This page is part 9 of a step-by-step guide to get your business up and running. There’s no fluff here - just information, help, and suggestions for doing it right - the first time!
Everything in this guide comes from experience.
Not a mere 6 months of experience in running an Airbnb, nor a year of co-hosting.
This is from 25 years of being in the vacation rental business, owning 7 properties and owning a seriously successful property management company with over 180 properties.
Our team have attended and presented at countless conferences and we continue our education by sitting in on hundreds of educational presentations, and still do to this day. So, we can bring you the learning from all those experts as well.
So, sit back and enjoy the ride…or the read!
Contents of this step:
If you have booked a flight recently, you’ll be only too aware that the price you are shown is unlikely to be the same price offered to another person looking at the same route at the same time.
Airlines use sophisticated algorithms to analyze data and make pricing recommendations in real-time. This means that the prices can change frequently, and two people looking at the same route at the same time may see different prices depending on their location, browsing history, and other factors.
That just blows me away!
For example, if two people search for the same flight at the same time, but one person has searched for that route multiple times before, they may be shown a higher price than the person who is searching for the route for the first time. This is because the airline may assume that the person who has searched for the route multiple times is more likely to book the flight, and therefore may be willing to pay a higher price.
In fact, if you do all your searching on one device, then go back to it the following day, it’s likely the price has gone up….for you.
Savvy travelers know that it’s best to search for a flight from one IP address, then book from another.
It’s not so different in our highly competitive, short-term rental business where, to succeed, it is crucial to optimize revenue and occupancy while providing a positive guest experience.
Data and revenue management play a critical role in achieving these goals. By analyzing market data, understanding pricing strategies, and implementing revenue management techniques, property owners and managers can make data-driven decisions to optimize profitability. Additionally, technology solutions can help streamline operations, improve pricing accuracy, and enhance the guest experience.
Blah, blah, blah, I hear you say.
What the heck does this all mean, because quite honestly it sounds like it’s just been spat out of ChatGPT.
Well, we’re going to take all the data and revenue management-speak and make it understandable.
Because for years, in my property management company, we didn’t take advantage of the software and platform options available because we just didn’t understand what it was all about.
In this comprehensive guide, we will look at best practices for effectively using data and revenue management techniques to increase revenue and occupancy.
We’ll also explore the role of technology in achieving these goals and provide tips for delivering a positive guest experience….all at the same time.
In my early days of the business, in the Ontario market, you simply decided at the beginning of the season what you’d charge for low season, high season, weekends and long weekends, then post those rates on a website.
There was no difference in the high season between the low and high demand periods, and if there was a cancellation, the price remained the same, even if the week remained empty.
Andrew McConnell, the founder of Rented.com, and an expert in revenue management chided me on more than one occasion that I was ‘leaving money on the table’.
It all just seemed too difficult at the time, and in fact, there wasn’t a great deal of data available in our location.
We weren’t alone in this.
Many rental property owners and managers would set a fixed price for their properties and rarely adjust it, using a "set-it-and-forget-it" mentality. However, with the rise of technology and online booking platforms, property owners and managers can now utilize dynamic pricing to optimize revenue and occupancy rates.
Dynamic pricing, also known as demand pricing or surge pricing, is a strategy that involves adjusting the price of a product or service based on market demand and other relevant factors. It’s used to optimize the price of a property based on factors such as the time of year, day of the week, occupancy rates, and local events.
Hotels have been using these tools for decades.
In 2014, the prices rose so much in Omaha hotels for Warren Buffet’s annual conference he promoted the Airbnb properties in the area.
“The Wall Street Journal reported this morning that Berkshire Hathaway is advising attendees of its annual shareholder meeting to avoid the exorbitant rates hotels charge that weekend by seeking alternative lodging through Airbnb. The meeting draws more than 30,000 attendees to Omaha, Neb., each year—a surge in demand that leads hotels in the area and airlines with local flights to jack up their prices. According to the Journal’s report, rooms that go for $150 the rest of the year can easily rise to $495 a night during the shareholder meeting weekend.”
