How To Price Your Vacation Rental: Pros and Cons of Common Strategies

Lauren KayeLeave a Comment

What if your rates were actually costing you money and bookings?

A lot of vacation rental owners have pricing strategies that are outdated and ineffective, but they have no idea how much they’re giving up as a result.

Some charge under the fair market value for their property, happy to scoop up bookings and fill their calendar. Others charge way too much for their market, confident their steep rates are padding the bottom line while they’re actually losing valuable bookings all along.

Working with 10,000 properties, we’ve seen it all. We wanted to show the impact of common pricing strategies we encounter with owners, so we created calendars for a hypothetical ski market in Colorado in December to represent each one.

The Flat Rate

This strategy is exactly what it sounds like: One rate for the whole year. The price is consistent throughout high season, low season, and everything in between.

It’s the most basic approach to vacation rental pricing and it takes just a few minutes to set up. That’s great if you don’t have a lot of time to roll up your sleeves and dive into pricing strategies, but the downside is that it leaves a lot of money on the table.

With a flat rate, you’re typically only going to book during peak season. Your prices are too high the rest of the year.

Travelers won’t pay your standard rate during shoulder season. They won’t book your property for longer stays, either. Why would they when nearby properties that are comparable to yours have lower rates?

Even when you do get bookings during periods of peak demand, like holidays, you’re typically leaving money on the table. Your flat rate is well below what guests are willing to pay and what other properties in your area are charging, so you’re not making nearly as much as you could.

Dual Rates

The Dual Rate strategy is a bit more sophisticated because instead of one flat rate, it uses two: One price for peak season nights and one for off-peak.

Compared to a flat rate, setting dual rates increases your chances of getting bookings during high season as well as shoulder season and periods of lower demand.

With a full calendar, owners tend to feel rather successful, but the two-rate approach still falls short. You could earn more with the same number of bookings if your pricing strategy had just a few more rate periods to capture fluctuations in demand.

Holidays are when this strategy really hurts you. In most cases, your high-season price is lower than what people are willing to pay for peak periods, such as Thanksgiving, New Year’s, and the Fourth of July. By charging the standard high- and low-season rates, you miss out on money you could be making on these high-demand days.

Sky-High Rates

The Sky-High Rate strategy uses aggressive pricing that’s above and beyond what other owners charge.

When owners take this approach, their properties rarely get booked and they’re OK with that.

For them, it isn’t worth it to accept a reservation for any less than their sky-high rate. Owners who use this strategy typically set their rates based on emotional value rather than market value. They love their home and to them, it’s worth $450 a night. The idea of halving that to get bookings might feel insulting rather than industrious.

The trouble with pricing at the top of your market is that you only get a few bookings per year. You’ll manage to book holiday weekends, like Christmas, President’s Day weekend, the Fourth of July, and New Year’s, when demand is high enough for people to pay your steep rate.

Even though you’re making more than a competitor on a per-booking basis, you’re earning less overall. A property with sky-high rates generates far fewer bookings and ultimately earns less than others in their market that use a strategy based on value-driven pricing.

Rock-Bottom Rates

The Rock-Bottom Rate strategy is the opposite of the Sky-High Rate strategy. It uses bottom-of-the-barrel pricing to undercut the rest of the market and book as many nights as possible.

With this strategy, owners maintain very competitive rates from the outset and layer on additional discounts to fill in calendar gaps throughout the year.

You almost always achieve a high occupancy rate with this approach and that makes it seem like you’re beating out the market. But when you look at revenue totals, you’re actually leaving money on the table with these rates because you’re charging less than what travelers are willing to pay.

Peak season is when this strategy really falls short. Low prices ensure the property gets booked first, but you miss out on revenue you could be earning by charging a higher nightly rate. Even if you raise rates during the high-demand periods, it does little to your rental income in the big picture.

Power Pricing

The Power Pricing strategy is the most sophisticated approach we see among owners, involving 5-15 different rates throughout the year.

The prices are based on careful competitive analysis with consideration for occupancy rates in the market. Unlike other static strategies, the rates are updated on an ongoing basis to reflect the very latest changes in demand.

If you use the Power Pricing strategy, you’ll experience a high level of occupancy during peak period and you’ll book at higher rates. Because this approach includes multiple rate periods, you also secure bookings during shoulder season as well as when demand is ramping up and down around peak occupancy windows.

The biggest drawback is that your off-peak rates are sometimes too low and you lose some money on those discounted bookings. With a few adjustments though, this strategy would be the winning approach to maximize your rental income.

Evolve Pricing

The Evolve Pricing strategy goes one step further with dozens of rate variations throughout the year. It’s built on competitive market rates, historical booking data, and the expertise of our full-time Pricing Analysts who work in specific markets.

Evolve Pricing

By leveraging current market data and extensive historical booking data, the Evolve Pricing Strategy outperforms all other pricing approaches.

With market data and vacation rental expertise we use, our Pricing Analysts can objectively evaluate the market and create rates that correctly correspond with what guests are willing to pay. They know when to undercut the market, when to match the market, and when to price above competitors.

The Evolve Pricing strategy achieves a higher occupancy, generates occasional weekly bookings (with  discounts for extended stays), and captures the best rates possible throughout the calendar year.

Using this strategy, you won’t be selling your property short around high-demand periods because your rates are set to match what that market will bear. Your property will stay booked regularly throughout shoulder season as well. Because the Evolve team makes changes to minimum-stay requirements and discount as open dates approach, you will have fewer gaps between bookings.

How Much Are Your Rates Costing You?

Bad pricing strategies are expensive mistakes. Lost bookings and revenue are common problems among owners. The scary thing is that most don’t know they’re missing out because they don’t know there’s a different and better way, so they might go years earning less than they could.

Fortunately, it’s not hard to fix and it doesn’t take long to rebound.

You just need to put a smarter strategy to work for you.

If you have a few hours a week to spend on listing sites analyzing competitors’ rates, you could develop an approach like The Power Pricing Strategy. If that sounds like too much work and too great of a time commitment for you, consider the benefits of becoming an Evolve User.

For an industry-low 10% booking fee, you can get all of our vacation rental management services plus a pricing strategy that outperforms the market. Our expert Pricing Analysts would go to work for you to get you more bookings at the very best rates.