Revenue Management 101 for Vacation Rentals
Founder & CEO
Revenue management is a popular topic in the vacation rental management industry, but it can be confused with the concept of pricing strategy. In this blog, we discuss two additional steps involved in developing a successful revenue strategy for your property management company.
Revenue management for vacation rentals is more than pricing
Dynamic pricing has been a cornerstone of the hospitality business for more than a decade, but it’s only one piece of revenue management for your vacation rental business.
Even for companies who operate with very little overhead costs, if you don’t know how your variable costs change across different types of bookings, let alone how much your management company earns in commissions on each, you can’t accurately judge whether a price increase or decrease would support the company’s revenue goals. By going beyond price optimization and taking into account big-picture data, managers can start to develop revenue strategies that support long-term financial success.
In addition to understanding the relationship between price and demand, companies with successful revenue management strategies routinely do the following:
Consider operating costs for your vacation rental properties
At the end of the day, the only way to know your true financial performance is to understand the costs of doing business. To calculate this for vacation rentals, you can do a simple forecasting exercise:
Start by multiplying your average daily rate by your projected occupancy. This gives you an estimate of your gross revenue for the year.
Then begin tallying up the types and amounts of expenses associated with each reservation. These are known as variable costs, and include items like OTA fees, automated key locks, cleaning fees, utility bills, taxes, merchant processing fees, and more. To understand the relationship between costs and revenues for the company, financial managers should ask questions like:
- Which types of bookings have lower costs and higher revenues?
- What aspects of these bookings can be recreated?
- Which bookings generate the most income for my management company?
Of course, you should also be aware of any fixed costs that need to be spread out over a longer period of time and factor that into your analysis as well. These can include items like mortgage payments or leases, HOA dues, and legal fees.
Model future revenue performance
Once you have all the pieces of the revenue picture, the next step is to predict future market scenarios and their potential impacts on price, costs, demand, inventory, and competition.
In addition to gathering insights from analysts, regulators, and industry peers about the external landscape, savvy property managers will use historical data to project future trends about the internal makeup of their revenues and expenses. As the saying goes, history repeats itself, so having a clear picture of everything leading up to this point in time might be as good or better than a crystal ball.
However, if manually collecting and assembling all this data in Excel sounds tedious, just imagine updating it on a monthly basis! Instead of going the manual route, integrate your accounting and operations systems to a dashboard or reporting tool, so that anytime you run a report, you are pulling from the latest available data.
One option is to use a flexible accounting system like Sage Intacct, which makes it easy to track and report all the financials for your vacation rental management company in one place.
Time to optimize vacation rental revenues
Now that you have a broader understanding of revenue management, you can begin to fine-tune variables like pricing, costs, occupancy rates, and more to develop a strategy that moves the needle on your financial dashboard.
For additional tips on revenue strategies for vacation rental management, Ximplifi has years of experience helping property managers optimize their financial processes with scalable automation and hands-on consulting.
If you have questions about automating your accounting processes or are interested in outsourcing a suite of accounting services with Ximplifi, send us a message.
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