5 Strategies to Increase Vacation Rental Profitability in 2016
From 2013 to 2014, vacation home sales rose 57.4% and almost 90% of those are on their way to the rental market right now (Washington Post, HomeAway). As vacation rental management companies (VRMC’s) embark on strategies and budgets for the coming year, consideration must be given to the increasingly demanding expectations of owners and guests.
The revenue bar is set higher every year as vacation rental occupancy rates reach record levels and prominent listing sites such as HomeAway report a 3,000% return on investment for owners (Reuters). Increasing expectations even further, 73% of hosts report the intention to recoup all of their expenses with their vacation rental, up from 46% in 2008 (Tripping). With multiple sites facilitating owner direct access, it’s all-too-appealing for owners to bypass their own VRMC’s attempting to reduce costs and increase revenue.
Guests, on the other hand, have more vacation rental choices than ever before. A humorous but telling infographic reports there are 555 castles, 188 boats, and 9 restored cabooses for rent—on just two vacation rental sites. The volume of the extremes pales in comparison to the number of average condominiums and one-bedroom, one-bath homes currently listed. Otherwise put, guests have their pick of the litter and only vacation rentals with competitive rates, stellar reputations, and expeditious communication will capture new business.
VRMC profitability has become increasingly elusive given these demands. Every aspect of operations must be optimized to maintain a healthy bottom line when owner percentages are high, guest needs are increasingly expensive, and guest acquisition costs can reach 20% or more.
There is no time like the present to consider strategies that will increase profitability while still satisfying owner and guest needs.
1). Maximize the value of vacation rental leads
Each and every lead has value. While the value of an inquiry depends on a variety of factors unique to every vacation rental, that value can be increased through better lead management and the creation of an outbound sales program. With most VRMC’s fielding leads from a variety of on- and offline sources, listing lead management, ideally with automated reply systems, streamlines inquiries. Not only will every lead get attention, the speed of response—which factors substantially in conversions—is increased. Supporting an optimized lead management program with an outbound sales program, which follows up on unbooked reservations, impacts the bottom line in extraordinary ways. Depending on the level of effort and rates built into an outbound program, VRMC’s can see between $500,000 to over $1M in revenue by converting unbooked inquiries into reservations.
2). Build guest loyalty & increase repeat guests
Those previously unbooked guests from above are valuable not only for their first-time revenue but also for their potential to become repeat guests. Put energy behind projects that build loyalty and profit, such as LifeCycle marketing campaigns that encourage repeat guests by segmenting and automating outreach to past guests with packages and promotions tailored to their interests. With an increase in repeat guests, most VRMC’s see likewise a decrease in guest acquisition costs.
3). Optimize vacation rental reservations
Approximately seven in ten U.S. dollars spent on vacation rentals were booked offline last year (Travel Industry Wire). With 70% of revenue coming in via the voice channel, VRMC’s have a profitable edge when they ensure the reservations team has access to efficient technology that transforms data into actionable intelligence on highly profitable inbound calls and helps them deliver a better guest experience to convert more bookings.
4). Employ actionable analytics then act
Understanding open rates, click-through rates, and campaign conversions only have value when the analytics are used to effect change, establish trends, and create smarter, more lucrative marketing programs. Pair valuable on- and offline tracking with nuanced changes to email marketing, voice sales, and online campaigns. For instance, rather than purchasing campaign lists, segmented NAVIS Reach campaigns with a hospitality-specific CRM to previous guests show 3 times the increase in CTR and 13 times the number of bookings when compared with industry averages for email campaigns through basic email tools.
5). Tactics to increase market share
The popularity of vacation rentals is not the result of vastly more travel demand; it is the product of capturing market share from other sources, namely traditional lodging. With increased inventory competition among private accommodations, strategies must be aimed at shifting market share away from not just hotels but also other vacation rentals. To accomplish this, consider where your VRMC stands on competitive rate intelligence, reputation management, inquiry routing strategies, and 24/7 overflow and after-hours call coverage.
A carefully crafted strategy addressing each of these five strategies in the coming year is fundamental to gaining a profitable edge when it comes to increasing competition and growing owner expectations.