As the vacation rental tide rises, more and more ships are rising with it. And one common characteristic of the most successful vacation rental professionals is to be fully aware of this emerging landscape and all the ways they can get ahead of increasingly resourceful competition.
Being aware does not necessarily mean implementing all the new tools. Rather, it's about knowing what's out there and roughly how the ecosystem works. They do this so that in a crunch or time of growth, they're able to lift the hood of the business like a mechanic and know more or less what levers to pull.
What Is Dynamic Pricing?
A good example of one of these newly emerging categories of tools and services designed to help owners and managers improve their bookings is a niche called dynamic pricing. It's a science used by the hotel industry for decades which leverages technology to adjust nightly rates based on supply and demand: think of it like a hotel's own personal rate wizard hired to get them more money based on logic the owner or manager determines ahead of time.
However, I -- for one -- had no idea how dynamic pricing worked. So I turned to the collective wisdom of the Inner Circle for help. Fortunately, two members of our community run their own dynamic pricing start-ups: Evan Hammer, CEO of SmartHost and Andrew Kitchell, Founder of PriceMethod.
And in an active open forum chat (Members Link Here) these two entrepreneurs each shared five reasons they felt dynamic pricing could be utilized to generate more money -- the goal of the conversation being to understand the value of dynamic pricing, not to promote their services. Our community then voted on the top three, which we agreed to share with the public for optimal learning below.
The 3 Ways To Increase Profit With Dynamic Pricing
The beauty of what you're about to read is that it can be done whether you're using a paid service or not.
1. Re-evaluate price per night on a regular basis
When first starting off, most VR hosts go on a reconnaissance mission to understand what similar properties cost per night in order to assure they aren't asking too much or too little for their vacation rental. Those with more than one property break their units into groups (using proximity, number of bedrooms, capacity...etc. as uniting factors) for better relevance.
While most owners/PMs kinda know other rentals nearby that offer similar value, a "true competitive set" is a different ball game because it's based on every single property that appears near us in search results on Google and on major listing channels. Armed with this intel, the most savvy hosts in the world make more educated decisions on their price per night.
The only downside of this positioning exercise is that it takes time. And because of the perceived diminishing return on time spent, most owners or managers only do it once per year (if they're good). But wait too long and you risk drifting off the map (this could mean being way under or way over market average) and thus being less competitive.
If you want to stay as competitive as possible. A dynamic pricing tool would allow you to automate the research process and make comp sets -- and the window they afford into the ever-changing pricing landscape of your market -- a regular part of your day-to-day business decisions.
Whether you use a dynamic pricing tool or not, re-evaluating your pricing is always smart. Andrew from PriceMethod put it like this: "You can't sell next week's vacancies for the same price as vacant nights a few months out. Technically, this is because there is a larger potential audience for those future vacant nights, as more people will shop for those nights. Your potential audience plays a big part in determining how to price a rental."
2. Know that vacation rental rates fluctuate far more than you may realize
If you're not watching your competitors nightly rates regularly, you may be very surprised to see how often prices fluctuate...especially in urban markets.
If you don't believe me, check in on the same handful of random properties every few days for the next few weeks. You'll be amazed to discover how much variance there is. This can be a result of special events, school holidays, or even just foliage seasons or surf breaks.
So what can one do with these trends?
A statistician would likely analyze the local pricing patterns and draw conclusions about demand (i.e. prices seem to be sky rocketing around the 20th of next month...oh it's probably because of the famous Food & Wine Festival attracts visitors from the tri-state area...and because of these factors, people can justify increasing their nightly rates). But unfortunately, most of us are not statisticians, nor do we have any passion for charts or graphs.
Considering the average vacation rental traveler looks at more than 30 properties before booking, I have gleaned that he who monitors the region's rates becomes an area expert with a pulse on true (not just gut instinct) vacation value. Pricing matters and the rentals that are priced most accurately give themselves a major competitive advantage.
Evan from SmartHost told me this is especially important if your market have dynamic demand: "If travelers to a market have preferences for certain seasons, weekends, or events, it's smart to set different rates to capitalize on those different levels of demand."
A dynamic pricing tool gives you the ability to run these searches, monitor the trends, and act on fact-based information, all within an arm's reach.
3. Tweak your minimum stay requirements
We've all made a special exception on minimum stays when we really want the booking: "Just this one time," we'll exaggerate. "Please don't tell anyone that I broke the minimum stay rule for you."
And if you had all day to sit at your computer and make piecemeal decisions based on what kind of booking you needed, you'd likely be even more creative with you minimum stay rules. I personally love to play Tetris with my booking calendar, allowing special 1-, 2- and 3-night stays based on my strange obsession with flush bookings. TETRIS! IT JUST FEELS SO GOOD!
But when you enter Growth Mode of Listing Site Independence, no one is able to sit at their computer to make these one-off calls because, our time is more efficiently utilized in other ways. And that's where a dynamic pricing tool comes in. A tool like Andrew's or Evan's would automate your minimum stay requirements based on "if/then" logic or rules that you lay out up front. Think of it like a little team of minions verifying that the length of each and every booking is in your bank account's best interest.
Is Dynamic Pricing Right For You?
First, not unlike a handful of other "vendors" in the Inner Circle, Andrew and Evan are pioneering in the vacation rental start-up industry because they choose to spend their time educating potential clients as opposed to selling them. I believe this style of educational marketing is the gold standard for any company that wants to grow the right way. So I'd like to commend them on their helping (not selling) and encourage you to explore their respective services if it seems like the right fit for you.
Second, dynamic pricing is a tremendous option that can result in more profit IF (and that's a capital IF) your vacation rental business fits the right profile.
I would personally not suggest a dynamic pricing tool if you are still in Stage 1 or 2 of Listing Site Independence. But when you reach a point you're looking to optimize, streamline, and make small tweaks that -- in a well-oiled machine -- could have major ramifications, these services could yield huge rewards.
Kindly, Evan and Andrew have offered to open the comments section below for any questions about dynamic pricing that you may have. This feedback for your unique position will come free of charge in the nature of "Help, Don't Sell."