There are more ways than ever to rent your vacation property out. These different marketing channels each have their own benefits and in total can offer you the ability to keep your properties full with guests. However, whenever you add additional marketing channels, this comes with additional work to manage each channel as well as coordinate between them to avoid collisions.
There are some companies that will help you to manage this for a fee. This software they provide can be especially helpful for coordinating calendars, but they are not so accommodating when it comes to pricing as different marketing channels are often secretive to a degree about pricing. There isn’t really any way around configuring pricing though, because you need to do some work here to fit into the scheme that each channel offers.
Prices May Vary By Marketing Channel
Even if pricing could be standardized, you might want to vary the pricing for each one based on differences in booking, take home income, customer makeup /expectations and the specifics of your offering. After all, one of reasons to use numerous marketing channels is to get different kinds of customers to your property. Your specific offering could vary for each one and hence might have different pricing.
In practice, the way we work this is to vary pricing by the expectations of the length of stay, expected take home income and also accommodations. We charge different rates if guests are expected to stay a shorter length of time. Also, we vary prices because we offer different service level based upon the expectations of the guest as well as local custom.
Market Channel Offering Differences
There are cases when you might want to offer different prices in various marketing channels. We have made adjustments like this, typically for the reasons that we mention below.
Service Offering Differences
One example of this is the difference in our offering for in-season versus out of season beach rentals. During the in-season, it is traditional that guests provide their own sheets and linens. This is a custom that goes back many years due to the lack of laundry facilities as well as the quick turnover of properties that occurs.
There just isn’t time to launder linens in that time frame. For out of season customers, they may not know about this custom or they could even be from overseas and not have the ability to easily provide their own linens. For these customers, we offer linen services.
The price of the stay is adjusted to reflect the cost difference in the service offering.
Marketing Cost Differences
When you use a third party to acquire a guest, their fees are the marketing cost of acquiring the guest. Anytime you can eliminate this middleman you can offer the guest a discount because the marketing fee has been eliminated.
There are a few ways that you can eliminate the middleman:
- Acquire the customer on your own website.
- Acquire the customer from your friends/family network.
- Setup an email list to convert fee-based acquired guests to your own guests.
How To Approach Pricing
Before you can adjust pricing based upon the offering and other factors, you first need to know a few numbers. The three prices that you will want to calculate are Market Price, Guest Parity Price and Owner Take Home Rent. In order to be able to offer discounts or charge premiums, you first need to know all these prices. What the market will bear. What the parity price is across your channels. Lastly, what you actual take home rent will be.
Here are the definitions:
Market Price – This is the fair market price for your rental, adjusted for factors such as length of stay, in/out of season, competition, days left to rent.
Guest Parity Price – This is the price that the guest actually pays, including all taxes and fees. Use this price to gauge parity between marketing offerings.
Owner Take Home Rent – This is the price for each marketing channel that offers the same take home income, after all fees, taxes and commissions.
Ideally, you want it all. Get the maximum market price renting at the maximum number of days. Also, you want the most take home income and if possible also offer the guest the lowest possible price.
When you look at each price across your marketing channels, it will become clear that some channels will be better financially than others. You will want to steer your guests to those channels whenever possible.
A Few Words About Price Transparency
Pricing has become more complicated with the advent of online booking sites. There are numerous sites that allow you to book your property online, the most prominent examples are Airbnb, VRBO, and Homeaway. Before these sites were available, calculating pricing was relatively easy. If a third party manager was involved you simply paid them a commission off the top of the rent you collected. You would know exactly what your guest paid as well as what your take home income is.
Online Marketplaces
Airbnb and Homeaway, et. al., have complicated this in a couple of ways. First, they split their fees between the owner and the guest. So, a guest will pay “rent” plus other fees on top. The owner will also pay fees (typically to cover credit costs) that will adjust what their take home rent will be.
Many online rental marketplace do not have price transparency, or they make it difficult to determine. There is no other way to say it. This will make it more difficult to determine price parity across marketing channels.
So, you will need to do an additional calculation to determine what you will actually put in your pocket. Second, these sites do not offer full transparency on how they actually calculate the guest commission. These commissions are calculated based upon length of stay, daily price, plus probably other criteria that are not shared.
The only way to determine fully what the guest commission works out to be is to experiment as a guest. Airbnb offers some assistance in their Smart Pricing tool that provides some information. Smart Pricing offers pricing tips as you setup pricing on your calendar. We have found that if you select recent dates, they will also offer a guest price calculator as shown below which reveals total guest charges.
Click for larger version
When a guest books, you can go to the booking receipt and find out what the guest actually pays. Better late than never?
The sites below charge the approximate rates below for guest commissions.
- Homeaway: 5-10%
- Airbnb: 6-12%
Using Airbnb’s own guest pricing tool, we have found that short stays have commissions as high as 14.5% (this is not typical – this would apply for a single night stay). For the purposes of demonstrating pricing in the rest of this article, we will use a commission of 10% or 12%, which is close the actual commission for a sample 7 day stay at $3500 for the full week.
Government Taxes/Fees
Another cost that needs to be considered is government taxes and fees. In recent years, governments have become more attuned to small owner rentals. They have affected the marketplace for commercial hotel accommodations. The hotel lobby has been making their case.
The result is that your vacation rentals will likely incur tax and fees, if they already haven’t. These fees are typically more commensurate with what accommodations guests might pay at a commercial hotel.
These taxes and fees are almost certainly paid by your guests. If they do not pay them (e.g., you acquired the guest yourself), then you would need to charge these fees to your guests.
