What’s the best way to maximize revenue for your short-term rental business? To answer this question, we turned to the experts in our latest webinar.
On July 16, 2024, Lodgify SEO & Content Manager Alberto Fernandez explored data-driven revenue management strategies with the help of two revenue management professionals:
- Becca Madigan, Solution Consultant Manager at PriceLabs, a dynamic pricing tool and revenue management platform for short-term rental owners and property managers
- John An, founder and CEO of TechTape, a technology service that provides short-term rental revenue management offerings
The result? More than an hour of insights, tips, and real-life examples that vacation rental hosts like you can implement in their own business.
Watch the webinar recording below or read our recap to make the most of these findings!
Webinar recording and presentation
Want to see the slides themselves? You can find the full presentation here.
Webinar recap
The webinar began with a quick introduction to the topic and speakers, after which Alberto introduced Lodgify and briefly explained our features, including our latest Dynamic Pricing tool. Then the main presentations began, starting with insights from Becca on revenue management.
Revenue management insights from PriceLabs
Becca leads the U.S. Solutions team at PriceLabs, where she interacts with customers daily to offer demos and teach them about PriceLabs’ tools. This customer interaction makes her uniquely suited to speak to vacation rental hosts’ pain points when it comes to revenue management.
Becca’s presentation began by outlining the three key elements for maximizing revenue and occupancy, which are key not only to achieving your desired results, but also to saving time and effort:
- Dynamic pricing: Unique daily prices based on hyper-local trends as well as rule sets to implement custom strategy
- Length of stay optimization: Dynamic minimum length of stays to maximize occupancy
- Market insights and benchmarking: Learning from your market and direct competition
Dynamic pricing
Starting with her first key element, Becca explained that dynamic pricing is crucial to help react quickly to demand, eliminate manual efforts and human error, and gain back time to focus on other efforts.
Becca then went on to explain how PriceLabs’ dynamic pricing tool actually works. Like most dynamic pricing tools, PriceLabs uses an algorithm. What sets PriceLabs apart is that they let you customize how their algorithm works.
PriceLabs starts with a base price (or average daily rate for the year), and then updates that price based on factors such as seasonality, day of the week, lead time, neighborhood demand, and internal occupancy. Finally, PriceLabs enables a wide range of user customizations to ensure hosts have the final say about their rates.
Length of stay optimization
One of the user customizations that Becca recommends implementing to the dynamic pricing algorithm involves a minimum length of stay. Why? Length of stay restrictions help you target higher-value bookings and eliminate gap days. Some hosts also simply prefer longer bookings to reduce turnover and wear-and-tear and avoid bookings for parties, which tend to be shorter stays.
So, how do you know what your minimum length of stay should be? Becca explained that PriceLabs offers a cutting-edge minimum stay recommendation engine, which pulls data from similar-sized rentals in your market and recommends stay lengths based on bookings from the past year.
Market insights and benchmarking
Becca explained that, even if your dynamic pricing tool is doing the bulk of the work for you, it’s still essential to understand your market so you’re not taken by surprise when major changes or issues arise. Specifically, you should make sure you can answer the following questions:
Key metrics to track for success
To end her presentation, Becca shared the three key metrics you should track to measure your success:
- Average daily rate (ADR) = total revenue / total nights booked
- Occupancy rate (%) = (no. of nights booked / no. of nights available) x 100
- Revenue per available rental (RevPAR) = average daily rate x occupancy rate
Becca explained that, while your ADR and occupancy rate are both important metrics to track, RevPAR is the best measure of your success because it takes into account both of these factors.
Real-world case studies from TechTape
John An is the founder and CEO of TechTape, a provider of done-for-you revenue management services for the short-term rental industry. He’s helped numerous short-term rental businesses maximize their revenue, so he had a tip (or two) to share.
Establishing and consistently adjusting strategy
John’s first point was that, while tools like dynamic pricing are incredibly effective at maximizing revenue, they have to be used consistently. Or, as John put it, you need the car and the driver to win the race.
Essentially, even if you have a dynamic pricing tool doing the work, you yourself need to be using the tool intentionally. For John, this comes down to ensuring systematic consistency over time, making small adjustments when necessary to get the results you want.
Short-term rentals vs. hotels
John then went on to compare short-term rental revenue management with that of hotels. While a lot of dynamic pricing concepts came from the hotel industry, there are some key fundamental differences, as seen in the image below:
John’s main takeaway: Because everyone in the short-term rental industry is playing by their own set of rules, STR data can provide important insights for overall market trends, but limited information for specific data points.
Your risk profile and how it impacts performance
John also pointed out that risk profile can significantly impact performance, something that not many people take into account.
Here’s an example: Imagine two hosts with identical properties. If one of these hosts is more risk-averse, they will have a different revenue management plan than the more risk-tolerant host—and they’ll also be equally content even if they see lesser results.
