning and everything.  Others have a management company, and still others are like us, do as much as they can from a far distance, then rely on a handyman and cleaning crew to handle the rest.   My husband did his homework, we are licensed as necessary, report our taxes on time as required at the proper rate, etc.  I have zero confidence that all my competitors are doing same, in fact I KNOW some are not.   Oceanfront properties charging $175 a night in peak season when I charge $239 and am a 10 minute walk to the beach?  And I have no idea why.  THAT'S THE PROBLEM AS I SEE IT.  Market Maker gives us an average rate. You have NO IDEA, on any given week, how accurate that even IS. 

                                                           

                                                          So none of this chatter about profit vs loss vs costs vs ROI really matters when it comes to looking at the data as it is presented to us.  The model is flawed, because the data going in is flawed, and unless VRBO starts to go down the path of DICTATING what rate we have to charge it will always be flawed, and even IF they chose to do so it would still be flawed because the guy next door rents only to friends, and the guy downstairs uses Air BnB and the couple in the next building only uses Vacation Time Travel down the street and etc and etc.   It's a fun tool to play with, but I don't put alot of stock into it's usefulness.  EVER.