08 - 11 - 2021

STR Pricing & Revenue Challenges

In 2018, Transparent found that 20% of Property Managers update their prices only once a year, 11% only once every quarter, and 17% only once a month. This means that nearly half of the Property Managers in a given market are pricing their listings incorrectly.

 

On the one hand, pricing & revenue management is a full-time job requiring daily supervision, so, understandably, smaller operators may not have the time or resources to tackle the problem. On the other hand, a solid pricing strategy and good revenue management are critical to the success of any short-term rental host, especially those looking to grow their business. Even for those that aren’t scaling, if they aren’t managing their pricing & revenue properly, they are surely leaving money on the table. 

 

The challenges around pricing and revenue management are vast, and there are many different variables to consider. It can be intimidating for hosts who may not know where to start with developing a strategy, so below we will discuss six of the biggest challenges around pricing and revenue management that should be considered.

 

Base Price

 

Determining a property’s Base Price is the first step in any pricing strategy, and perhaps the most critical to get right. You can think of this as the average price for your listing for the year. During high-demand seasons, your daily rate should be adjusted upwards from the Base Price, and the opposite is true during low-demand seasons. 

 

If you’re able to establish an accurate Base Price for your listings, then optimizing and adjusting your price down the road will be much easier. Alternatively, if you get the Base Price wrong, you’ll have a much more difficult time when you need to adjust for seasonality and other factors.

 

Many factors will go into determining the Base Price for each of your listings, such as number of bedrooms, number of bathrooms, location, comp sets, historical data, and much more. 

 

It’s also equally important to define a minimum price during this step so that you know what your floor is. This is done by calculating your total operating costs so that you can identify what your break-even point is. 

 

Optimizing Rates

 

How you optimize your rates depends on your revenue management strategy. There are MANY things to consider when developing your pricing and revenue management strategy, such as Location, Length of Stay, Comp sets, Occupancy, Seasonality, Historical Performance, and Revenue Goals. 

 

One key metric to measure the success of occupancy and price is RevPar (Revenue per Available Rental). RevPar is calculated by multiplying your ADR (Average Daily Rate) by your Occupancy rate. Generally speaking, the higher your RevPar, the better your property is performing. 

 

Optimizing Length of Stay (LOS)

Another key component of your pricing strategy will need to be optimizing for Length of Stay. You want to make sure that your minimum stay policy is in line with market demands while keeping in mind that longer stays are usually more beneficial for hosts because they generate more revenue at a lower cost. While you may want to encourage longer stays as much as possible, you probably don’t want to have a 4-night minimum for a property located in a popular weekend destination.

 

Good data here is key. If, for example, 30% of bookings made during a season are for 7+ days, then there is some demand for mid-term bookings, but there is more demand for shorter stays. You could incorporate a hybrid pricing strategy for short and mid-term stays to help drive revenue on those bookings. 

 

Occupancy Adjustments

The relationship between Occupancy and ADR is complex. When you have a period of low occupancy, you may want to consider lowering your rate, however, keep in mind that there are inflection points where dropping your price any lower will not result in higher occupancy. This is important to remember as you make occupancy-based price decisions.

 

Seasonality

Depending on your market, one of the biggest factors affecting pricing may be seasonality. If you host guests at a popular ski resort, for example, your peak season where you’ll make the bulk of your revenue will be Winter. By contrast, Disney World attracts a steady stream of tourists to Central Florida year-round, although there are still peak seasons. Nevertheless, you can see that some destinations are more seasonal than others.

 

It’s important to take high, low, and shoulder seasons into account when planning your pricing strategy. You need to strike when the iron is hot during peak seasons, and you also need to know when it’s time to reduce prices during shoulder and low seasons. 

 

Filling Orphan Nights/Gap Days

Unless you force Sunday to Saturday stays, then filling “Orphan nights” (1 or 2 day periods between bookings) is almost certainly something you’ll have to deal with. There are several approaches that you can take here and we’ll cover a few below. 

 

One option that you have is to offer the Orphan night(s) to the guests staying before or after, albeit at a discounted rate. If it’s a single night which would be troublesome to book or go unbooked otherwise, then even a 75% discount would be worth offering. The guest would likely appreciate the gesture and be more likely to leave a positive review as well. 

 

Another option is to adjust your minimum stay during the periods where you have gaps to try and fill them. You can try to lower or raise your price when adjusting your minimum stay depending on your situation, as I’ve heard valid reasons for doing both. The logic behind lowering your price on Orphan nights is that you want to fill those days and we all know that something is better than nothing. On the other hand, if you catch the Orphan nights far enough out, you can try raising your price and then lowering it progressively as the date approaches, allowing you to maximize revenue on those shorter stays.

 

A New Alternative

If all of that seems like a lot to consider when planning your pricing strategy, that’s because it is. Truth be told, these are only some of the things that good revenue managers have to consider when coming up with a solid pricing strategy. 

 

It’s for that reason that revenue management remains one of the most crucial roles in a short-term rental business, even with the emergence of the many automated pricing tools available today. I’ve heard some people say, only half-jokingly, that you need a PhD in order to manage and operate some of those tools. 

 

This is one of the biggest reasons why Jurny Virtual was created. We recognized that modern-day hosts simply don’t have the time to become experts in data analysis just so that they can run a successful business. With Jurny Virtual, our team of industry-veteran data experts leverages real-time data combined with AI-powered pricing models to optimize each and every listing and maximize revenue for our partners. 


For a limited time, Jurny is looking to partner with a select few short-term rental operators and owners to optimize their listings and maximize revenue. Please Contact Us if you are interested in a partnership with Jurny.