We all know what’s happened since then….and we’ll get to that.
In the early 2000s, revenue management software and services began to emerge, providing property owners and managers with tools to optimize pricing and occupancy rates.
These tools allowed property owners and managers to gather data on market demand, occupancy rates, and competitor pricing, and make changes to their own prices.
As the major OTA platforms grew, so did the data collected which helped revenue management tools become more sophisticated and widely available.
Today, many short-term rental platforms offer their own dynamic pricing tools that automatically adjust prices based on market demand and other factors. These platforms utilize AI and machine learning algorithms to analyze data and make pricing recommendations.
The evolution of dynamic pricing and revenue management has led to a more competitive short-term rental market, with property owners and managers able to optimize their revenue and occupancy rates by adjusting prices in real-time.
Companies such as Beyond, Price Labs etc, now vie for an every increasing market of clients looking for automated dynamic pricing services.
The short-term rental industry has seen significant changes over the past 20 years due to the evolution of these tools.
While the "set-it-and-forget-it" mentality was once common, property owners and managers have no excuse to avoid using sophisticated tools that will help them generate significantly more income.
Because 'I have a feeling' won't cut it in revenue management
“Without data, you're just another person with an opinion." - W. Edwards Deming
In October 2022, I attended the Book Direct Show in Miami and sat through a few turgid presentations on data and statistics.
Then, Evan Dolgow From Aidaptive took the stage and within minutes I was absorbed in a new world of secret weapons – the information that is all around us in our business.
He wove a story around data that made it exciting, so I want to do the same with you.
Collecting data in the short-term rental business is like building a puzzle.
Ok, so there’s a nice analogy but what does that actually mean?
Well, taking it a step further, just like with a puzzle, it's important to collect all the pieces (data points) and organize them properly to create the final image (analysis).
And just as with a puzzle, missing even a few pieces can make it difficult to see the full picture, so it's important to collect as much data as possible in order to make the best decisions for the business.
And of course, just as with a puzzle, it's important to have a clear idea of what the final picture should look like before beginning to collect data. This means having a clear understanding of what metrics are most important for the business, and how they should be measured and analyzed. These are known as Key Performance Indicators, or KPIs. You’ll hear more about them later.
What is this data we should be collecting?
If you are wondering where all this data comes from, Evan called it Your Existing Gold. You already have it in so many places – some you may not have thought of.
Booking platforms: Platforms like Airbnb and VRBO provide a wealth of data on bookings, pricing, and guest behavior.
Property management systems: These systems track occupancy, rates, and other key metrics for each property.
Market data: Data on local events, holidays, and seasonality can help operators adjust pricing and availability to maximize revenue.
Your CRM delivers guest data, target markets and demographics
Google Analytics – this is a vast source of information as Dolgow shows in this slide:
Take some time to think about all the data you have already around you. You’ll be surprised how much there is.
While I’m writing this, I have a chilli bubbling on the stove. I’m using good quality chilli powder because it just makes a better end result.
It smells delicious.
So, because I love a good analogy…..just as a recipe requires good quality ingredients to produce a stand-out dish, quality data is essential to make informed decisions.
If you use poor quality ingredients in your recipe, the end result may not turn out as expected, and it may even be inedible. Similarly, if you use poor quality data in your decision-making, you may end up with incorrect insights and poor decisions.
For example, imagine you're a short-term rental property manager and you rely on data to set rental prices. If you use poor quality data, such as outdated or inaccurate information about comparable properties in the area, you may end up setting rental prices too high or too low, leading to fewer bookings and lower profits.
I’m thinking that analogy works??
Seriously, this is stuff that is difficult to make super exciting and interesting, but it’s just so important. I keep coming back to Andrew McConnell telling me how much money we were leaving on the table by not operating revenue management strategies.
So, if you are still with me, let’s get to it.
Once you have the data collected and organised the work begins to make sure it’s of the right quality. You can improve your data collection by:
Standardizing the data: Ensuring data is consistently formatted and labeled makes it easier to analyze and compare.
