The Pros and Cons of Different Vacation Rental Pricing Strategies
Exploring Short-Term Rental Pricing Strategies
Improving the health of your vacation rental is not an easy task, but if your business isn’t doing as well as you’d like, the first thing you should look into is your pricing strategy. Intelligently pricing your short-term rental can not only help you to beat the competition, but it can also boost all of the important KPIs that tell you how your rental is performing, allowing you to maximize your profits as well.
But what pricing strategy is best, and what are the drawbacks of each type? That’s what we’ll explore in today’s blog. Join us as we dive into the pros and cons of static pricing, seasonal pricing, and dynamic pricing.
Static Pricing: The Bygone Days of Vacation Rental Pricing Strategies
The first type of pricing that we will cover is static pricing. Back before the introduction of sites like Airbnb and Vrbo, many rental owners kept their prices exactly the same throughout the year because demand was fairly stagnant. However, most vacation rental owners no longer utilize this type of pricing strategy because demand varies significantly throughout the seasons and holidays.
The Pros of Static Pricing
Set It and Forget It: The beauty of this type of pricing strategy is that you don’t have to do much work determining what your price will be each and every day of the year–all you have to do is set it and forget it. While you may make adjustments due to inflation or expenses, for the most part static pricing will always stay the same.
Guests Know Exactly What Price They’ll Pay for Your Vacation Rental: Guest loyalty was a big factor in the early years of the vacation rental industry, and when you utilize static pricing, guests will know exactly what rate they’ll be paying because it doesn’t change throughout the season. They come to rely on this, which keeps them coming back year after year.
The Disadvantages of Static Pricing
You’re Leaving Money on the Table: The main drawback of a static pricing method is that you will not make as much as you would with a demand-based pricing method. Because demand doesn’t match up to pricing, during different periods of the year you’ll be sold out. Other times, you won’t have any reservations to speak of. With a pricing strategy that hones in on demand, you’ll be able to better match up your prices to the market and gain more reservations throughout the year.
Seasonal Pricing: The Early Days of Demand-Based Pricing
Seasonal pricing is yet another artifact of the early days of the vacation rental industry, although many owners still utilize it to this day. In some places, demand is completely dictated by and dependent on the season of the year, while in others, there is a singular event that demand is based around. This means that owners can charge a higher rate during these periods of the year and will typically charge lower prices during the off-season or shoulder season.
The Advantages of Seasonal Pricing
Your Pricing Matches Up with Demand: Seasonal pricing works well because, unlike a static pricing strategy, your average rate better matches up with demand. This can improve the overall health of your business and allow you to better maximize your profits.
You Can Set Your Rates as Far Out as 12 Months: When you know which seasons of the year are the most competitive and which ones are your worst-performing, you can set your rates and forget them as far out as 12 months. Of course, you should always be checking in to see if your nightly rate is too low or too high in comparison to your competitors, or you could be leaving money on the table.
Why Seasonal Pricing is Falling Out of Style
Seasonal Pricing Doesn’t Maximize Your Revenue: While seasonal pricing does factor demand into your nightly rate, it doesn’t always allow you to maximize the amount you’re making from each available night. There may be some nights where your projected rate is too low or too high based on various factors, and that could mean that you aren’t making the profit or getting the occupancy rate that you expect.
Dynamic Pricing: What It Is, and Why It’s the Industry Standard
The final type of pricing strategy that we’ll explore in this blog is dynamic pricing, perhaps the most popular pricing method in the short-term rental industry. This type of pricing method takes into account not only demand but other various factors as well, including real-time market data and conditions, to price your rental at the perfect price, each and every night.
Why Demand-Based Pricing is the Industry Standard
Boost Your Revenue: Because dynamic pricing strategies are based on real-time market data, you’ll always be able to get the right rate, every night of the year. Rather than setting your rates and forgetting them, dynamic pricing software allows you to boost your revenue by following current trends and conditions in real-time.
Stand Out from the Competition: Many vacation rental property managers still utilize seasonal pricing, and when you use a dynamic pricing strategy, you’ll always be able to beat the competition that is still using strategies from days past. Plus, you’ll be able to compete with all the other rentals utilizing a dynamic pricing method as well.
Your Gateway to a Dynamic Pricing Strategy: LocalVR’s Full-Service Property Management
For those of you who aren’t well-versed in pricing software or pricing strategies in general, setting up dynamic pricing yourself can be difficult. However, when you have a full-service property manager behind you who prides themselves on reviewing the latest market data and utilizing the best pricing tools available on the market today, you can be sure your rates are where they need to be. To learn more about LocalVR, click here.
To find out more about pricing myths and why dynamic pricing can boost your STR business, check out more of LocalVR’s Owner Guides.