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Perfect rental Prices

Self-catering holidays are a competitive market. Setting the right rental pricing is a key step to success. But I don’t think that many people spend time really working on their pricing and perfecting it. When I was the MD of a large IT rental company in the UK we spent ages on pricing, it was an ongoing debate, an all day long live topic. But I bet “what rental rates should I set” is hardly ever discussed by most self-catering property owners. Even me, and I really should know better!

Pricing is often a balance between revenue and occupation levels. “Do I take the money or stay empty?” It is a classic case of supply and demand. If you’ve created a tiny demand you’ll end up taking a lower weekly rate. Alternatively, if you can create extra demand then you can be more choosy. In my experience (here in Ireland at least) embattled owners invest little to stimulate demand and as a consequence end up accepting low rates for fear of having nothing. But that’s a zero game. Low rates are as bad a no revenue, neither will bode well for future success or allow for standards to be maintained, never mind improved.

My objective is to Double My Rental Income. My summer period is usually very fully booked. It may be that I can make up the extra 100% in many more off-season rentals: But I doubt it. I’ll probably need to increase my peak rates and yet not lose customers. And that leads me to creating demand from my ideal customers. If I can target only my ideal customers, and if I can offer them great value, and if I can stimulate demand above supply, and overcome competitive offers, then I can charge a premium. That’s a lot of “if’s” but it will be the objective of my marketing … much more about this later.

But back to pricing for now. I need to calculate what rental rates to charge to Double My Rental Income. I need to match those rates against my candidate Guest types and see how they can fit together – or if they can’t then I need to find new Guest types. But what are my parameters for calculating my pricing. What do I need to consider and what process to execute?

I am tempted to say that perfect pricing is an art. Certainly people that are really good at it stand out like artists with some mystic skill; Traders haggling and cutting the best deal seconds before the value of their goods plummet or markets close.

But despite appearances pricing is also scientific and has method too. To large scale rental businesses (like the one I used to run) rental rates are traded like commodities, matching customer demand to availability from the fleet, choosing the best deals to maximise revenues and fleet utilisation. Best scenario; an almost empty warehouse and lots of happy customers who’ve paid extra to get just what they wanted. (Almost empty because there’s always one desperate last minute customer who will pay any price … it’s worthwhile having something for him!)

I bet its the same for large scale holiday home owners (often called Vacation Rental operators). They have dozens or hundreds of properties to fill and create tons of demand. BUT for a typical holiday home owner like me (I own 2 holiday homes so I think I am more typical), for the likes of me discussion of a ‘fleet’ or our group of holiday homes is way off the mark. Hoards of customers vying for the best deal is not my reality either.

I am like a fisherman with two rods, I need to catch 1 fish per week from each rod.

So should I forget all this science of pricing and deal making, does it have any relevance to me? I think it still does; there is still science and art and also method. After consideration I realise that my pricing should reflect 4 major influences which are interconnected but, to my mind, distinct.

  1. Pricing my property
  2. Seasonality
  3. Supply
  4. Currency

 

Pricing my Property

Some people (and I include an official from a tourism body I once met) think that prices for holiday/vacation rental property is primarily based on size … how large, how many bedrooms. Of course this is a part of the story. But I believe that “location” is much more important. Nothing has a greater impact than location. In a popular city centre or fashionable resort the most humble bolt hole will command rates that would secure a spectacular penthouse in other parts of the world.

After location in my diminishing scale of importance I would place “wow”, meaning how luxurious or in other way fabulous. The location and the wow factor are what people will talk about when they return home. If a guests accommodation can deliver both location and wow they will wax lyrical about it for years; and they’ll pay a premium to gain it.

After location and wow factor I’d add good old hospitality. All things being equal a property with a fabulous host will do better than others which treat their guests dismissively or remotely. (Note to self … Must learn how to be a fabulous host).

Finally I’d get to size. It’s still really really important. And with online bookings size has become a gateway or invisibility factor. If  a property is too small for your guests it won’t even show up in their online searches, and will never get considered. That must be part of the reason why owners cram extra occasional beds into the lounge or other places. Because the increasing maximum occupancy increases exposure. And we all know that some guests will sacrifice comfort and space if their accommodation delivers Location and Wow.

 

Pricing to Demand

Some basic demand based rules apply to pricing. High demand should lead directly to higher prices. Low prices can always rise if demand can be increased. If demand is high and prices are not then prices are too low (Note to self – are my prices too low given that the peak weeks of next year are already sold) .

Even in the most popular places on the earth demand rises and falls over the year. I have a very definite number of weeks of peak occupancy, these are driven by seasonal weather, but mostly by school holiday periods. So I will need to map the school holiday calendar (for Ireland and UK) and make sure that it applies to my prices.

But that’s not the end of it. I hope to discover and attract Guests types who are not tied to school dates. Spring and summer weather, Bank Holidays and other events may have an impact on them. And maybe I can find some other Guest types that are not tied to specific dates. I’ll need to look wider at events, festivals, transport promotions and other external factors that will create demand for these guest types and factor these into the demand (and therefore pricing too).

And I also need to be conscious of the booking season. It used to be that summer holidays were booked soon after Xmas. But that simple model seems to have dissolved (or has it ? Note to self – check the stats). My experience is that a considerable number of people will book their summer holiday for the following year by November the previous year. I have also found that if I have not the summer peak weeks booked by Easter, then I will struggle to sell them;  although the amount of last minute bookings have increased, so this might not be true in the future.

What’s clear is that I need to reflect pricing as a moving flow, not fixed but responsive to the lead time between now and the available date, and matching pricing to peak interest cycles. I’ll also need to think through some really detailed questions; such as whether an early booking discount, is it a good idea or not?

 

Currency

I get a lot of guests from the UK, and my prices are in Euros. UK Sterling is on a high against the Euro, which makes our prices very very competitive against UK self catering properties. That might be something I consider too when setting prices – or do I price in Sterling, I used to?

 

Pricing to Supply

I have 2 lovely houses. They are identical in layout and are interchangeable. In peak season I only accept weekly bookings from saturday to saturday. This fits with most people’s plans, allows bookings to dovetail together and for me to book our cleaners and laundry.

Given these constraints, in peak season, I can accept 2 bookings, one for each house, for any single week. This means I need to be conscious of my availability and pricing and react to the supply side. So if (say) I have booked ahead for most of the summer season next year (and I have) I should be cautious not to sell my remaining few weeks at a discount.

 

This article is coming soon. I am talking in the future tense as I am not quite ready to write it yet. This is an area of professional expertise for me. I want to describe what I am doing and why, what conclusions and decisions I made and why. But more than that (and whats taking more time) is that I want to create some tools and exercises which I can share. That way you can follow the same method (but still come out with the right answers for you). I also realise that by creating the tools I can run this again myself, and re validate or fine tune the decisions I have made.

So this is the next section to work on, and its coming very soon. And that’s an opportunity for you! If you have a pressing need, particular question or interest you can get me to hurry up, or add more ideas into what I am doing. Tell me your thoughts in the comments below – I promise it will spur me into action!

Go on, share the joy!
Published inMy PricesMy Rental Offer

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