Want to learn more about dynamic pricing and yield management?
Is there a festival or event occurring in your location on the Sunshine Coast?
If so, depending on the event it is most likely that demand for accommodation in the area will increase and your properties rates should reflect this.
Is the peak season over or is it a traditionally softer month?
If so, then it is time to adjust your pricing accordingly to meet the market and incentivise bookings to maximise revenue.
After all one of the key objectives of owning a holiday home is to maximise its yield. One of the best ways to achieve this and leverage rental income is through proactive dynamic pricing and yield management. Is it time for you to adopt a dynamic pricing strategy to optimise your short-term rental return?
This blog aims to define the core concepts associated with dynamic pricing while also outlining its key benefits.
What is dynamic pricing?
Dynamic pricing (or real-time pricing) refers to the process of proactively adjusting rates based on live market conditions. It is particularly impactful when used in the vacation rental and accommodation industry which see fluctuations in demand based on seasonality, holiday periods, and events. The short-term rental and holiday home market in particular, is influenced by and can also see more volatility in relation to supply.
Dynamic Pricing Software
The idea and concept behind dynamic pricing software is to leverage technology to automatically adjust rates based on a variety of factors and metrics that indicate guest behaviour at any one time and that contribute to and are characterised by supply and demand as well as other market conditions. Such software can work for you by both generating greater efficiencies while also staying in touch with the market in real time and outperforming your competitors by boosting occupancy and increasing your earnings. The software will never miss a spike or drop in demand allowing you to maximise your opportunity to secure bookings and improve your yield.
Some popular short term rental pricing software solutions are the products Pricelabs and Beyond Pricing, however there are a number of alternative pricing software solutions also on the market.
https://www.beyondpricing.com/
How do algorithms calculate dynamic rates?
Tools such as Pricelabs assist operators (holiday home managers) to maximise yield and deliver dynamic pricing strategies. They can be integrated with property management systems (PMS) and push pricing through the PMS to selected distribution channels (Online Travel Agents (OTA’s) or other).
Automatable pricing software looks at a range of market metrics inclusive of:
- minimum length of stay (exposure) which can be dynamic.
- pick up (booking activity/demand).
- lead time (can assist in determining when inventory is distressed).
- pacing (how a property is performing in terms of future bookings against itself and the market).
- competitive data sets for “like” (bedrooms, bathrooms, locality, etc) properties (pricing and occupancy).
- orphan days (these are dates when booking rates are low or periods that are shorter than the minimum length of stay (gaps in a properties calendar)).
- pre-determined pricing inputs (minimum rate, price ceiling, etc).
Although this is by no means an exhaustive list of the metrics a pricing algorithm will consider, it hopefully provides some insight into how this type of software works. The aforementioned metrics mean that appropriately managed pricing software will always consider the day of the week, season, upcoming holidays or events, and where booking rates are either high or low. Depending on circumstance the tool will maximise the rate or discount relevant days to incentivise guests to book.
While these tools can be automated It should be noted that results can differ and while dynamic pricing software is a powerful tool in the context of yield management, a tool is only as good as its user. It is recommended that if outsourcing this task that you choose an experienced yield manager. A property management solution with the relevant yield management experience can utilise their accommodation management expertise to control software inputs, apply knowledge of local market conditions, develop overarching yield management strategies and competitive data sets, and provide appropriate oversight.
Top 3 benefits of using dynamic pricing
Boosting Occupancy
Occupancy is particularly important within the short-term holiday rental industry as assets are either 100% occupied or 100% empty. Every vacant night equates to zero revenue. Dynamic pricing in this context relates to adjusting pricing to entice travellers and secure bookings during quite periods.
Software appropriately used can assist in maximising occupancy rates by setting rates based on supply and demand. While it is absolutely integral that higher prices are set for high demand periods, incentives such as discounts and special offers can be automatically applied to low demand nights.
Maximising profit
Yield management is not all about occupancy and discounting, however. Dynamic pricing and appropriately used software solutions allow an operator to optimise nightly rates for each and every booking based off the market at the time. Getting this right will maximise your profit at all times.
If rates are set too high you can miss out on potential bookings and revenue, likewise if prices are set to low you will not be maximising your income. When this happens over a period of time it can represent a significant disparity in revenue.
Outperforming your competition
Vacation rentals and the holiday home market is a growing sector and as supply increases it is becoming a very competitive marketplace. Advancements in technology and the rise of third-party distribution channels (online booking sites) has made it easier for travellers and potential guests to compare pricing between different accommodation providers.
Dynamic pricing software assesses the market as well as reviewing competitors pricing, allowing adjustments where appropriate to stay ahead of the curve, it will not miss a demand increase. Being able to be nimble in an ever-changing market can allow you to stay ahead of your competition by being proactive with your yielding strategies as opposed to reactive.
While manual pricing will never deliver equivalent results it is important to note that pricing software alone will not guarantee that you maximise your yield. Suitable expertise and oversight of such tools will provide the best returns. If you want to maximise your rental profit, please don’t hesitate to reach out to see if we can help you. We have highly skilled staff with significant yield and accommodation management experience as well as a proven track record of success. We strive to assist property owners maximise their returns while saving them time and offering 5-star guest experiences.
Don’t hesitate to get in touch to see how we can help.
