Vacation Rental Revenue Management: The Detailed Guide

Vacation rental property managers want two things:

More bookings, and more profit from each booking.

The key to getting both of those is a vacation revenue management strategy. In this article, we’ll explain what you need to do to ensure your properties get booked consistently, and at the same time, you earn as much as possible from every reservation.

Managing revenue manually would be challenging, so some property managers opt to hire revenue managers. However, it can be more cost-efficient to use channel management software that incorporates revenue management. 

What is vacation rental revenue management?

Revenue management is every property manager’s quest to achieve maximum profitability at all times. 

In vacation rentals, you’re always aiming to get as many nights booked as possible. At the same time, you want to earn as much as you can from every booking.

Like any business, it’s about balancing supply and demand so you can charge the right price without losing business to competitors.

If your properties stay empty, or you rent them too cheaply, you’ll be leaving money on the table.

You have to adopt different pricing strategies for short-term rentals based on fluctuating demand, and adjust booking restrictions throughout the year to ensure you always have the best chance of getting booked and you earn as much as possible from each stay.

Why do you need a new way to manage vacation rental revenue?

Revenue management should be a high priority for property managers because it’s one of the fastest ways to increase your bottom line. A smarter pricing strategy leads to more bookings and increased profits. 

Though vacation rental revenue management isn’t new, it could be time to look at it in a different way.

In the past, property managers used historical data to set their prices but this approach is no longer as effective. The COVID-19 pandemic demonstrated that historical data could not account for dramatic, unforeseen events that shake up the entire vacation rental industry. Going forward, it’s clear that looking at data from 2020 and 2021 might not be sufficient to set prices for 2022 and beyond.

That’s not to say historical data isn’t useful—it is. However, you also need to see what your competitors are doing now, and what’s happening in the broader market, today. Manually checking listings, pricing, and occupancy is time-consuming, so you need new solutions for managing your vacation rental revenue.

What are the most important vacation rental revenue management metrics?

To maximize your vacation rental revenue, the first step is collecting analytics about how your rentals currently perform. 

So, what data should you be looking at?

The following metrics will help you evaluate your performance—and improve it.

Occupancy rate

Occupancy rate is a good place to start with revenue management metrics. This tells you one of the most important things to know: what percentage of nights are booked.

To calculate your occupancy rate, divide the number of nights a property is booked by the number of available days. You’ll usually use a set time period, such as 30 days.

Adjusted Occupancy Rate (AOR)

The problem with Occupancy Rate is that it doesn’t take into account nights your vacation rental isn’t available. There could be nights blocked off in the calendar for homeowners or their friends and family to the property, for scheduled cleaning or maintenance, or if the property has reached the local rentable limit for vacation properties. 

If you’re only looking at Occupancy Rate, you might be led to believe that the property is occupied more often than it is. 

Adjusted (or Available) Occupancy Rate (AOR) can be a more accurate way to measure occupancy. This shows the amount of available days the property is booked.

To calculate AOR, take the nights booked, and divide this by the total days booked, minus unavailable days.

Average Daily Rate (ADR)

Average daily rate is exactly what it sounds like—the average amount that guests pay per day in your property. Like Occupancy Rate, it’s also often calculated on a monthly basis. 

The good thing about ADR is that it takes into account dynamic pricing when the nightly rate changes at the weekend and during different seasons.

To calculate your ADR, divide your total unit revenue by nights booked.

Revenue Per Available Room (RevPAR)

RevPar is the gold standard when it comes to evaluating profitability. 

Occupancy alone isn’t a great measure of success, because, while 100% occupancy sounds great, if your properties are fully booked up all the time, it might indicate that your rates are too low.

ADR doesn’t give you the full picture, either. If it’s too high, you might be losing too many bookings.

With RevPar, you balance your potential income and occupancy rates. With enough data, this metric can help you predict your yearly earning potential. 

To calculate RevPar, multiply your occupancy rate by your AOR.

How can you maximize your vacation rental revenue?

After you’ve started tracking relevant revenue metrics, you will need a strategy to maximize your short-term rental revenue.

Next up, we’re going to explain some of the best ways to boost bookings and increase your profits. 

Charge more for far-out bookings

If your properties are consistently getting booked up far in advance—months, or even a year ahead of the check-in date—you might be priced too low. 

Your pricing strategy should be flexible when it comes to how far or near people book. So, for example, you could charge a higher rate for guests who want to book many months in advance and reduce that rate as the dates get closer.

With last-minute bookings being cheaper, you’ll be less likely to be left with vacant properties.

Increase distribution to raise your rates

If you want to get as many bookings as possible, and optimize for profit, it’s important to distribute your listings across as many channels as possible.

When you list your properties on a wide variety of booking sites, you increase your chances of getting bookings. It’s important to look beyond the most popular channels like Booking.com and Airbnb. There are lots of niche sites where you can reach a more discerning audience, and because of that, you can charge higher rates.

Hostfully’s channel manager can help you improve your distribution by listing properties on a diverse selection of channels including Airbnb, Booking.com, Yonder, TripAdvisor and more.

