5 Vacation Rental Pricing Mistakes You Might Be Making
Colorado Luxe Living 2018
Vacation rental pricing is a difficult skill to master.
Price too low and you risk losing money. Price too high and you risk losing bookings.
We’ve worked with many owners who hold tightly to the idea that the higher their rates, the more money they’ll make – even when their calendars are empty and they haven’t received a booking in weeks. We’ve worked with others who are reluctant to raise their rates when demand peaks – even if it means collecting less money than their neighbors.
Intuitively, we understand these impulses. We’re not just talking about any asset. Even if you purchased the property as an investment, it’s your home. It’s something personal, and when it’s something so close to the heart, it’s hard not to see the intangible value.
The last week in August might be worth more to you because that’s when your family usually gathers for a reunion. If the weekly price you set for July is what you’ve always charged, why change it now? It’s always covered your costs and the bills are always paid.
Changing the way you price your vacation home can feel risky – but it doesn’t have to BE risky. We’ve gathered research on over 7,500 vacation rentals and gotten to the bottom of what makes a pricing strategy work and what leaves money on the table.
From that research, we’ve put together the five major mistakes we see owners making when choosing their nightly rates and explained how each will hurt your ability to hit your annual income goals.
MISTAKE #1: THINKING SHORT-TERM
The most common reason for pricing high is thinking about the short-term wins rather than the long-term losses.
It’s easy to see how this happens. If we ask an owner if they would rather make $250 a night or $300 a night, there’s an obvious answer: Why would you make less when you could make more?
The problem is that there’s a difference between asking for more and getting more.
Properties that are priced higher than the competition make fewer bookings overall. Now, that doesn’t mean you’ll have a totally empty calendar. Your property may become the best option available after more competitively priced properties book up. Your home may have a particular feature that’s so important to one group of travelers that it will convince them to pay a premium.
You will make bookings. And in the short term, you could make more per booking than your competitors, which is great.
In the long term, however, you’ll make fewer bookings overall. Which isn’t as great.
It also means your competitors are likely to finish the year with a much higher rental income than you will – even though they made less on each individual booking – because they priced at a more competitive rate.
Ultimately, the choice is yours about how you want to set nightly rates. But it’s important to consider that that charging more per night doesn’t necessarily earn you more income.
More often than not, it’s the opposite. Look at the long-term goal rather than the short-term one, and you’ll earn substantially more overall.
MISTAKE #2: COMPETING WITH THE WRONG PROPERTIES
Another mistake owners often make is setting their prices based on the competition – without having a clear understanding of whether that competition is really on a level playing field.
When you’re doing market research to determine appropriate nightly rates for your neighborhood, it’s essential that you make sure you’re looking at homes that are actually equivalent to yours.
A neighbor with a similar sized property, or even a unit that’s identical to yours might have very different amenities inside. They might have granite countertops while your house has formica. They may have a pool table and steam shower, while you have a cozy living room and the standard features the property came with.
Because of discrepancies like these, the other property might charge $50 more than you per night. And if you raise your nightly rate to ‘compete’ with them, you might just end up losing bookings because your properties are actually very different.
That’s not to say that one property is “better” or “worse” than the other by any means. While some travelers are willing to pay a premium to stay in properties that have been outfitted with updated appliances and nicer amenities, others are not.
Many travelers would prefer to stay in a comfortable home that doesn’t have all the bells and whistles.
By positioning yourself as the more affordable option in the neighborhood, you can capture bookings that the place down the street has priced themselves out of. But if you raise your rates only because you see someone down the street has upped theirs, you’ll be alienating a large group of guests who need a place just like yours for their vacation.
That’s why you need to dig deeper when doing market research to determine prices. Looking at your neighbors’ listings is a good starting point, but it doesn’t tell the full story.
MISTAKE #3: YOU’RE PRICING BASED ON PERSONAL VALUE
You value your vacation home a lot. And why wouldn’t you? You fell in love with it, you bought it, you furnished it, you enjoy staying there as often as you can.
So when you decided on a nightly rate, you might have thought about what you’d need to earn per night to make it worth your while to share this special space with others. If you decide you couldn’t possibly do it for less than $500 a night, then you know that’s the lowest you’re willing to go.
But if you’re wondering why you’re not getting bookings at that price, it’s probably because the rate you settled on isn’t fair market value. That is, you might have priced yourself out of the running for travelers who are looking for a place to stay.
If that’s the case, you have a decision to make:
1. You can lower your pricing enough to compete for bookings
2. You can decide it’s really not worth it for you to price lower, and accept the fact that you’ll get fewer bookings over the course of the year
You may be comfortable making only three bookings a year at a very high rate if those bookings cover the cost of the property taxes and maintenance.
But if you’d rather make a real profit on your property, you may have to start looking at it with the critical eye of a budget-conscious traveler and adjust your rates accordingly.
MISTAKE #4: NOT FOLLOWING MARKET VALUE
We’ve known owners who tell us that they want to charge an extra $100 a night because their property has a particular amenity, such as a hot tub or a 3-car garage.
“I’d pay $100 a night for that!” they tell us.
That may well be true. But if the majority of travelers wouldn’t pay a premium for that particular amenity, it is going to cost you in bookings.
You can do a fairly accurate assessment of the amount of money travelers are willing to pay for a particular amenity by using the filters on a listing site. Narrow down the search to properties similar to yours, with all the amenities you have, including the one you’re thinking about charging extra for.
Look at the pricing for the top 10 results, and figure out an average. Now un-select that special amenity, and look at only the first ten properties that DON’T have it. (If you un-select “pool”, for example, you might still see some results with pools, so look for the ones without that amenity.)
Get a new average of properties similar to yours that don’t have that special amenity, and compare to the average nightly rate for properties that do have that amenity.
The difference between those two averages will be a fairly accurate gauge of how much travelers value that particular amenity. You may be willing to pay more – but your average traveler is not.
If you want to make bookings, you need to price according to what travelers are willing to pay – not what you are.
MISTAKE #5 NOT USING DYNAMIC PRICING
Dynamic pricing is charging more during times when guests are willing to pay more.
If you have two different prices for high and low season, you’re already using dynamic pricing to a certain degree.
You charge more during the high season because travelers are willing to pay more during that period of time, and you charge less throughout the shoulder season because your area gets fewer visitors at that time, and people who do visit are looking for a good deal.
But it gets much more sophisticated than that. Dynamic pricing takes into account daily and even hourly fluctuations in demand, as well as historical trends. With dynamic pricing, your rates adjust up or down depending on how quickly other properties in your area are booking up, or whether there’s a surplus of properties sitting empty.
So if your pricing strategy begins and ends with the difference between high and low season, chances are you’re leaving money on the table.
At Colorado Luxe Living, we set different rates not only based on high and low seasons for a given area, but also holidays, local events, and the most popular weeks based on historical data. In out popular ski destination,for example, we have different rates for different periods, all of them optimized to compete specifically for that place and time.
In our experience, owners who put a little more strategic thought and effort into pricing than the competition are consistently the best option for travelers – and their calendars fill up accordingly.
A FINAL NOTE ON PRICING STRATEGY
We won’t lie – pricing strategies are complicated. There’s a lot to consider. There are a lot of ways you can go wrong. There’s a lot riding on your ability to get it right and be competitive.
Competitive pricing is a balancing act.
You price as high as you possibly can while still being low enough that the traveler chooses you over the competition.
Hitting that sweet spot is not easy, but it’s incredibly profitable.
For owners and property managers who are willing to put in the effort, it’s well worth it.
Colorado Luxe Living wants to make vacation rental easy and profitable for our owners.
The Luxe Team