Hotel Revenue Models in use for an AirBNB Host
As an investor, I have long been fascinated with revenue management. I think that’s why I fell in love with short term rentals. Short term rentals are priced and managed very differently from long-term rentals. If you own a business, you need to be acutely aware of revenue management and use it to your advantage whenever possible.
First and foremost, with short term rentals the price goes up and down. I don’t mean monthly or weekly, I mean daily and hourly. Why would a three bedroom, two bath house go up and down in price hourly? For the simple reason of supply and demand. Hotels and airlines have been using complex revenue management models for years. Price a room at your local Hilton in mid-January and then again on July 3. Price a trip to Cancun today and then again next week and again in a month. I’ll bet you lunch the price will be different every time.
Intelligent, revenue (profit) based industries have long been watching for increases and decreases in demand. Some of these are expected – a large marathon in the area would bring in extra revenue that would not have been attainable on a Monday night in early November, for example. As consumers, we inherently understand this, but are we aware that it’s going on all around us every day?
Short term rental hosts are in a fantastic position to take advantage of revenue management.
A host with access to changing supply and demand can out earn one who sets a price and forgets about it. If your short term rental is booked 6-12 months out, you are probably charging too little. The most successful hosts charge higher rates the further out the booking occurs. The guest booking ahead will have the most options and be able to grab the best location, but should also pay a premium for the privilege. If the home is unbooked less than a week away, the price drops in order attract a last minute booking. Even with the lower “fill in” nights being booked at a lower rate, the host still makes significantly more due to the well above average nightly rates for the prime dates.
Other industries are in on the secret, too. How is a meal on Valentine’s Day three times more expensive than the night before? How does a dozen roses go from $16 to $160 at the strike of midnight? Revenue management is definitely here to stay. The only question is, are you using it?
If you are looking for help managing your short term rental, give Sid Was Here a call anytime.