Having an effective yield management strategy doesn’t involve a “one size fits all” approach to pricing. The fact is, there is no universal approach or set of rules to yield management for owners and property managers. However, there are some guidelines that you can use to find the right strategy for your individual business. Remember, yield management is offering the right service, to the right customer, at the right time, for the right price.
Let’s briefly look at each element of yield management and how it can be leveraged.
How full (or not) are your units? As a general guideline the higher your occupancy (i.e. the higher the demand) the more you should be charging. But just where that threshold is depends on your market.
You may want to increase your rates at 70% occupancy, and again at 90%. Or you may want to increase them once at 80% occupancy and then leave them alone.
On the other hand, you may want to lower them if you dip below 60%. Or lower them at 60% and again at 40%.
What will determine the right choice for you are things like your location (are you a fly-to or drive-to destination?), your booking curve (we’ll discuss this more in a minute), the length of your seasons and whether or not you have shoulder seasons, as well as holidays and special events in your area. You should also want to consider the occupancy rate of your competition to make sure that you don’t price yourself out of the market.
Booking Curve (The Time Before Guest Arrival)
Your booking curve is the overall trend of when guests book with you throughout the year. It also changes for each of your seasons. Your location (whether you are drive-to or fly-to) plays a big part in this as well. For instance, if you are a fly-to destination, guests will tend to book farther in advance than if you are located in a drive-to destination.
Here’s a question that you need to know the answer to; When are the majority of your bookings, in any given season, made? 60 days out? 90 days? 1 week? Your reservation data will help you determine what your booking curve is. Your gut feeling is probably in the ballpark, but data sheds light into the dark corners that you can’t see.
Here’s an example of what a Booking Curve looks like. Note that the majority of bookings (24%) are made between 60 and 90 days prior to arrival. This is the peak of the curve so the highest rates and/or longest minimum night stays should happen here. On the flipside, the least amount of bookings (7%) happen between 120 and 150 days before arrival. Unless occupancy is above say 70% during this period, this is the point when rates and minimum night stays can be lowered to grab additional revenue.
Minimum Night Stay
What is the minimum amount of time that you will book a reservation for? 3 nights? 7 nights? This factor, along with pricing, determines how well (or not) you can capture the last minute booking market. Notice that I didn’t say “last minute deal”. Depending on where your location and types of guests, you may be missing out on a sizable chunk of revenue if you have nothing to offer guests that decide to get away for a few days at the last minute. For example, if you have a 5 night minimum, you have nothing to offer the couple or family that decides at the last minute to take a 3 day weekend getaway, and is willing to pay a premium to make it happen. Minimum night stay is also something that you can lower instead of price, to capture additional bookings outside the peak of your booking curve.
Vacation Rental Yield Management in Action
What does this all come together in a real business scenario? Here’s an example of what one vacation rental company that I’m working with has done. All based off of what their reservation data told us about their booking curves.
The business is in a drive-to destination in the southeastern part of the US, so while they definitely have a busy and slow season, the changes aren’t very dramatic. The data showed us that the majority (2/3rds) of their bookings are made within 90 days of arrival, nearly half are made within 60 days of arrival, and about 1/4 are made within 30 days of arrival. That puts the peak of their bookings curve within the 30-90 day window. So we made their minimum night stay and their rates the highest during that period, when demand is highest.
In their busy season they get a decent amount of bookings within two weeks of arrival so it wouldn’t make sense to offer any discounts for last minute bookings. But in their shoulder and slow seasons, particularly around the holidays, they get virtually nothing close to arrival. So offering a deal, be it a reduced rate or a lower min night stay, for these periods makes total sense.
We also implemented a couple of occupancy measures that raise the rent by 10% when they hit 75% occupancy, and lower the rent by 10% when they go below 45% occupancy. This allows them to better take advantage of supply and demand, without pricing themselves out of the market or leaving too much on the table.
While it’s still a bit too early to tell just how much their revenue has increased through this yield management strategy, overall, their revenue is up this year compared to the same period last year. They are also much better poised to take advantage of their market conditions than they were previously. Everything is in place to capture more revenue during the peak of their booking curve, and capture additional revenue during the slower periods.
This company also has an advantage in that the software that they use (Escapia®) has a rate engine which allows them to automate these yield management rules. This is critical for success as it would take far too much manual manipulation to try and do this with a rate engine that only supports very basic rate rules. If you don’t have software that allows you to do this, get it. There are a number of options out there. The amount of additional revenue that you can capture through yield management strategies will more than pay for itself in the long run.
If you have found success utilizing yield management strategies, I would love to hear from you. Join the conversation in the Comments section below.
James C. Sells is the Founder & Principal Consultant at VR Biz Consulting, a company that works with vacation rental businesses to maximize revenue and take their software from a cost center to a profit center. James has been in the vacation rental industry for over 10 years, holding Senior Management positions at both Escapia and HomeAway Software. Throughout his career he has worked with hundreds of vacation rentals companies of all sizes, markets, and specializations.