By Doug Kennedy -As sales trainer for lodging companies of all types, my career allows me to peek behind the scenes at virtually all types of lodging facilities. I have trained the world’s largest hotel at 7,000+ rooms along with upscale inns of less than 20. I’ve trained all-inclusive resorts, theme park hotels, National Park lodges, airport hotels and convention center properties; branded properties and independents ranging from five star luxury to economy lodging.
I’ve also provided training for vacation rental companies in all types of destinations, from the beach to the mountains, ranging in size from 20 to 2,000+, some renting only condos and some renting only luxury homes.
Interestingly, when it comes to sales and guest service excellence, most of the same training concepts apply regardless.
For example, sales always requires listening interactively, asking the right investigative questions to discover “the story behind the call,” and providing descriptions that allure and entice versus listing and informing. Providing excellent service always comes down to making emotional connections, anticipating needs, and bringing out the best in the guest’s personality.
As I often say in my workshops, the Motel 6 is someone’s Ritz-Carlton; creating loyalty always comes down to exceeding expectations.
Yet there is one lodging business process that is significantly different when it comes to the vacation rental space versus the traditional hotel industry; the process of revenue and yield management. There are some fundamental reasons why managing revenue and maximizing yield is very different and much more challenging in the vacation rental space:
- In a hotel, the main tool for benchmarking performance (until recently) has been RevPAR, which is revenue per available room night. In short, this is basically the total revenue for any given time period (such as one night) divided by the total number of rooms for that time period. Whereas a hotel always has the same number of available rooms, in the VR industry a) the number of rental units varies from one year to the next based on owners joining or leaving the rental pool, and b) the availability of the units in the rental pool varies each time period according to owner’s own usage.
- Also, for many companies, there is a huge variance in the revenues generated by some top-tier properties versus the lowest-rated accommodations. (For example, inventory might include five bedroom beach houses along with one bedroom condos.) So the revenue per available rental night (RevPARN) would be greatly skewed by having significantly more higher-rated homes rented or not rented.
- Similarly, since VR companies work on a commission basis, the commissions (and thus revenue stream) can often vary by accommodation type. In other words some companies negotiate lower commissions for homes with higher rents. If you only look at RevPARN you cannot effectively measure how well you are actualizing company profits.
- Next, whereas most hotels make the majority of their revenues from the room rentals, most vacation rental companies have a significant portion of their income coming from booking fees and other fees. (Some resorts and a few hotels do charge a per night resort fee but the revenue stream is minimal compared to rooms revenue.) Also, the formula by which fees are allocated between the owner and the rental manager oftentimes vary from one owner agreement to the next and certainly from one company to another.
- Full-service hotels and especially resorts have a huge “revenue per guest” opportunity beyond the room revenues, such as food & beverage, golf, skiing, and spa charges. This is why the hotel industry is increasing focusing Revenue Per Guest or RevPAC (Revenue Per Available Customer) even more so than RevPAR. While some luxury rental companies do generate revenues such as rentals of beach amenities, rental cars, and commissions on the resale of excursion or attraction tickets, this is generally far less than rental income.
- For many markets, the VR industry is highly seasonal. There is a lack of price elasticity. Whereas hotels can sometimes generate new demand by dropping rates during periods of low demand to steal market share from competitors, there is no reasonable rate low enough to encourage someone to come to the Carolina Beaches for a week long vacation in the middle of January or to visit a ski destination during mud season in November and April.
These above factors combine to make it more challenging for VR managers to practice revenue and yield management.
Yet there are even greater challenges for those who want to practice the profession of revenue and yield management in the VR space; a lack of data, and a lack of technology systems to process the data into actionable information.
For example, the biggest single factors that enabled the hotel industry to evolve to the next level, starting in the early 1990’s, was a) the debut of the STR Report and b) the introduction of technology-based systems for tracking booking pace.
In 1988 a guy named Randy Smith, who had recently founded a small business called Smith Travel Research, started a report called the STAR report. Having previously worked at a top-tier hospitality industry financial consulting company, Randy had enough credibility and contacts to convince most of the major hotel brands to report on a monthly basis their ADR (Average Daily Rate) and Occupancy. He then blended the results from a self-selected list of competing hotels in an area or region and reported back to each subscriber the performance data as a blended number.
Put simply, if you were a Holiday Inn and your main competitors were the Sheraton, Hilton, Marriott, Hyatt, and Radisson, you would receive back a report showing how your hotel performed in these metrics against the combined numbers of all five of the “comp set,” with STR maintaining the confidentiality of the performance of any single competitor.
