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Setting the right rate for your vacation rentals isn’t just about initial profits.

Finding the sweet spot of your particular rental market can ensure that you’ll get repeat renters who will properly appreciate your property.

Undershoot your market, and you’ll not only be leaving money on the table, but you’ll also be more likely to attract guests who will damage your home. Overestimate your rental fees, and you could end up with a high vacancy rate. You also run the risk of having guests who are unhappy and feel overcharged.

How to Estimate Expenses and Set Rental Prices in 9 Steps

Many first-time property owners underestimate operating costs and are overly optimistic about potential profits.

Understanding the economic efforts that you must make to carry out an activity like managing a vacation rental is the basis for a better understanding of the prices that guests will be willing to pay.

Analyzing and estimating the expenses of your business can help you understand better how to manage your property and optimize the costs, as well as allowing you to define the most profitable rates.

So, instead of making a guesstimate based on the holiday home down the street, try these nine tips for deducing your rental rates based.

1. Make a list of your expenses

Mortgages, utilities and taxes are easy to tabulate, but don’t forget cleaning services, emergency repairs and landscaping when compiling costs.

You should also consider how you intend to finance large, intermittent upkeep costs, such as replacing major appliances, painting the house or repairing the roof.

Home furnishings can also be a large part of your vacation rental overhead. Comfortable mattresses, linens, furniture, cooking utensils and minor appliances are the bare-bones requirements for any holiday home.

In this case, it could be very expensive, so it will depend on your ability to buy professional services or quality and design items at the most affordable price.

If you have a certain amount of money available, invest it on premium services to guarantee the guest an unforgettable stay. While, on the other hand, if don’t want to spend too much and have a restricted budget, don’t be afraid to resort to used hotel equipment auctions or to liquidate luxury items.

2. Research prices in your area

Comb the internet, newspapers and real estate listings to get a clear picture of your neighborhood’s rental market.

Be sure when you’re looking at listings that you notice the amenities, location and other defining qualities of each property.

An extra bedroom or ocean view can easily merit several hundred dollars more per week.

The more comparable properties you can find, the better you’ll understand exactly where your vacation rental will fit within the market.

3. Undercut the competition or increase your offering and price higher

Always monitor your competitors and keep their offer under control, both in terms of price and services offered.

Try to put yourself in your potential guest’s shoes, while surfing the web you come across two similar offers. Same location, same number of rooms and same services. Which of these two properties is the guest going to choose?

You got it – the one with the lower price.

It is essential that you manage to differentiate yourself from your competitors by defining your competitive advantage, and to do so there are two different strategies that can be implemented: “price differentiation” or “premium pricing strategy”.

The first strategy consists of offering a product at a lower price than your competitors, and it is advisable to use this pricing strategy when you want to increase the number of bookings. The profit margin will be reduced, but the booking percentages will increase significantly.

As a rule of thumb, pricing low when you’re starting out is helpful in order to build up reviews and reputation. Undercutting your competition can win you bookings from them, as long as it means you’re still making a profit.

The adoption of this strategy requires constant monitoring of the main competitors, in order to keep prices always lower than their offer.

Alternatively, you can choose to adopt a “premium price strategy”, offering customers a better product and a higher quality service so that customers won’t mind paying a higher price.

Offer free breakfast, a concierge service, 24-hour or late check-in, a welcome book, free and convenient WiFi, transfers and tours, etc. The more services you provide, the more you can increase the price and the more additional revenue you can make.

A premium pricing strategy has the advantage of producing higher profit margins other than creating the perception that the product (your vacation rental) must have a higher value than competitors.

4. Take into account peak seasons

Many holiday homes have a peak rental season.

It’s not unusual to charge at least the cost of one month’s mortgage as the fee for one week’s rental during these times.

Christine Hrib Karpinski, author of “How to Rent Vacation Properties by Owner” notes that even when you charge that much for your rental, you can still expect to need at least 15 to 18 weeks of occupied rental time in order to break even.

Property owners can also offer reduced rates for the month prior and after the peak season to increase profits.

For example, in Cape Cod, your peak rental season would start in May and last through September. Discounted rates should take effect in April and October.

