The right rates can do wonders for your vacation rental’s success.
They can help you make a booking when none of your competition is seeing any interest at all. They can help you command higher rates than your neighbors when demand in your area is high. They can even pull you out of a booking slump!
Which is why your rates deserve a little more attention than setting high season and low season.
Let’s talk about how to set – and adjust – rates that get you to the rental income you want.
Know Your Competition
First things first: how do other owners in your area price their properties? Pricing your home at $600 per night when similar rentals nearby are all hovering around the $400 mark isn’t likely to bring you many bookings. If a guest can get an equivalent property at a lower rate, they will!
On the other hand, if your property brings something unique or high-quality to the table, you may be able to price higher than similarly-sized properties. Which is why the first thing to do is take an objective look at your home.
Write down the property type, the number of bedrooms, the number of people your property can sleep, and the amenities you have to offer, and do a search on major listing sites like VRBO or Airbnb to find properties in your immediate area that have the same features.
Once you have 10 or so properties similar to your own, you can start whittling down to your real competitors. Check each property’s calendar to see if they’re getting regular bookings when they should – high season, weekends, holidays.
If a property’s calendar is empty, it’s probably not a good property to look to for pricing guidance.
Know Your Selling Points
Once you have properties that look the same as yours does on paper, it’s time to look at the features that might sway a guest to pay a little more – or less.
Kitchens, bathrooms, and bedrooms are the biggest considerations for potential guests. A property whose kitchen has well-finished cabinets, granite countertops, and an island will be able to command a higher rate than a kitchen composed of Formica and linoleum.
This isn’t to say your property must have the nicest finishings around to get a booking! It does mean, however, that you shouldn’t look at the pricing for properties that don’t look like yours. If you have Formica countertops, don’t compare your property to one with granite – look for properties that have comparable features.
One of these kitchens is not like the other – even though they’re in the same condo complex!
The same goes in the bathrooms and bedrooms. You can even consider the quality of the furnishings in your vacation rental vs. your competition’s. Try to be objective – you may love your beat-in comfy chairs, but on a listing, they may not look as visually appealing as your neighbor’s brand-new recliners.
Narrow down your equivalent properties to five that are comparable to your own – and take a hard look at the numbers.
Know Your Booking Potential
Write down all of the pricing information available for your comparable properties. You may have to enter dates in the search engine to get a quote for nights at other times of year, but it’s worth the effort to get accurate pricing.
Group the prices you can find by categories like “high season,” “low season,” “Fourth of July,” “Christmas,” and so on. If one property has specific pricing for a holiday and another doesn’t, leave that space blank. You might wind up with something like this:
Many areas also have off-season boosts for holidays and large local events, so you’ll need to keep these surges in mind as well to remain competitive. For example, winter is usually high season for visiting Palm Springs, which means rates are a little lower in the spring – except around the Coachella festival, when properties are in high demand for festival attendees. Factor in any local events when creating your pricing chart.
Take the average of these rates by adding all of them together and dividing by 5, which will give you the following prices for each season using our example numbers above:
That average is a good starting point for your rates – but we can get more sophisticated than simply “competitive.”
Know Your Rental Goals
Once you’ve identified your competition’s average nightly rate, it can be tempting to out-price them. The higher your nightly rate, the higher your paycheck. Right?
Not necessarily. If there are 100 properties in your area and only 5 people interested in booking during the summer, it’s not good to be one of the highest-priced properties in the area.
If it’s high season and pretty much every property in the area will be booked every weekend, you can probably push your rates a little higher than average and still get a booking.
Your main priority should be setting rates so you get the best nightly rate possible – while still getting a booking.
Many owners neglect to think about whether they can get a booking at their nightly rate! You could set a property at $400 a night in this same area, but when comparable properties are going for $130, it’s very unlikely you’ll ever actually earn the amount you’re asking.
There’s good news, however: setting lower rates can often generate more revenue overall than higher ones. If you get 3 bookings of three nights each at $200/night, you’ll earn $1,800. Your neighbor, priced at $300/night, may only get one three-night booking in that time – and he only earned $900.
On paper, $300/night looks better than $200/night. But when you factor in that competitive prices get more bookings, it’s the lower priced properties that come out ahead in cold hard rental income.
Would you rather have a high nightly rate, or more money in your bank account? It’s up to you – but we’d pick the rental income every time.
Know Your Past
If you’re an experienced renter, you already have a great rate-setting tool in your arsenal: your rental history.
View every part of your history with a critical eye. Did you have a good summer last year? When did you notice bookings started to slow down? On average, how many bookings did you make last winter? Do you think you might want to adjust your pricing to account for more or less demand?
Experience brings information. By looking at your previous rental history, you can probably identify some trends you can use to your advantage.
For example, we noticed that in some areas, “summer season” doesn’t last from Memorial Day to Labor Day – though most owners price their properties as if it did. Looking at our previous success in the area, we noticed that the volume of rentals went down in August, rather than September.
We adjusted our pricing accordingly to be more competitive in September, and earned a ton of additional bookings for our owners. There were only a few travelers looking for properties in September, and we earned most of those bookings by pricing competitively.
You may not have multiple properties in a single area to draw data from, but long-time owners will have information spanning many years for a single rental. Take a good look at your previous history, and don’t accept “well, it’s the low season” for months where you made no bookings. Try adjusting your pricing, and see if you can’t pull in a little rental income even in the slow months.
Know Your Worth
When can you raise your prices higher than the competition? When you have social proof.
The more five-star reviews you have, the higher the price you can command. You still need to stay in the same general ballpark as your competition, but if the average price of comparable properties is $225, and they don’t have half the reviews you do?
Go ahead and price at $250. You’ll still get bookings, because renters are willing to pay a little extra for a sure thing.
If you’re just starting out or trying to get over some negative reviews, you may want to lower your prices to get a few bookings in the door first. Earn some great reviews, and you’ll improve the rate you can command over time.
Setting optimal rates and keeping them continually relevant is no easy task. It takes a keen eye for business, time, and consistent research to ensure your pricing acts as an asset and not a liability; however, cultivating industrial and regional knowledge is the best way to maximize your rental income and see a solid return on your investment.
Putting a little extra time and effort into your rates pays off. If your rates are optimized for success and your neighbors are flagging behind, you’ll bring in more bookings, earn more rental income – and achieve lifetime success for your vacation rental.
Evolve works with thousands of owners across the U.S. to make sure their rates are exactly where they should be for their season and market. Click here to learn how we help make every aspect of vacation rental ownership easier with dynamic pricing, amazing marketing, and much more.