There were other reports that debuted about that time, such as the Phaser, Hotelligence and TIMS reports that provided hotels with a snapshot of how the booking pace of their competitors was doing in the GDS (Global Distribution Systems that travel agents use), in the CRS (central reservations systems), and other insights on historical performance and future pricing trends.
Simultaneously another guy named Eric Orkin was among the first to create the formulas needed to program technology systems to help hotels turn all this new data into usable information.
Yet the vacation rental industry has been held back because of a few missing links. Although some have tried, there is yet to be any company I am aware of to offer a report similar to STR on a large enough scale for the majority of VR companies of all sizes to know comp-set performance in the recent past, and since few VR accommodations are booked in the GDS’s, no reports available for purchase about the comp-set bookings looking forward.
Further, until recently, the majority of PM systems were not set-up to allow VR managers to easily change rates up or down by a set percentage with one key stroke; instead the rates for each had to be changed manually. The PM systems also have a limited ability to export the data on booking pace to peripheral systems that could potentially support revenue and yield management automation.
Thankfully, it appears that the vacation rental industry is starting to have options for overcoming these many unique challenges so that its revenue and yield management practices can evolve to the efficiency of what the hotel industry has in place.
As an outside observer, when I see how things are evolving in the VR space it is like watching the rerun of the movie I saw in the hotel industry.
- Finally, there is a credible company with the knowledge, the integrity and the properly structured systems that is now offering a report on “comp-set” performance for destinations with more vacation rentals than hotels, and that is DestiMetrics. They have so far been hugely successful in creating this reporting process for mountain and ski destinations and have established a proven track record. A major goal for them in 2015 is to expand in the beach and summer destinations, and I am going to personally assist their efforts. (Note: Email me for more information about how to bring this to your destination so that all of the companies can benefit.)
- More and more PM systems are now offering dynamic pricing features allowing for yielding of rates by raising and lowering them according to the pace of demand.
- A few PM systems are starting to allow for the export of booking pace data to automated revenue and yield management systems.
- Visionaries such as George Volsky, who I feel best understands how the principles of RM and yielding apply to the vacation rental space, are offering not only their consulting services but also tools built in Excel and Access and working to bring evolve these into cloud based solutions.
So the future looks bright for the VR industry to get to the next level of proficiency. In the meantime, some companies have figured out their own ways to use the information and systems at hand to better yield inventory and to optimize revenues. Here are some suggestions:
- Focusing on established intelligent, rationalized pricing. As George Volsky says, “Inventory is King and pricing is Queen.” When you think about it, optimal pricing that maximizes owner revenues even helps with property retention, so pricing could possibly be called both King and Queen. In order to price correctly…
- Take notice of which homes book up first; consider charging more for advance bookings, rather than discounting these homes for repeat guests.
- With an increasing “transparency” of rates as they are more and more often displayed right next to others at online at third party websites, consider supplementing lower rents with fees.
- Track your own demand to measure booking pace against your own history. If you have not already developed tools for doing this, look to experts like George Volsky to provide them for you, or to tweak and update your own spread sheets and databases.
- Test for pricing elasticity. When you see dates that are behind pace, try discounting a few homes just a bit below the competition to see if you can steal market share.
- Track the demand of your competitors to the extent possible.
- If you are a large enough company in a destination that has a significant number of traditional resorts and/or “condo-hotels” that have privately owned units but which appear to the public as traditional resorts, subscribing to the STR report might help.
- If you are in a more remote destination, track the booking pace “live” at your competitor’s websites. From a comp-set data perspective, one good thing is that online searches of competitors’ websites return ALL available inventory for any date searched, so that you can see how many of their overall units remain open. (Unlike hotel searches which only tell you which room types and what rates are offered.) Therefore in smaller destinations it just might be possible to track all available inventory from all companies.
- In larger destinations, a) pick four or five key competitors b) pick a stratified random sample of units, representing equal percentage of property types, then c) track the pace for those actual units on a weekly basis.
Of course all of this requires additional human resources. When doing your annual budget, consider shifting some of the money you are investing in marketing to try to find new customers to instead establishing optimal pricing and then managing the yield as demand shifts up and down.
The VR industry is certainly populated with intelligent marketing personnel and from what I observe, often ahead of the hotel industry when it comes to being early adopters of marketing technology and systems. Now that the missing resources are becoming available, I am certain that I will see this industry embrace revenue and yield management and actualize its full potential to impact profits.
Thanks Doug for this helpful article. It is really well written and it helped me once again to understand how important is the revenue and yield management.