3 Pricing Myths Limiting Your Vacation Rental Revenue
Dispelling Misconceptions About a Common Pricing Strategy
In the short-term rental industry, honing in on a pricing strategy that maximizes your revenue is vital to ensuring your return on investment. But the way that many rental owners look at pricing strategies is often fed by myths and misconceptions that are based more on feelings than on hard facts and figures. One of these misconceptions is that by setting a high price floor, or not allowing your rental to be booked lower than a certain price (the “floor”), you can maximize your revenue.
This is one of the common misconceptions about pricing strategies and it is just that–a misconception, with no basis in reality. When you look at the hard numbers behind the idea of a high price floor, they just don’t add up, but many vacation rental owners still believe these falsehoods and lose out on money because of it. So today, we’re dispelling these myths to give you a more realistic and fact-based overview of why having a higher price floor can actually mean lost revenue when all is said and done.
MYTH #1: Having a High Price Floor Makes You More Money
It’s simple math: charging top dollar for your vacation rental on every day of the year will earn you more total revenue, right? Wrong.
There are many variables that affect what someone will pay for a vacation rental at any given time. Potential guests are not always willing to pay a high price for a property when they can find a comparable one for cheaper. That’s why having a variable pricing strategy is best–during peak season, charging a static daily rate may work out, but in the off-season, your rental will end up sitting empty and not earning its expected profit, simply due to having a high price floor.
MYTH #2: Having a High Price Floor Can Prevent Wear and Tear
Many short-term rental owners decide to use a higher rate strategy out of fear of wear and tear. Wear and tear costs can keep even the most adept of investors up at night, and many believe that by setting a higher price floor and keeping occupancy low, they can prevent wear and tear costs from incurring.
But there’s a reason this is a myth: the unearned revenue that owners forgo for fear of wear and tear can easily surpass the increase in overhead due to high occupancy. Fear of wear and tear can lose you more money than wear and tear itself. With a variable rate strategy, as opposed to just a high price floor, you’ll more than make up for any increased costs incurred by normal wear and tear.
MYTH #3: A High Price Floor Can Preserve Property Value
Preserving property value is always important, especially if you plan to one day sell your vacation rental for a profit. However, setting a high price floor and keeping occupancy low for fear of affecting property value may not give you the results that you’re looking for.
Just like with wear and tear, the potential revenue earned from having a variable pricing strategy more than outweighs any advantages that a higher price floor will in preserving long-term property value.
Take the Guesswork Out of Pricing Strategies
When you look at the whole picture, it’s clear that many owners use their pricing strategy as a way to keep occupancy low, mainly motivated by fear of potential overhead. However, keeping occupancy low is not a sound strategy to maximize your revenue potential, even if it may give you a small advantage in preserving the state of your property.
That’s why LocalVR created a custom, proprietary pricing software that helps us figure out exactly the right price–to take the guesswork out of setting your rate strategy. Our software analyzes a huge number of variables to ensure that our rentals are set at the right market price to maximize revenue and earning potential. Unlike just setting a high price floor and forgetting it, which is only one piece of the pricing puzzle, our variable pricing strategy caters more to what consumers are looking for, therefore increasing bookings and stays at your rental property.
There are lots of myths and misconceptions surrounding the best ways to price short-term rental properties, but none of them are driven by hard data and real-life experience like LocalVR’s proprietary pricing software. Take the guesswork out of your pricing and trust it to the numbers–you may find that your revenue potential will explode.