How to set self catering rates to make money

How to set self catering rates

How to set self-catering daily rates to make money

You are a homeowner and you want to make money via Airbnb and other sites. It's easy: all you do is dress the place up nicely, get some photos, and set rates. 

Setting of rates? 

You did some homework and saw your neigbour is charging great rates. Or you stayed at this fancy place and they asked you mega bucks. That's it. You set your rates accordingly and voila. Nothing.

Nothing to bank. Not one dime. Why not? You did your homework and your trustworthy neigbour said he got it

Do yourself a favour and never take any advertised rate as gospel; ask him to show you his bank balance or ask him to show you his occupancy for the year. Let's rather focus on what we know talk about the graph above....

The illustration above is too simplistic but let's not be complicated. 

 You'll see I have two regions; as occupancy changes vs daily rates changes. The one is the Operating Zone (lower rates higher occupancy). I should have called this the Banking Zone. The other is the Hazard Zone (high rates low occupancy). Many home owners who think they know this business, work in the Hazard Zone. For some or other reason they (wrongly) believe high rates make them money. And they learn the hard way. After six months, some even after a year, of banking very little money they only do they start to question their own logic. They never even considered occupancy. But when they change to the operating zone the results are impressive.  

Let's Discuss The Operating and Hazard Zone..​

  • Operating Zone: This is the zone where you bank money. You are not arrogant. You are learning the game. And each new homeowner needs to learn the game. The teachers are the guests who are willing to pay to stay. They vote with their money. They see your home online. They compare your home to many other homes for value. If your value exceeds their expectation they pay you. And when they leave they review your home. If the reviews are positive you have added more value than money can buy. If on the other hand, the review is negative then all the money you throw at it will not easily fix it. In the Operating Zone your rates may be too low but you are getting feedback in bankable money and reviews. And do not underestimate reviews (read more here).  In the Operating Zone, at high occupancy, you can now use the feedback (money and reviews) to try and find the sweet spot. Starting off with a new home we choose conservative - competitive rates. If we get a flood of reservations we know we are paying to get reviews. Many positive reviews, quickly after the launch of a property, will catapult your place into contention. Reviews will do our selling and now we can tweak the rates upwards until we find the sweet spot. 
  • Hazard Zone:  When you base your rates on Tom next door and maybe your own over inflated value of your home you, then you end up in the Hazard Zone. Tom, next door, may advertise for high rates but does not bank money. Ignore Tom. Check his availability. If he runs on 60 to 80% occupancy you can go with his rates. In this game, the only one who values your home is the guest who pays to stay in it. If they don't queue you may be in for a nasty surprise. The other negative of this zone is that you are not getting any feedback; no money to bank, and no reviews. This means that you have no clue why people are not reserving your home; is it the rates, the photos, the minimum length of stay? Zero! You need to escape to the Operating Zone. 

How do you escape from the Hazard Zone?

Let's say your occupancy is less than 40% then you are in The Hazard Zone. