STEP 9: Data & Revenue Management

Many rental property owners and managers would set a fixed price for their properties and rarely adjust it, using a "set-it-and-forget-it" mentality. However, with the rise of technology and online booking platforms, property owners and managers can now utilize dynamic pricing to optimize revenue and occupancy rates.

Dynamic pricing, also known as demand pricing or surge pricing, is a strategy that involves adjusting the price of a product or service based on market demand and other relevant factors. It’s used to optimize the price of a property based on factors such as the time of year, day of the week, occupancy rates, and local events.

Hotels have been using these tools for decades.

In 2014, the prices rose so much in Omaha hotels for Warren Buffet’s annual conference he promoted the Airbnb properties in the area.

“The Wall Street Journal reported this morning that Berkshire Hathaway is advising attendees of its annual shareholder meeting to avoid the exorbitant rates hotels charge that weekend by seeking alternative lodging through Airbnb. The meeting draws more than 30,000 attendees to Omaha, Neb., each year—a surge in demand that leads hotels in the area and airlines with local flights to jack up their prices. According to the Journal’s report, rooms that go for $150 the rest of the year can easily rise to $495 a night during the shareholder meeting weekend.”

Ok, so there’s a nice analogy but what does that actually mean?

Well, taking it a step further, just like with a puzzle, it's important to collect all the pieces (data points) and organize them properly to create the final image (analysis). 

And just as with a puzzle, missing even a few pieces can make it difficult to see the full picture, so it's important to collect as much data as possible in order to make the best decisions for the business.

And of course, just as with a puzzle, it's important to have a clear idea of what the final picture should look like before beginning to collect data. This means having a clear understanding of what metrics are most important for the business, and how they should be measured and analyzed. These are known as Key Performance Indicators, or KPIs.  You’ll hear more about them later.

What is this data we should be collecting?

If you are wondering where all this data comes from, Evan called it Your Existing Gold.  You already have it in so many places – some you may not have thought of.

• Booking platforms: Platforms like Airbnb and VRBO provide a wealth of data on bookings, pricing, and guest behavior.

• Property management systems: These systems track occupancy, rates, and other key metrics for each property.

• Market data: Data on local events, holidays, and seasonality can help operators adjust pricing and availability to maximize revenue.

• Your CRM delivers guest data, target markets and demographics

• Google Analytics – this is a vast source of information as Dolgow shows in this slide:

Take some time to think about all the data you have already around you. You’ll be surprised how much there is.

For example, imagine you're a short-term rental property manager and you rely on data to set rental prices. If you use poor quality data, such as outdated or inaccurate information about comparable properties in the area, you may end up setting rental prices too high or too low, leading to fewer bookings and lower profits.

I’m thinking that analogy works??

Seriously, this is stuff that is difficult to make super exciting and interesting, but it’s just so important.  I keep coming back to Andrew McConnell telling me how much money we were leaving on the table by not operating revenue management strategies.

So, if you are still with me, let’s get to it.

Once you have the data collected and organised the work begins to make sure it’s of the right quality.  You can improve your data collection by:

Standardizing the data: Ensuring data is consistently formatted and labeled makes it easier to analyze and compare.

‍Example 1 - Standardizing the format of the date for occupancy data

If the occupancy data is in different date formats (e.g., "dd/mm/yyyy", "mm/dd/yyyy", "yyyy-mm-dd"), standardizing it to a single format (e.g., "yyyy-mm-dd") ensures consistency and makes it easier to analyze.

‍Example 2 - Example: Standardizing the format of the property name

If the property name is listed in different formats (e.g., "123 Main Street", "123 Main St.", "123 Main"), standardizing it to a single format can help ensure consistency and make it easier to identify specific properties in the data.

‍Cleaning the data:  Removing duplicate entries, fixing errors, and filling in missing values improves data accuracy.

‍Example 1: Removing duplicate entries from occupancy data

If there are multiple entries for the same reservation in the occupancy data, removing the duplicates can help prevent over-counting and ensure accurate calculations of occupancy rates.

‍Example 2: Removing incomplete or inaccurate reservation data

If there are reservations in the data that are missing key information (e.g., guest name, check-in date, check-out date), or have inaccurate information, removing them can help ensure that the remaining data is accurate and complete.

‍Validating the data: Checking data against external sources or manual reviews helps identify errors and inconsistencies.

‍Example 1: Validating guest information against booking data

Checking that the guest information (e.g., name, email, phone number) matches the booking data can help ensure that the correct guest information is being collected and stored. If there are discrepancies, it may indicate issues with data entry or data collection processes.

‍Example 2 : Validating key performance indicator (KPI) data against actual performance

Checking that KPI data (e.g., occupancy rate, average daily rate) matches actual performance can help identify discrepancies and ensure that the KPI data is accurate and reliable. For example, if the occupancy rate in the data is consistently higher than the actual occupancy rate, it may indicate that there are issues with the data collection process.

While this is going into some depth, what you need to know if the three elements of ensuring data is good to use:

Is is standardized?  Is it clean?  Can it be validated?

Boom!  

I’m not a data person.  In fact, numbers and statistics will usually send me off into find-something-more-important-to-do territory.  But this is important.

Because, if you don’t have quality data, you won’t get quality results.

Let's break it down. First, you want to pay attention to trends. Are guests increasingly interested in pet-friendly properties or do they want a pool? If you notice that more and more people are looking for a certain feature, it might be worth it to invest in that for your property.

When I first started buying properties and managing for others, there was so little data on trends available it was very much a ‘try it and see’ approach.  

A realtor told me that nobody would want to book a river property since they only wanted lakes to bring their motorboats and have a week of fun on the water.  If there had been data out there, it would have told me that my target market didn’t have their own motorised boats and they were happy with any type of waterfront as long as there were some canoes, kayaks and pedalboats to have fun with.

If I hadn’t done a lot of manual research, we would probably have gone in entirely the wrong direction in our business.  As it was, I invested in riverfront properties and was very successful with them over a number of years.

By analysing what your potential guests want in their vacation you’ll be able to hone your niche and deliver exactly what they want.

Next, you want to see what your competition is doing. Take a look at other properties in your area and see what they offer, what their pricing is like, and how they market themselves. This will help you figure out how to stand out and what strategies might work for you.

This is particularly important if you are in an area where there is some saturation.  You have to be different, but if you don’t know what it is that makes the best performer’s successful, you’ll have a tough time beating them in a crowded market.

If you are in an area where there are dog-friendly beaches and your competitors are accepting pets and charging a fee, your USP could be No Pet Fees.  We did this and it worked exceptionally well.

Another important aspect of market analysis is understanding demand patterns. This means figuring out when guests are more likely to book and at what price points. If you notice that you get a lot of bookings during a certain time of year, you can adjust your pricing to make the most of it.

So how do you actually use this information? For one, you can adjust your pricing based on demand. If you're getting a lot of bookings during a specific time, you can charge more. And if guests aren't booking at a certain price point, you might want to lower your prices to get more business.

Finally, market data can help you with marketing. By figuring out what guests are looking for, you can tailor your marketing efforts to highlight those features. This can help you get more bookings and make more money.

Overall, market analysis is just about paying attention to what's going on in the vacation rental market so you can make informed decisions about your property. By doing this, you can maximize your revenue, make guests happy, and stand out from the competition.