Of course, some vacation properties can be rented year round. Major cities, like Boston and Los Angeles, attract a new influx of tourists each week.

However, you should still alter your rates to take into account peak periods. Get a calendar from the local visitor’s bureau that lists local events, concerts and festivals that may affect vacancy rates in your area.

5. Plan for a reasonable vacancy rate

Even in high demand areas, it’s hard to achieve 100% occupancy.

Forbes notes that when you purchase a holiday home to use for rental purposes, lenders calculate a 25% vacancy rate.

Of course, vacancy rates only apply to the time you can reasonably expect to rent your property.

For a summer vacation rental, where the rental season may only last 18 weeks, it’s a good idea to plan that for approximately five weeks your property will be empty.

6. Use dynamic pricing tools to boost occupancy

Every day, now tools and new software designed for property owners are emerging in order to help them manage and improve bookings.

Dynamic pricing in the vacation rental industry can be a game-changer.

Softwares like PriceLabs or Outswitch are revenue management solutions for vacation and short-term rentals, helping hosts to set and adjust the prices of their properties dynamically and intelligently.

Using machine learning, these tools use a data-driven approach in order to analyze your website and other factors like competition, location or occupancy in order to help you increase your revenue and save time when defining pricing.

This kind of pricing strategy can help sell out those nights – for example, mid-week – that would otherwise not get booked.

When you connect a dynamic pricing tool to your vacation rental software, you’ll be able to set a simple nightly, weekly or monthly rate in a flash, or offer dynamic rates depending on the length of the stay, the number of guests, the day of the week and other factors.

And no matter which currency you want to accept – Lodgify handles all of them.

So, price your rental according to your research, but don’t be afraid to tweak your rates to meet changing expenses or increased interest.

7. Set different prices for weekdays and weekends

Another price-based strategy you could use is to set different prices for weekdays and weekends.

It’s no secret that the weekend is the most convenient time for people to travel.

After a tough week spent working, who wouldn’t like to let off some steam and enjoy a nice weekend of relaxing by the sea, breathing the clean mountain air or visiting the attractions of one of the most beautiful cities in the world?

Taking advantage of this trend and the fact that during the weekends you will have a better chance of getting reservations, you might think about raising prices on Friday, Saturday and Sunday and keeping them slightly lower on the remaining days of the week in order to convince more guests to book your property.

8. Offer deals and perks

Offers and discounts have always been one of the biggest incentives to motivate a person to take action and make a purchase, and this certainly also applies to the travel industry.

How many times have you found yourself in front of a product, undecided whether to buy it or not and when you were offered a discount or a coupon, you finally decided to purchase it?

Data speaks for itself. According to Tradedoubler, in the early months of 2019, offers and coupons accounted for a 15% YoY increase in travel industry’s order value and an average conversion rate of 9%.

Offer deals and discounts to your customers, but be careful. Always analyze your profit margin to determine what percentage of discount can maximize your bookings without affecting your bottom line.

9. Incentivize repeat guests

Acquiring a new customer has a very high cost – in terms of time, energy and even money.

Try to think about the daily effort that the management of your vacation rental house requires. All the time spent overseeing reservations and guest payments, the energy consumed organizing their stay and ensuring an unforgettable experience, in addition to the physical and economic efforts required to define a business plan or a marketing strategy to better promote your property online and offline.

So why let them go?

Retaining existing customers costs less and has much higher profit margins than attracting new customers.

An article published in the Harvard Business Review states that the acquisition of a new customer is on average 25 times more expensive than convince them to return, plus the guest is generally willing to pay up to $25 more than on the first stay.

So, try to focus on this aspect, shifting the focus slightly from acquiring new customers to incentivizing repeat guests. It won’t take long before you start to see the first good results!

There are many different pricing strategies to set rates for your vacation rental, it’s all about finding what works best for your property and your market! As a rule of thumb, pricing low when you’re starting out is helpful in order to build up reviews and reputation – especially since undercutting your competition can win you bookings from them! Don’t be afraid to switch up your methods to test other ways to set rates for your vacation rental business – as long as it means you’re still making a profit!

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How to Set Rates for Your Online Vacation Rental
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