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How to Maximize Vacation Rental Income & Profitability (Even in a Recession)
Learn how to get the most out of your business to drive profits and growth
Maximizing profitability will always be a key goal of your business, but you’re probably more focused than ever on improving your vacation rental profit margins in the face of a potential recession. And with competition in the short-term rental market intensifying, it’s no longer enough to simply maintain positive guest relations and offer an exceptional experience.
You need to do more than have attractive properties to differentiate your vacation experience from others in the OTA results pages. With a strategic approach to increasing your profit margins and optimizing your operations, you can create a scalable business that exceeds your revenue goals year on year.
Read other chapters in The Reservation Recession.
List on every possible channel
Diversification should play a key role in your strategy to optimize profit margins. By listing on a range of OTAs, you become visible to a larger audience, and can protect yourself from the negative influence of one bad review.
But listing on various platforms doesn’t have to create more work for you. You should have a PMS with a built-in channel manager that automatically organizes and updates availability across all booking sites. A PMS with advanced reservation management and calendar syncing capabilities is essential if you decide to list on numerous channels—it’s the only efficient way to avoid booking confusion and admin error.
Get on the major platforms
Create a strategy that centers on listing on every channel that makes sense for your business. Aside from the most popular channels, like Airbnb, Vrbo, and Booking.com, consider listing on alternatives for optimal vacation rental distribution, such as
- Google Vacation Rentals
Find your niche
There are many listing channels out there designed with specific niches of traveler in mind, like Kid & Coe (for guests traveling with children), BringFido.com (for guests traveling with pets), and Pink Vacation Rentals (for guests in the LGBTQ+ community).
Identifying possible niches for your STRs can make you searchable to an audience that’s far more likely to convert (rather than just window-shop).
Take direct bookings
Don’t forget your most important booking channel—your direct bookings website. Having a direct bookings website helps you build your brand while cutting out OTA booking fees. And while you may not be able to generate the majority of your bookings via your website, it’s still important to have an optimized site that allows potential guests to find you via Google and former guests to rebook with you directly.
Understand KPIs to guide decisions
Running a successful property rental business is contingent upon properly measuring and analyzing the right vacation rental KPIs. Some of the metrics you should track include:
- Occupancy rate
- Revenue Per Room (RevPAR)
- Average Length of Stay (ALOS)
- Average Daily Rate (ADR)
- Net Operating Income
- Property Acquisition Cost (PAC)
- Cost per unit
But it’s not enough to merely track these metrics. Properly assessing them so you know exactly how to optimize profitability is the only way that these metrics will have a positive impact on your revenue.
For example, if you notice that your cost per unit is on the high end, it’s probably not sensible to try and decrease costs across every single property. Rather, you should dig deeper and find the particular units that are having a negative impact on profit to target what improvements need to happen.
By not only tracking data but also being responsive to it, you’ll know exactly which weak points of your business should be targeted to increase your profit margins.
Effective messaging to homeowners
If you want to scale your business and optimize profit margins, you need to grow your property portfolio. To get homeowners to trust such a large asset to you, focus on your messaging techniques. Show second-home owners what exactly you can do for them—to do so, you need to provide detailed reports displaying some of the important KPIs we discussed above.
Be sure to highlight your unique selling points, too: What can you offer to homeowners that other vacation rental management companies can’t? A few things that can set you apart from your competition include:
- An advanced tech stack
- Smart home solutions like keyless entry and noise monitoring devices
- A branded guest app
Proving the value your of property management services, and using tech solutions to stand out from other property management companies, is essential to attracting new homeowners and maximizing your management fees.
Extra profits through upsells and automation
Growing your portfolio and maximizing occupancy rates aren’t the only ways to increase revenue—you should also have scalable ways to get the most out of each stay.
Make it easy for guests to extend their stay
Where you have gaps in your booking calendar, you want a simple way to offer guests the chance to fill that space. Discounting those extra nights will help you get some longer stays, so use a guest app where it’s easy to make special offers to guests a few days in advance of their check-out.
Offer unique and personalized upsells by segmenting your audience
Communicate with guests pre-check-in to understand their purpose of travel. Now you can divide those guests into groups and develop vacation experiences that are specific to their kind of stay.
