At the recent Inaugural VRM Intel Data & Revenue Management Conference in Atlanta, the first day largely focused on “setting the table.” This meant getting everyone on the same page in terms of terminology, focus, past, present, and an exciting-if at times overwhelming-look into the future. With that context, the second day then dug into more tactical recommendations and action items attendees could take with them when they returned to their business later that week.
In this “table setting” exercise, Ralf Garrison was expertly positioned to kick off the conference. Ralf took us all through the evolution of the vacation and short-term rental industry in general and of the sophistication of the data collection and management process as well as revenue management in particular. In discussing what revenue management means and should mean in our space today, Ralf made an analogy to autonomous vehicles. Yes, there is software out there today that allows artificial intelligence to drive your car for you, but as the number of lawsuits against Tesla for driver deaths increases, are you ready to put your life blindly into a machine’s hands?
Revenue performance for your company is as critical as breathing is for you as an individual. If you are not prepared to trust the machine for one, are you prepared to blindly trust the machine for the other? Better understanding what revenue management means, and should mean, is helpful on this front.
To begin, there are many who conflate dynamic pricing with full-blown revenue management. For the former, there are some great technology companies out there like PriceLabs and BeyondPricing, and even some of the larger listing sites have their own tools that can help.
For the latter, when you start to think of revenue management as a discipline rather than just periodic rate adjustment, as was constantly discussed at the conference, no technology alone is a viable option today.
Given where our industry is, and the ecosystem around it, much more manual work is required than many realize or want to believe. On top of that, as Sarah Franzen of Natural Retreats said during a panel discussion I was invited to moderate, “Anyone who is trying to tell me how to price my home—who has an interest elsewhere—I’m probably not going to take that recommendation.”
That being the case, how can and should you as a vacation rental manager navigate this ever-evolving space today and going forward? As with so much else in our industry, every single business is different; but there are many commonalities across companies. My own experience at Rented.com might be informative, and I offer it here to help you avoid the mistakes we made.
Some of you might know Rented.com through our former Fixed Rent Guarantees. This is where we would partner with local managers to offer homeowners a guaranteed, fixed monthly payment on their homes. We would then work with managers, on a commission, to rent the home, in the process splitting the upside between Rented.com and the manager in question. With this business model, revenue optimization is obviously critical—that is where all the money is made. And so as we partnered with more and more managers all over the world, building a portfolio of ~1,000 properties worldwide, we became big proponents of dynamic pricing and the technology companies that support it.
And yet the longer we operated the units, and the more we added to our portfolio, the more we realized that technology alone, and dynamic pricing as an activity, did not offer the full solution. One reason is that while each technology company has its own merits, the quality of each varies dramatically by geography and property type. There simply is no one-size-fits-all answer.
Additionally, as so many of you realize, knowing the right price for a property at the right time is only a small piece of the puzzle. Given our complex ecosystem of property management systems, listing sites, company sites, phone reservations, etc., getting those prices updated to every relevant spot in a timely manner is never easy, and it is sometimes seemingly unfeasible given other priorities of your team.
And finally, we began to see that having the right price in the right place was not even the be-all and end-all we had imagined. Truly managing revenue, and thus maximizing it, means far more than just price. It also has to do with what you are pricing (unit mix and strategy), where you are pricing it (channel strategy), how you are positioning it (listing strategy, listing attributes, minimum stay requirements, etc.), and so much more.
All of these factors ultimately lead to the conclusion that you can only get the price that people are willing to pay for that specific unit at that specific time on the channels it is marketed on, with the attributes of those listings—such as reviews—being paramount to whether someone will book it.
While technology could and can help with a component of this, we found more was needed. At the same time, the managers we were working with simply did not have the internal capacity to take on all of the work that was needed on this front to maximize revenue. And so, given our portfolio size, we began to build it internally. We assembled a team of experts with diverse backgrounds in revenue management—from destination and urban vacation rentals as well as airlines and large-chain hotels in major cities. These experts began holistically performing what we now understand is actual revenue management. They began balancing the relevance of the available data with technology to understand the market and the comparative sets for each property. This team was then able to dig into the nuance of individual unit pricing to account for positive and negative attributes and listing qualities of those properties.
As we put in place a team of experts who were dedicated full time to this practice of revenue management, a funny thing began to happen. The revenue performance on our units went up dramatically. In some cases by greater than 2x, and across the board by 20–30 percent.
This surprised us and the managers we worked with, but in retrospect it shouldn’t have. In most vacation rental markets, the best manager from an owner and guest’s perspective is the manager who knows that market best; the manager who lives in that market and who has for years. It is a very rare owner or guest who asks how many other properties the manager manages around the world, or how much money that company has raised. Even of those few who do, a larger amount is not always the answer they want to hear. That puts the local manager at a distinct advantage when compared to the goliaths of our industry.
At the same time, due to the vast number of properties those goliaths manage and all of the money they have raised, these companies in turn have distinct advantages when it comes to nonlocal activities and services. They have the scale to invest in and build technology and tools a local manager cannot afford. They can hire armies of teams for things, like revenue management, that most managers do themselves or that are just one part of an already overstretched employee’s job. The issue is that there are certain tasks too critical to the success of your business to be part-time jobs. As the lifeblood of your business, revenue performance—and thus revenue management—is one of these.
At the end of the day, equating dynamic pricing to revenue management is like thinking a car’s cruise control is the same as driving. Sure, the cruise control can set the right speed and maintain your momentum, but who is setting the direction? Who is dodging the reckless drivers around you? Who is slowing down as traffic piles up? Yes, maybe one day it will be technology through autonomous driving, but today, like with revenue management, it still requires a focused and dedicated driver.
In a car, your life is on the line. With revenue management, it is the life of your business. In both cases, it is critical to have the best answer possible when you’re in the driver’s seat.