Revenue management: How to set short-term rental prices?
What is revenue management in short-term rentals?
Revenue management, or yield management, is a technique designed to optimize income. Originating in the hotel industry, it is now essential to master it when working in the seasonal rental sector.
Yield management is a technique that enables you toincrease prices, thanks to real-time pricing, and thus the profitability of your accommodation.
To achieve this dynamic pricing, you need a statistical analysis tool. Airdna, for example, is the market leader in short-term rentals. Their algorithmic model is based on Airbnb market data.
Basic principle of revenue management:
“You fix the rate, I fix the date” and vice versa. Translation “You fix the rate, I fix the date” and vice versa.
This phrase explains the essence of customer segmentation in the vacation rental business. There are two types of customer, each with distinct needs and behaviors:
1. **Leisure customers** :
– Price-sensitive
– Usually plans ahead
– Flexible on dates
– Search for best-price and promotional offers
2. Business customers :
– Less price-sensitive
– Often books at the last minute
– Needs availability for specific dates
– Willing to pay more to guarantee a room
This separation allows them to adapt their pricing strategy to maximize revenues.
The 6 axes of revenue management in vacation rentals :
Dynamic pricing: Adjust rates according to market demand, seasons and events in your town or region.
Competitor analysis: Track competitor rates to stay on top of market trends at all times.
Optimize your availability: Optimize availability: make your property available as much as possible, ideally all year round.
Segment your clientele: Identify the categories of customers coming to your property (students, tourists, corporate .
Promotions & Offers: In off-peak seasons, boost occupancy rates with promotions.
Market statistics: Analyze your past and future occupancy rates to make clear, precise pricing decisions.
The 4 key stages of revenue management:
To implement a dynamic price management strategy, here are the 5 steps to follow.
- Define seasonal pricing grids)
- Associate these prices with specific dates in the calendar
- Establish day limits
- Define satisfactory” fill rates
Establish a pricing structure:
This is the basis of revenue management. Price lists define price levels according to the time of year. Here’s an example of a price grid that can be applied.
– Events (e.g. Cannes Film Festival, Christmas Market, 24H du Mans)
– High season (winter in the mountains, summer by the sea)
– Ordinary period (between low and high season)
– Vacation period (non-summer vacations, Easter, October)
– Weak period (beginning of the year, except in the mountains)
These grids are created on the basis of occupancy history over the previous 3 years, or if you’re just starting out, on your knowledge of your local market.
Associate these prices with specific calendar dates:
Take your calendar of the year and associate the dates to your grid as precisely as possible.
Check the start and end dates, such as the 3 school vacation periods. If you’re in a border region with a large number of domestic customers. Check the school vacation periods, as they may differ by a week.
Day limits :
In some cases, it may be worthwhile to increase prices as the date approaches. For example, a rate change is made automatically 10 days before the arrival date.
Fill rate achieved :
It’s a good idea to set target occupancy rates. When it is achieved and satisfactory, a different price scale can be applied, generally resulting in a price increase.
The importance of upstream analysis:
Revenue management relies on in-depth data analysis. We recommend analyzing at least 3 years of historical data, if possible. When you launch, you need to rely on data from competitors, similar establishments and specialized revenue management software such as Airdna.
A common strategy is to start with attractive prices to attract travelers, collect as many reviews as possible on platforms such as Booking and Airbnb, and thengradually increase your rates once your rental gets more visibility thanks to your positive reviews.
Evolution towards RevPAR :
One of the essential elements of revenue management is RevPAR. It’s one of the discipline’s most important concepts.
Calculating RevPAR :
– 30 days available in the month of your apartment
– Average price for the month: €80
– Occupancy rate : 60
– RevPAR = (60% X 30 X 80) / 30 available days = 1440 / 30 = 48 euros
In this example, the daily RevPar is 48 euros. You can compare it with your similar properties, and especially the same apartment, from one year to the next.
In fact, the RevPar will enable you to compare by neutralizing the partial closure of your property.
– 15 days available in the month of your apartment (because of painting work)
– Average price for the month: €80
– Occupancy rate: 35
– RevPAR = (35% X 30 X 80) / 15 available days = 840 / 15 = 56 euros
This method makes it possible to compare revenue per night from one year to the next, or from several similar rentals despite occasional closures.
Revenue management essential for short-term rentals ? :
YES! With growing competition on the Airbnb rental market, revenue management is now one of the components of successful profitability for your accommodation.
To succeed, you need to subscribe to :
Finally, you’ll need to be trained using video content and books. If seasonal rental is your core business, or you have ambitions to make it so, the ideal solution is to take a revenue management course.