Improve the quality of your listings

Your listings are your chance to convert visitors to guests, so make sure to optimize them in every way you can.

That means uploading plenty of high-quality, professional photos that show your properties in their best light, and including as much information as possible in your descriptions.

Use relevant keywords and complete your listings to help your property appear higher up in booking site searches, and increase your chances of getting discovered.

You can manage property data across all your channels with Hostfully. Update all your amenities, add photos, captions, policies, and channel-specific information, all in one place.

Use dynamic pricing tools

Dynamic pricing tools use pricing algorithms to automatically set nightly rates, based on historical and current market data. They enable property managers to automatically charge the ideal price for any given night, which can help optimize occupancy and profit without the manual work of constantly adjusting prices across different channels.

However, the downside to dynamic pricing tools for property managers are the fixed costs involved. While they can increase profitability for property owners, management companies have to swallow the cost of the tool and may only see marginal increases in their share of the profit.

If you decide to opt for a dynamic pricing tool, Hostfully can integrate with many tools like AirDNA, PriceLabs, Wheelhouse, and more.

Use the power of data to build your revenue management strategy

Data is key when it comes to designing your revenue management strategy. The more you know, the better, as you can make better-informed decisions about what rates to set and when to raise or lower your prices.

It can be hard or even impossible to collect data manually, so the best way is to use a PMS or vacation rental tool that allows you to gather data about property performance.

With Hostfully, you can pull your historical performance data and easily create reports with our Enhanced Reporting feature. Plus, thanks to our integrations with tools like Keydata, you can bring even more detailed property performance data into your PMS.

Consider booking channel policies and fees

Though it’s usually good practice to list your properties on as many channels as possible, you also have to take into account the different booking policies and fees of each channel. With some channels charging higher fees than others, it may make sense to be selective about where you list properties. 

That’s why it’s always a good idea to have a direct booking website as well as your booking site listings. When you give guests the option to book directly with you, you can cut down on fees, keep more of the profit, and set your own rules for guests. 

It’s quick and easy to set up a direct booking site with Hostfully. Discover how you can create  a beautiful, customizable site for guests to book your properties. 

Take into account seasonality, events, demand, and competition

When you’re adjusting prices, some of the most crucial information is going to be related to demand in the market. The seasons, local events, vacation rental industry, and market trends can affect the demand for vacation rental properties in your area. 

You already know that you should raise your rates during high season, and reduce them during low season. However, you also need to be aware of micro-trends: what’s going on in the market, your local area, what events are coming up, and how your competitors are responding in terms of their prices.

What tools can you use for vacation rental revenue management?

Clearly, managing your short-term rental revenue would be an almost impossible task without the help of technology—and would only get more complicated as you grow your inventory.

You’re probably already using tools to automate your Airbnb listings, sync your prices and manage the daily tasks of running your business.

When you find the right PMS for vacation rentals, you can increase profitability without all the hard work.

You can choose a Property Management System (PMS) that incorporates all the features you need to run your business and manage your revenue. Hostfully is award-winning software that includes all the following features that can help with vacation rental revenue management:

• Channel Manager — You need to be able to list your properties on a wide range of booking sites to maximize your chances of getting bookings. With Hostfully you can connect with a variety of listing sites and keep all your calendars and prices synced up across channels.
• Bulk price editing — This is really important for revenue management, as it means you can edit prices in bulk. You could increase or reduce all your prices by 5% on all your channels, simultaneously, making it much easier to adjust prices without needing a specific pricing tool. 
• Analytics and Reporting — We talked about the importance of collecting data, and you can do this automatically with Hostfully. Gain visibility into your properties’ performance with our simple dashboards that tell you everything you need to know about conversion rate, revenue, and property performance. 
• Direct booking site — It pays to have a place for guests to book directly so you can capture more bookings and pay less OTA fees. You can quickly and easily create your own professional website with Hostfully that’s fully enabled to accept bookings and payment.

Increase bookings and earn more from every guest by mastering vacation rental revenue management. This guide will show you how.

Increase vacation rental revenue with Hostfully

Vacation rental revenue management ultimately involves every aspect of managing your business in order to increase profits as much as possible, without needing to invest much more time and effort.

So if you’ve decided to approach revenue management:

• Take stock of how your business is performing — Use metrics like Occupancy Rate, AOR, and RevPar to figure out how profitable your properties are currently.
• Optimize for more bookings — You can increase your chances of getting bookings by improving your listings and SEO, diversifying your listing sites, and setting up a direct booking site.
• Aim to earn more from each booking — It’s not just about getting bookings, you also want each booking to be as profitable as possible. List on niche sites where you can charge higher rates, and aim to get some direct bookings where you can avoid OTA fees.
• Use smart pricing strategies — By adjusting your rates based on both historical and current market data, you can stay ahead of your competitors and achieve the perfect balance between getting bookings and making sure they generate as much revenue as possible.

One of the best investments you can make is property management software that includes revenue management tools to help manage all aspects of your business, including adjusting prices and managing listings across channels.