Revenue Management: The ‘Art’ Behind the Science
The uncertain economy, combined with the increased supply of vacation rental properties, not to mention more online travel aggregators (OTAs) and direct booking options, is creating more competition than ever among vacation rentals. After two years of incredible demand and higher than average rates, the landscape is shifting just as travelers are becoming more cautious with their wallets and more discriminating about service and value. As such, booking windows and patterns have become extremely difficult to predict. All reasons why employing a dynamic revenue management strategy is critical to maximizing revenue and retaining owners during this extremely competitive environment.
Even if you understand the basics of revenue management, you may still have some questions about how to create an effective strategy for your unique market, whether units or homes. Rented’s revenue managers explain how to view your revenue management strategy not as a cost but as an investment, and how you can reinvest your time back into owner acquisition, operations, or other important facets of your business.
Can you maintain an effective revenue management strategy without software?
Particularly in this environment, your pricing strategy isn’t as easy as taking last year’s rates, bumping them by 5-10%, and waiting for the bookings to flow in. In addition to thoroughly reviewing your ADRs from 2019-2022, it’s critical to understand how comparable properties are performing in your market right now. This is where not having a pricing tool can create gaps in your strategy, not to mention taking hours of your time researching comp sets.
Dynamic pricing tools have grown to become an essential part of a VRM’s technology stack because they provide real-time market data on how similar units are performing in your area. This is the science behind revenue management.
To address these issues and more, Rented’s Automated Rate Tool, called Art, was built by revenue managers for revenue managers. Its simple, fast and intuitive interface provides a slick user experience while simultaneously providing a robust data model that is continually being updated. Art also offers dynamic rates informed by historical and demand-based data, pitting ongoing performance against future trends.
Highly sensitive to market fluctuations, Art curates cohort-specific pricing models led by dynamic changes in supply and demand. Results are shown in a tape chart as opposed to calendar view. That means, less clicking around and fewer tabs open so you can see everything in one view.
Simply, Art sets the right price, for every property, for every night, in every season. Easily.
But the real magic is in the human touch.
Although these tools are vital to managing your revenue effectively, they are not meant to “set it and forget it, ” says Mike Fisher, Senior Manager, Revenue Management, at Rented. Your pricing software is only as good as the person who is maintaining it. And as important as market data is, historical data (2019-2022 ADRs) for each property should still be considered and actioned into your strategy. The person behind this strategy plays an important role in the success of your business and owner retention, so it’s recommended that you prioritize adding experienced revenue management personnel to your team, part-time or full-time depending on the size of your portfolio. Understanding how to balance adjusted paid occupancy and average daily rate in order to maximize your overall RevPAR is the “Art” of this process.
That’s to say, if you have a revenue manager as part of your company, you can use Art as long as someone is looking at it – optimally every day.
If you don’t have a revenue manager, you can upgrade by having one of Rented’s highly experienced revenue managers work for you on your behalf.
The difference is in the percentages.
When a coastal North Carolina property manager contacted Rented for help in 2019, he presented a most intriguing experiment. With two identical units, five blocks from the beach, owned by the same person, he wanted to use both units to test the real-time impact of revenue management. To that end, he signed up one unit for Rented’s services, but not the other.
Having managed similar properties in the area for over five years, the property manager believed his summer rates were fairly consistent and poised for a dependable ROI. Yet he also knew he was facing debilitating booking gaps.
His goals: ensure optimized pricing, increase occupancy, and grow overall revenue.
The first thing Rented’s assigned revenue manager did was ensure that the summer 2019 pricing was correctly optimized by using Art.
But another storm cloud was looming. Since it was peak season, there was also the threat of expiring inventory.
Because the method to handle expiring inventory requires regularly pulling data, identifying gaps, analyzing comp sets, and slowly adjusting pricing over time, the process is frequently too time-intensive for most property managers who may be overwhelmed by other duties like bookkeeping, operations, and housekeeping. And that’s exactly why property managers often default to static pricing.
In contrast, a dedicated revenue manager is singularly focused on optimizing a property’s pricing as much as possible.
By focusing on the property’s expiring inventory and dynamically pricing the unit, Rented’s revenue manager not only increased room nights by 56% in the first two weeks, but also grew the overall ADR by 35%!
And the two-week sample proved to be no fluke! Since the initial startup in 2019, the numbers have continued to evidence the value of revenue management and dynamic pricing, with Rented’s efforts doubling the unit’s revenue compared to that of its identical twin.
And since then, the unit has maintained a 42% higher number of room nights and, more importantly, has consistently held a 33% higher RevPAR.
Invest in your top and bottom line.
Investing in both a pricing tool and a revenue manager can generate a strong return fairly quickly. If you are doing revenue management yourself, your time value alone will immediately show positive ROI, especially if you are dedicating those newfound hours toward owner acquisition.
Already have a pricing tool and considering adding a revenue manager to monitor your pricing? By manually overriding the pricing tool to increase rates when pacing ahead, or lowering rates during shoulder season to gain more bookings, you will see your money put to work immediately with a skilled revenue manager.
Having someone reviewing your pricing daily and catching when demand spikes so you can raise your prices immediately can truly impact both your top and bottom line. The Rented clients think of Art and their revenue managers as an extension of their own team. And it’s an absurdly smart investment: Using Rented with Key Data Dashboard, we’ve found that the average ROI of our clients is $11 – that is, for every dollar spent, you get back eleven!
Says Fisher: “We achieve a net positive ROI for our clients because we have the right experience in our clients’ markets, the skills, and the data to make quick, actionable decisions that directly impact their top line.”
If you haven’t figured it out yet, vacation rental revenue management is both an Art and a Science.
To learn more about how revenue management can help maximize your top and bottom line, contact Rented for a demo.