The right rates can do wonders for your vacation rental’s success.
They can help you make a booking when none of your competitors are seeing any interest at all. They can let you command higher rates than your neighbors when demand in your area is high. They can even pull at you out of a booking slump!
That is why your rates deserve a bit more attention than placing high season and low season.
Let’s talk about how to set — and adjust — rates that get you to the rental income you want.
Know Your Competition
First things first: how do other owners in your area price their properties? Pricing your home at $600 per night when similar rentals nearby are all hovering around the $400 mark isn’t going to bring you many bookings. If a guest can get an equivalent property at a lower rate, they will!
On the other hand, if your property brings something unique or high-quality into the table, you may be able to price higher than similarly-sized properties. That is the reason why the first thing to do is take an objective look at your home.
Write down the property type, the number of bedrooms, the amount of people that your property can sleep, and the amenities you have to offer, and do a search on major listing sites such as VRBO or Airbnb to find properties in your immediate area that have the same features.
Once you have 10 or so properties similar to your own, you can start whittling down to your real opponents. Assess each property’s calendar to see if they’re getting regular bookings when they need to — high season, weekends, holidays.
If a property’s calendar is empty, it is probably not a great property to look to for pricing guidance.
Get To Know Your Selling Points
Once you have properties that look the same as yours does on paper, it is time to look at the features that might sway a guest to pay a bit more — or less.
Kitchens, bathrooms, and bedrooms are the biggest considerations for potential guests. A property whose kitchen has well-finished cabinets, granite countertops, and an island will be able to command a higher rate than a kitchen composed of Formica and linoleum.
This isn’t to say your property must have the best finishings around to get a booking! It does mean, however, that you shouldn’t look at the pricing for properties that don’t look like yours. If you have Formica countertops, don’t compare your property to one with granite — look for properties that have comparable features.
One of these kitchens is not like the other — even though they’re in the same condo complex!
The same goes in the bathrooms and bedrooms. You can even think about the quality of the furnishings in your vacation rental vs. your competition’s. Try to be objective — you may love your beat-in comfy chairs, but on a listing, they may not look as visually appealing as your neighbor’s brand-new recliners.
Narrow down your equivalent properties to five that are comparable to your own — and take a hard look at the numbers.
Know Your Booking Potential
Write down all of the pricing information available for your comparable properties. You may have to enter dates in the search engine to get a quote for nights at other times of year, but it is well worth the effort to get accurate pricing.
Group the prices you can find by categories like”high season,””low season,””Fourth of July,””Christmas,” and so on. If one property has specific pricing for a holiday and another doesn’t, leave that space blank. You may wind up with something like this:
Many areas also have off-season boosts for holidays and large local events, so you will have to keep these surges in mind as well to remain competitive.
Take the average of these rates by adding all of them together and dividing by 5, which will give you the following prices for each season using our example numbers above:
Understand Your Rental Goals
As soon as you’ve identified your competition’s average nightly rate, it can be tempting to out-price them. The higher your nightly rate, the higher your paycheck. Right?
Not necessarily. If there are 100 properties in your area and interested in booking during the summer, it is bad to be one of the highest-priced properties in the area.
If it’s high season and pretty much every property in the area will be booked every weekend, you can probably push your rates a little higher than average and still get a booking.
Your main priority should be setting rates so you get the best nightly rate possible — while still getting a booking.
Many owners fail to think about whether they can get a booking at their nightly rate! You could specify a property at $400 a night in this same area, however when comparable properties are going for $130, it is very unlikely you will ever actually earn the amount you’re asking.
There’s good news, however: setting lower rates can often generate more revenue overall than higher ones. If you get 3 bookings of three nights each at $200/night, you’ll earn $1,800. Your neighbor, priced at $300/night, may only get one booking in that time — and he earned $900.
On paper, $300/night appears better than $200/night. However, when you factor in that competitive prices get more bookings, it’s the lower priced properties that come out ahead in hard rental income.
Would you rather have a high nightly rate, or more money in your bank account? It’s up to you — but we’d select the rental income every time.
Know Your Past
If you’re an experienced renter, you already have a great rate-setting tool in your arsenal: your rental history.
View every part of your history with a critical eye. Did you have a fantastic summer last year? When did you notice bookings started to slow down? On average, how many bookings did you make last winter? Do you think you might want to adjust your pricing to account for more or less demand?
Experience brings information. By looking at your previous rental history, you can probably identify some trends you can use to your advantage.
For example, we noticed that in some areas,”summer season” doesn’t last from Memorial Day to Labor Day — although most owners price their properties as if it did. Looking at our success in the area, we noticed that the quantity of rentals went down in August, rather than September.
We adjusted our pricing accordingly to be more competitive in September, and earned a great deal of additional bookings for our owners. There were just a few travelers searching for properties in September, and we earned most of these bookings by pricing.
You may not have multiple properties in a single area to draw data from, but owners will have information spanning many years for a single rental. Take a close look at your previous history, and don’t accept”well, it’s the low season” for months where you made no bookings. Consider adjusting your pricing, and see if you can’t pull in a tiny rental income in the slow months.
Know Your True Worth
When can you raise your prices higher than the competition? When you have social proof.
The more five-star reviews that you have, the higher the price you can command. That you still should stay in the same general ballpark as your competition, but if the average price of comparable properties is $225, and they don’t have half the reviews you do?
Go ahead and price at $250. You get bookings, because renters are willing to pay a little extra for a certain thing.
If you’re just starting out or trying to get over some negative reviews, you may want to lower your prices to get a few bookings in the door first. Earn some great reviews, and you’re going to improve the rate you can command over time.
Setting optimal rates and keeping them continually relevant is no easy task. It takes a keen eye for business, time, and consistent research to ensure your pricing acts as an asset and not a liability; however, cultivating industrial and regional knowledge is the best way to maximize your rental income and see a solid return on your investment.
Putting a little extra time and effort into your rates pays off. If your rates are optimized for success and your neighbors are flagging behind, you’ll earn more bookings, earn more rental income — and achieve lifetime success for your vacation rental.