How to Make the Most of the High Season with Dynamic Pricing
The goal is to make as much revenue as possible in the seasons, but you should correctly be using data to determine how much and when to price your properties
When I got into the short-term rental industry and started adding more vacation rentals to my portfolio, I realized I needed a way to analyze data and maximize profits during the high season. I had too much information that I wasn't looking at closely enough, and it was ultimately costing me money. This is when I realized I needed to adopt a strategy to change my pricing based on demand, or dynamic pricing. It is also known as price optimization, or in the short-term rental world, revenue management. You know what this is--dynamic pricing is a widely used tool used by many industries like airlines, hotels, ride shares, and even supermarkets.
Using dynamic pricing efficiently helped me to improve my revenue, margin, and to be more efficient [in making profits]. Doing it successfully needs a lot of factors to be taken into account, but it's easy. You need to give this a lot of attention so you can accurately monitor your rates, look at your competitors, check what's going in the area of your property, and be ready to change pricing. Basically, you need to analyze your data constantly to inform your pricing and make profits.
Data, data, data:
Start with looking closely at your inventory data. This should be the basis and foundation that is used to inform other decisions you'll need to make to accurately price your properties.
• Occupancy:
Knowing the ins and outs of your properties' occupancy data can give you a lot of relevant information, for example if you have many bookings on one property, and not enough bookings on another. This seems very basic and simple, but knowing the exact numbers over specific time spans will allow you to start correctly analyzing why one property isn't making you profit and bringing in the forecasted revenue. This is where you can change the pricing on those properties accordingly. If you don't know your data, you won't know to change the prices.
• Check competitors:
You should be constantly looking and analyzing the pricing in the entire area your properties are listed, daily or at minimum weekly. Competitors can include the same type of properties as yours, the same rental platform, other rental platforms, and hotels. Are their rates going up suddenly or are they low? Why is that? Dynamic pricing.
• Price accordingly:
Knowing when to change the pricing based on demand needs you to be flexible. Once you've analyzed your occupancy data and looked at other competitors, if you see that if property is completely booked up 90 days out, say for example 60% of the time, you're doing something wrong…basically you're pricing it too low. You can increase the price a bit to correct for market demand. If your property isn't doing well however, and it's high season, you can tempt potential renters with discounts, or flexible offers.
• Timing:
Monitoring your data to get a big picture will help you determine pricing, but looking too far in advance can give your distorted picture. The best timing for me has always been 60 days. Pricing and other factors change too much to give you a good forecast for revenue. Paying attention to other factors around timing can also inform your whole picture for better pricing:
• Events:
Being acutely aware of what is going in your area is vital to dynamic pricing. This is more than just low and high season, you should know if there's going to be a popular festival coming up, or a popular concert in your area (is Taylor Swift performing in your city?), for example.
• Get those early bookers:
Knowing how to price in advance can benefit your revenue and profit margins. Early bookers are people who have booked your property way in advance, paid up front, and least likely to cancel--they've likely booked flights and a vacation.
The bottom line:
Dynamic pricing can also bring problems you should be aware of: if your prices are too high, people won't book your property. But if it's too low, you can lose money. By using dynamic pricing, you're disrupting the demand. Analyze your data and make informed decisions on changing the pricing of your property to maximize occupancy and profits in a smart way. Technology has transformed dynamic pricing, as AI can crunch large quantities of data within seconds and give you great reports. There are many AI tools out there that can help you in dynamic pricing. So keep looking at your data, check your competitors, price according to seasons and events, and maximize your revenue!