For couples on a romantic getaway, offer a bottle of locally produced wine. For groups of friends, sell an in-home private chef experience. Get creative with your add-on services, and tailor them to different guest types so you have a repeatable formula for upselling.
Sell the amenities in your vacation rentals
Turn a compliment on the mattress or couch in your short-term rental home into extra profits for your property management company. Place a subtle QR code next to the furniture and decor that guests tend to love and link them to where they can purchase the item.
One way of doing this is to join the Amazon affiliate program. When you set up a QR code that leads guests to an Amazon product page, you’ll receive a payout for any purchases they make via the link.
Or if you showcase local decor in your units, the code can lead them to the contact form on an artist’s website, where they can inquire about purchasing their work and mention that you referred them (so you can receive a commission).
Fill your guidebooks with experiences
Another great way to maximize on commissions is by partnering with local vendors, like restaurants, spas, tour guides, wineries, and golf courses. To do so, include a smart button in your digital guidebook that sends guests directly to your partners’ websites.
That way, you can get a share when a guest books a tour or makes a dinner reservation, all while strengthening these partnerships and enhancing the guest experience.
Streamlining your operations and guest communication with vacation rental software will see you cut costs, become less dependent on staff, and create more exciting vacation experiences for the modern guest.
Implementing scalable tech solutions is essential to sustainably growing your business, so take a look at a few ways Operto, the STR automation platform, can make your job easier while optimizing profitability.
When guest communication eats up your time and resources, it’s nearly impossible to think about your business at a higher level. Excessive guest inquiries pull you away from the bigger-picture tasks that need to happen for your business to grow.
With Operto Guest, it’s easy to share all the information your guests need via digital guidebooks. You can create detailed house manuals to eliminate doubts like “how do I connect to the WiFi?”, and embed maps, pictures, and videos for other handy explainers that will save you hours each week.
Operto Guest also allows you to offer guests digital check-in and check-out. That means you no longer need to send a member of your team over to give guests their keys at every check-in.
Use Operto Guest’s digital guidebooks to cut back on guest questions.
Fantastic for guests and amazing for your team.
Expenses, expected and otherwise, cut into your profits as a vacation rental manager. On the one hand, you know energy and utility bills are coming to you every month. But it’s the miscellaneous expenses like property damage resulting from guests throwing an unauthorized party that have the potential to really impact your profits.
With Operto Tech, you can connect your manager’s dashboard to smart in-home devices like smart thermostats, smart locks, and noise sensors. Smart thermostats help you keep your recurring electricity bills as low as possible by only heating or cooling your units when there are guests present.
And noise monitoring devices alert you to unauthorized parties that could get out of hand. Plus, by using smart locks with unique door codes for contactless access, you add an extra layer of security to your properties.
Plus, all these devices connect on one convenient dashboard, meaning it won’t take you any extra time to monitor and manage them.
Use in-home smart devices to save on energy bills and protect your properties from costly damages with Operto Tech.
You’re only as successful as your operations, which is why you need a solution that allows you to streamline and automate as many processes as possible. Manually creating cleaning schedules and keeping track of task status can become chaotic and ultimately unworkable as you grow.
Operto Teams integrates with your PMS to automate cleaning schedules, give you a consolidated view of your operations, and eliminate missed cleans. With Teams’ rule-based automations in place, you can manage ops across all your units with a smaller, optimized team.
Optimize your operations for bigger profit margins
Diversifying your channel distribution, understanding and tracking key metrics, effectively messaging to vacation property owners, and achieving additional revenue in creative ways, are all proven strategies for increasing your profit margins.
Meanwhile, streamlining your operations and management tasks with automation software will make your processes repeatable and scalable as you grow.
Frequently asked questions about maximizing short-term rental income
How do vacation rentals maximize profits?
Vacation rental operators use a number of strategies to maximize profits. Some of these include listing on various OTAs, using KPIs to guide decisions, upselling, and updating your tech stack for streamlined processes.
What is a good rate of return on a vacation rental?
Vacation rental operators should look for a rate of return between 10% and 20%.
What are the major costs for vacation rentals?
The major costs for vacation homes vary depending on the level of initial investment and down payment you make. Aside from your mortgage, significant costs include cleaning fees, maintenance and repairs, payroll costs for your employees, and insurance.