Example 1 - Standardizing the format of the date for occupancy data
If the occupancy data is in different date formats (e.g., "dd/mm/yyyy", "mm/dd/yyyy", "yyyy-mm-dd"), standardizing it to a single format (e.g., "yyyy-mm-dd") ensures consistency and makes it easier to analyze.
Example 2 - Example: Standardizing the format of the property name
If the property name is listed in different formats (e.g., "123 Main Street", "123 Main St.", "123 Main"), standardizing it to a single format can help ensure consistency and make it easier to identify specific properties in the data.
Cleaning the data: Removing duplicate entries, fixing errors, and filling in missing values improves data accuracy.
Example 1: Removing duplicate entries from occupancy data
If there are multiple entries for the same reservation in the occupancy data, removing the duplicates can help prevent over-counting and ensure accurate calculations of occupancy rates.
Example 2: Removing incomplete or inaccurate reservation data
If there are reservations in the data that are missing key information (e.g., guest name, check-in date, check-out date), or have inaccurate information, removing them can help ensure that the remaining data is accurate and complete.
Validating the data: Checking data against external sources or manual reviews helps identify errors and inconsistencies.
Example 1: Validating guest information against booking data
Checking that the guest information (e.g., name, email, phone number) matches the booking data can help ensure that the correct guest information is being collected and stored. If there are discrepancies, it may indicate issues with data entry or data collection processes.
Example 2 : Validating key performance indicator (KPI) data against actual performance
Checking that KPI data (e.g., occupancy rate, average daily rate) matches actual performance can help identify discrepancies and ensure that the KPI data is accurate and reliable. For example, if the occupancy rate in the data is consistently higher than the actual occupancy rate, it may indicate that there are issues with the data collection process.
While this is going into some depth, what you need to know if the three elements of ensuring data is good to use:
Is is standardized? Is it clean? Can it be validated?
I’m not a data person. In fact, numbers and statistics will usually send me off into find-something-more-important-to-do territory. But this is important.
Because, if you don’t have quality data, you won’t get quality results.
Now, we’re getting into the fun stuff.
Just like Evan Dolgow lit up the room with all his slides, so the data we’ve collected, standardized, cleaned and validated can now be displayed so it becomes super clear what the results are.
Data visualization is an important part of data analytics because it allows operators to easily understand and communicate insights from their data. Some common data visualization techniques include:
Charts and graphs: Bar charts, line charts, and scatter plots can help visualize trends and patterns in data.
Heat maps: Heat maps can help visualize geographic data, like the distribution of bookings across different neighborhoods.
Dashboards: Dashboards provide a centralized view of key metrics and can be customized to show only the most important data.
I haven’t tried it yet, but I am sure there is AI help out there to make sense of the data by developing some great visuals. And of course, Google Analytics ( now known as GA4 Analytics) can help. If you have no clue on how to migrate your site from Universal Analytics to GA4, get someone to help you.
Market analysis might sound intimidating, but it's actually just a fancy way of saying that you need to keep an eye on what's going on in the vacation rental market. By doing this, you can figure out what guests are looking for, what your competition is up to, and how to make more money.
Let's break it down. First, you want to pay attention to trends. Are guests increasingly interested in pet-friendly properties or do they want a pool? If you notice that more and more people are looking for a certain feature, it might be worth it to invest in that for your property.
When I first started buying properties and managing for others, there was so little data on trends available it was very much a ‘try it and see’ approach.
A realtor told me that nobody would want to book a river property since they only wanted lakes to bring their motorboats and have a week of fun on the water. If there had been data out there, it would have told me that my target market didn’t have their own motorised boats and they were happy with any type of waterfront as long as there were some canoes, kayaks and pedalboats to have fun with.
If I hadn’t done a lot of manual research, we would probably have gone in entirely the wrong direction in our business. As it was, I invested in riverfront properties and was very successful with them over a number of years.
By analysing what your potential guests want in their vacation you’ll be able to hone your niche and deliver exactly what they want.
