Essential Pricing KPIs for Vacation Rentals

Businesses gain great understanding through a focus on a few metrics for both forward looking and historical performance. As Louis Mosca states in a recent Forbes article “Key Performance Indicators 101 & Why They're Important”

“KPIs are your guide to understanding every moving part in your business, and might just be the most important part of management.”

Key performance indicators for pricing focus on leading indicators that things are working (or not) and trailing indicators of performance (or not). This article will address the most important and most dangerous key performance indicators (KPIs) to property managers focused on pricing for short-term rentals. 

Key KPIs 

Forward looking metrics include bookings made, nights booked, and future occupancy, as well as average daily rate. Compare all of that to the prior period (usually, same time last year) being careful to correct for day of the week (i.e - don’t compare a Sunday to a Monday!). 

You can make the same historical comparisons, and there you’re looking at the same year over year (or other comparable period) performance changes. 

If you implement a new pricing strategy, be sure to set clear metrics for occupancy and revenue. It is one thing to think the prices are “right” or “wrong”, but the proof is in the performance.

Occupancy is the main indicator

The main indicator pricing will affect is occupancy. Occupancy is what percentage of the available nights in a month are occupied by a paying customer. You can simply divide the number of booked nights by the number of nights in a month, however, it is wisest to remove any owner occupied or otherwise blocked and unavailable nights to have an accurate and realistic idea of performance.  

However, occupancy on its own is somewhat meaningless – after all, want 100% occupancy? Charge $1 a night and it’s easy to hit. So occupancy has to be balanced with revenue. Revenue (or booked revenue, for future months) is how much paying nightly revenue you’ll receive for a particular unit. 

Between occupancy and revenue, you can quickly tell if things are going well or badly – and take action. 

Other useful numbers – that are not KPIs

Hotels focus on RevPAR, or revenue per available room night. This is very useful for a hotel, where management has identical rooms and can move customers around. In an average month, a 100 room hotel has a maximum of 3000 room nights to sell. 

Property managers, however, have just 30 nights to sell per unit, as all units are different (or owned by different people) so this aggregation is not as useful. Moreover, no owner has ever looked at a check and calculated RevPAR. They just compare it to last year’s check and complained if it’s lower! RevPAR has its uses, but revenue and occupancy are more useful. 

Another important number is the price itself. However, if you are pricing well, you’ll have many different prices, and any one “price” as a KPI is going to be an average that could potentially hide important variations. Instead of treating price as a KPI, treat price as a key input that needs to be managed carefully and in a more detailed view. 

Dangerous KPIs

Nothing creates anxiety like unrealistic comparisons. If it’s February and you’re comparing your December bookings so far to how many you ended up with last year, you’ll freak out. You might literally hurt your health – losing sleep because you’re “behind” an unrealistic number.

Instead, compare like for like. Current year to date versus last year today. Current year versus the market right now. If you’re at 35% now, when the market is at 20% and last year you were at 25%, you’re doing well! Focusing on the 85% you ended up with last year is counterproductive.

KPIs for Everything

Rather than a massive dashboard of every KPI, each functional area is best served by its own KPIs, and then those that affect everyone. The only score that truly affects everyone is customer satisfaction. Everyone’s work, and I mean everyone’s, is represented in how happy your customers are. 

If you’re the CEO or general manager, you’ll want this at your fingertips – and the fingertips of everyone managing pricing. Many companies check these numbers every month. The best performers glance at them every day. How? They’re fully automated and a click or two away. 

The Pricing KPI Dashboard 

How much revenue is coming in? How does that compare to the market, or to the same period last year? What is occupancy? How do those compare to last year at this time and the rest of the market this year? 

It’s tempting to put them all in one massive dashboard–but when everything becomes “key” then nothing is key. Instead, focus your leadership or do-ers on only the most important numbers for them. 

We are pricing nerds, so we put together what we think is the ultimate pricing KPI dashboard. It’s critical, in our view, to successfully managing your pricing function. It also happens to be super useful in managing your business. Let’s review it here not because we want you to use ours (though we’d be happy if you did) but because it’s so useful and will so dramatically impact your performance – if you have the time to spare you could even try to build this view in Excel (though we both know you’re too busy for that). 


The Perfect pricing tool for Vacation Rental Owners and PMs

By actively managing prices, regardless of your pricing strategy, you will experience more success. For a variety of reasons, prices constantly change in the short-term rental market – and keeping prices in-line with fluctuating demand is called “dynamic pricing.” Dynamic pricing requires vigilance. 

Perfect Price is a powerful new tool for Vacation Rental property managers to find the right balance of automation and control for pricing short-term rentals. Other software providers have attempted to enforce rules about prices for years, and though these rules provide some control, with increased complexity they often breakdown. This is particularly true with short-term rentals, as critical information is changing every day instead of only once or twice a season. That’s where AI comes in. Artificial Intelligence can juggle that added complexity, incorporating different strategies, and expanding with the ever-changing market property managers are now exposed to.

We covered the limitations of rules-based pricing in a recent blog:

“Rules are the building blocks of pricing. Though the traditional method of applying rules, created in spreadsheets, to manage pricing is prevalent in many industries, it often lacks the flexibility and sophistication to be able to react to market changes. However, more and more companies in fast-paced markets with “perishable” inventory are now leveraging Dynamic Pricing systems that can learn and alert them to pricing opportunities and potential pitfalls at the speed of modern commerce.”

Perfect Price enables property managers to maintain the service and control landlords ask for. Not all properties are the same and Perfect Price is flexible to let the professional property manager manage each scenario differently and efficiently. This means not only with pricing – but also to free up time to address other client’s needs.

How is this possible? Microsegments.

Perfect Price is powered by patent-pending artificial intelligence, with “microsegments” that enable the understanding of customer behavior and demand at the most granular level–for each night, at each property. With this AI technology, you can understand and even predict customer behavior the way Uber understands surge pricing. 

Perfect Price integrates with many popular property management systems (PMS) and has APIs and SFTP connections to connect directly to other custom PMS software. The user interface is entirely cloud-based and can be accessed from any browser, on any device.  

Learn more about Perfect Price for Vacation Rental here.

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