Achieving outsided results: case studies
John ended his presentation by sharing four real-life case studies of vacation rental owners who made strategic decisions to maximize their revenue, as well as the results they achieved.
Want to hear about the case studies and see John’s previous points in action? Watch the webinar recording!
Q&A session
We ended the webinar with a Q&A session to tackle some of our attendees’ questions, including the following.
If other people are using PriceLabs in my area, how will I have an edge over the competition?
Becca: We’re not tying your prices to the market. Just because your competitors are priced at $100 or $1,000 per night, that doesn’t mean that your listing is going to also be priced there. The fear of a feedback loop is actually a big reason why we don’t allow you to tie your prices to the market.
Honestly, a lot of the hosts and property managers I talk to are much happier when their competition starts using dynamic pricing tools because it’s almost professionalizing the industry, versus you or someone else in the industry who doesn’t know what the market can handle and is pricing their home randomly. So I understand that fear if everyone is doing the same thing, but your base price is going to be very specific to your listing. Your own internal occupancy is going to drive your pricing strategy as well, so there isn’t really that problem.
John: It’s actually typically the folks who are not using dynamic pricing tools that create the race to the bottom because they’re going onto Airbnb, looking at each other and saying, my secret sauce is that I’m going to price 10% below them.
The other way I’ll say this is, it’s technology, right? If everyone on the street is using wheels on their car, should we not use wheels on our car so that we’re not racing to the bottom? Use the technology that’s there, but don’t expect the technology just to magically do all the work for you. You need to either put in the time and effort to use the tool, or hire someone to do it. But it’s not this magical tool that’s just going to somehow know everything.
Not all properties are equal. Does PriceLabs recognize different properties?
Becca: At the most basic level, your base price is the foundation of your pricing. Within our tool, you can actually explore a map of all the listings around you and look at what their average prices are…so you can kind of position yourself within your market using your base price. That’s the first step.
And then your risk profile is going to be very different from your neighbors. Maybe you don’t have a mortgage to pay and don’t necessarily care about having your property rented all the time. Or you do have a mortgage to pay and you really need to maximize, maximize, maximize. It’s not just the specific property characteristics that you need to customize your strategy for, but also your owner’s needs, your own needs…there’s a lot to it and there are plenty of different levers to play with.
As a revenue manager, do you take a percentage of the revenue you generate, or is it a fixed price?
John: The way we are structured, it is a percentage of revenue. For larger portfolios, we adjust the pricing. With smaller portfolios, we charge 5%, but then we also include the cost of PriceLabs within our system. There are other revenue managers who do flat fees.
A revenue manager should always be a profit center and not a cost center. We have grown globally with our pricing structure because we have been consistently able to deliver value above and beyond what our competitors were able to do and wanted to spend the time doing. And so that’s how we are able to provide the service.
How do Lodgify Dynamic Pricing and PriceLabs compare?
Alberto: They’re very different tools. Lodgify Dynamic Pricing gives you a fixed price based on an algorithm and lets you do some manual overrides, but it’s a more simple tool. It’s a great way to get started.
PriceLabs offers you much more flexibility in everything that, for example, Becca showed and John explained. If you really want to take your property to the next level, PriceLabs is a better fit. In the end, the audience and the people using these tools are going to be different, or at least at different points in their business journey.
Becca: I completely agree. It’s awesome that you guys launched this—I was actually really excited when you announced it. It’s really incredible because, honestly, a rising tide lifts all boats. Getting people to be more professional in their operations is great.
If you don’t have the time or energy to explore third-party tools, or if your tech stack is already stressing you out, start with Lodgify’s tool. There’s no problem. PriceLabs is always going to be here. We love our Lodgify partners.
When you’re ready to take your business to the next level, we are on the cutting edge of the industry. Things like our minimum stay recommendation engine, like I said, no one else really does that. We are 100% focused on revenue management and that’s all we do. But if you’re just getting started, a more simple tool is a great start.
John: You don’t necessarily need to use the most cutting-edge tool. There are artists who use just a pencil and they create these amazing results, right? And then there are digital artists.
What I would say is, sometimes cutting-edge tools have so many features or levers that, if you’re not ready for them, they might be very confusing. So, if you’re not ready, you could start with something that gets you going, like Becca and Alberto were saying. And then as you get more comfortable and you gain trust in the algorithm—you have to trust it at a certain point—then you could start exploring and growing into other options.
Want to hear the rest of the questions from our attendees? Check out the webinar recording!
How to contact our speakers
Want to learn more about our speakers?
Follow Becca Madigan and John An on LinkedIn. You can also visit the PriceLabs and TechTape websites for more information about their offerings.
Finally, learn more about how Lodgify and our Dynamic Pricing tool can help grow your vacation rental business with a free 7-day trial or demo call!