If you want to offer your guests a consistent “all-in” price you will need to add these additional fees to the summary.
Believe it or not, in some jurisdictions, these taxes might not apply to all rental situations. We have seen cases where the real estate industry has successfully lobbied to get real estate agent rentals exempted.
Determine Your Market Price
There is some art and science in determining market prices.
For your in-season weeks, you probably already have a good idea about what you properties can rent for. The market for your in-season weeks is strong. There is usually good information that you can acquire from local agents. Also, your own rental history will offer you insight. Look at your rental history. Do your in-season weeks rent quickly or slowly? Do guests ask for discounts? And so on.
As a practical matter, we try to set our prices below market rates. We want to offer value. Also, we want the properties fully rented.
Out Of Season Weeks
For your out of season weeks, you may need to experiment. Here’s how to experiment:
- Look at your competitors pricing.
- Consider pricing tips on Airbnb and other sites.
- Use your own pricing history or a comparable offered by local professionals.
- Offer the customer lower minimum rental period (days instead of a week, e.g.)
There may be some weeks that you will offer for rent on multiple channels in both long term (by the week) and short term configuration (by the day). If a weekly rental is not a strong rental, you may settle for a lesser rental. For these cases, you could price each day separately. Generally, weekend days are more desirable compared to weekdays. For a $3500 weekly rental, a daily rate could look like the following table.
When offered as a weekly rental, you would charge $3,500. For a short term rental with a shorter minimum stay you can capture more rent by adjusting the weekend price. These options will provide the opportunity to rent to a wider group of potential customers.
| Saturday | Sunday-Thursday (per day) | Friday |
|---|---|---|
| $625 | $450 | $625 |
Determine Guest Price Parity
Guest Price Parity is the rent price that you would need to set in each marketing channel that offers the same pocket price. This means that if a guest uses any of your marketing channels, they would pay the same amount of money. This includes commissions, fees, and taxes.
For the purposes of this calculation, we assume that cleaning charges or other surcharges on the booking will be combined into the total rent.
Consider a 7 day rental for $3,500. Note that this $3,500 gross number is what the out of pocket cost is for the guest. In order to calculate what the rent should be in each channel, you need to back out the other costs.
Sample Weekly Rental
In the table below we offer a sample calculation.
Let’s consider the following marketing channels as an example: Owner (offline), Owner (online), Realtor, Airbnb, HomeAway.
For the purposes of this discussion, we assume that all rents require the same taxes and fees. For this example, we assume a flat 5% tax.
Guest Parity Pricing
| Guest Parity | ||||||
|---|---|---|---|---|---|---|
| Target Rent: $3,500/week | Payment Type | Owner Commission/Fee | Guest Commission/Fee | Listing Price | Taxes (5%) | Owner Take Home |
| Owner/Private | Check | 0 | 0 | 3325 | 175 | 3500 |
| Owner/Website | Credit | 3% + $50 | 0% | 3325 | 175 | 3345 |
| Realtor | Check | 12% | 0 | 3325 | 175 | 3058 |
| Realtor | Credit | 12% | 3% (credit charge) | 3225 | 170 | 2938 |
| HomeAway | Credit | 8% | 10% | 3044 | 152 | 2800 |
| Airbnb | Credit | 3% | 12% | 2992 | 150 | 2902 |
Pricing Observations
In the above table note the wide variety of outcomes in terms of rent as well as take home income. This is due to where charges occur and who pays them. For example:
- Renting on your own is better for both parties.
- Realtors will charge the owner the commission from rent.
- Realtors will charge the guest the fees when they use a credit card.
- Online booking sites charge the guest the commission.
- Online booking sites charge the owner the fees when a credit card is used.
It is completely backwards! This is the main takeaway. Since the charges occur in different places, the rent needs to change. The quoted rent price is adjusted to offer the same out-of-pocket price to the guest.
Determine Owner Take Home Rent
If you want to take home the same rent regardless of marketing channel, calculate Owner Take Home Rent. In the following table, we assume that you are willing to pay a 12% commission for that same $3500/week rental. This works out to take home rent of $3080. We use the same marketing channels.
Take Home Rent Table
Owner Take Home Rent
| Owner Take Home Pay | |||||
|---|---|---|---|---|---|
| Target Take Home: $3,080/week | Guest Payment Type | Owner Commission/Fee | Guest Commission/Fee | Listing Price | Owner Take Home |
| Owner/Private | Check | 0 | 0 | 3080 | 3080 |
| Owner/Website | Credit | 3% | 0% | 3227 | 3080 |
| Realtor | Check | 12% | 0 | 3525 | 3080 |
| Realtor | Credit | 12% | 3% credit charge | 3649 | 3080 |
| HomeAway | Credit | 5% | 12% | 3850 | 3080 |
| Airbnb | Credit | 3% | 12% | 3624 | 3080 |
Pricing Observations
In the above table, it is evident that renting your vacation property on your own is better for everyone. The guest pays less and you put more money in your pocket.
This is a useful exercise but keep in mind that the market determines your actual rent that you can charge. This information can be useful to help you determine if/when you want to rent. If the take home income doesn’t meet your expectations, you will find out here.
Summary
If you offer your property to guests from different marketing channels, you need to know how to price your property based on what the guest actually pays and also your own expectations on what you want to collect in take home rent. The posted listing price doesn’t take into account all the costs for some marketing channels that guests pay and also the costs that you pay. Knowing these costs upfront will help you to determine how to price your property efficiently.