Next, you want to see what your competition is doing. Take a look at other properties in your area and see what they offer, what their pricing is like, and how they market themselves. This will help you figure out how to stand out and what strategies might work for you.
This is particularly important if you are in an area where there is some saturation. You have to be different, but if you don’t know what it is that makes the best performer’s successful, you’ll have a tough time beating them in a crowded market.
If you are in an area where there are dog-friendly beaches and your competitors are accepting pets and charging a fee, your USP could be No Pet Fees. We did this and it worked exceptionally well.
Another important aspect of market analysis is understanding demand patterns. This means figuring out when guests are more likely to book and at what price points. If you notice that you get a lot of bookings during a certain time of year, you can adjust your pricing to make the most of it.
So how do you actually use this information? For one, you can adjust your pricing based on demand. If you're getting a lot of bookings during a specific time, you can charge more. And if guests aren't booking at a certain price point, you might want to lower your prices to get more business.
Finally, market data can help you with marketing. By figuring out what guests are looking for, you can tailor your marketing efforts to highlight those features. This can help you get more bookings and make more money.
Overall, market analysis is just about paying attention to what's going on in the vacation rental market so you can make informed decisions about your property. By doing this, you can maximize your revenue, make guests happy, and stand out from the competition.
There are several pricing strategies that can be used in short-term rentals, including static pricing, dynamic pricing, tiered pricing, and promotional pricing.
A pricing strategy that sets a fixed price for a rental. This means that the price of a rental will remain the same regardless of demand. Static pricing is still used in some traditional markets but is fast being can be used when demand is stable and predictable, but is fast being replaced with other strategies.
Adjusts the price of a rental based on demand. Simply put, this means the price of a rental will be higher during peak seasons and lower during off-peak seasons.
Using a surfing analogy, you're riding the waves of supply and demand, adjusting your prices in real-time to catch the biggest waves and avoid getting wiped out. (I know nothing about surfing, but this made sense to me). Dynamic pricing has several benefits. It allows you to adjust your prices based on demand, which can help you maximize revenue. By increasing prices during peak seasons and lowering them during off-peak seasons, you can ensure that your rental is always priced competitively.It can also help you stay ahead of the competition. By using a PMS with a revenue management module or an external dynamic pricing tool, you can monitor the prices of your competitors and adjust your prices accordingly. This can help you stay competitive and attract more guests.Another benefit of dynamic pricing is that it can help you optimize your occupancy rate. By adjusting your prices based on demand, you can ensure that your rental is always occupied. This can help you maximize your revenue and improve your cash flow.
A pricing strategy that offers customers a variety of prices based on certain features, benefits, or services. These tiers allow customers to choose the option that best accommodates their needs and often incentivizes them to move up in tiers over time.
It probably works best in the hotel industry. An example would be, offering different prices for different types of rooms. For example, a resort may offer a standard room, a deluxe room, and a suite. The standard room would be the cheapest option, while the suite would be the most expensive. This allows customers to choose the option that best suits their needs and budget.
Another example of how tiered pricing works in the short-term rental business is by offering different prices based on the length of stay. For example, a rental property may offer a discount for stays of 7 days or more. This incentivizes customers to stay longer and can help improve occupancy rates.
Offers discounts or special deals to customers. This strategy can help with customer acquisition by encouraging cost-conscious shoppers to buy. It can increase revenue, build customer loyalty, and improve short-term cash flow.
An example of how promotional pricing would work in the short-term rental market is by offering a discount for first-time customers. For example, you could offer a 10% discount for customers who book their first stay with you.
This can help attract new customers and encourage them to book with you again in the future.
Another example of how promotional pricing would work in the short-term rental market is by offering a discount for customers who book a longer stay. For example, you could offer a 15% discount for customers who book a stay of 7 days or more. This can help incentivize customers to book longer stays and can help improve your occupancy rates.5.
While this can all seem complicated particularly when you are starting out, there are software platforms that can do the heavy lifting for you.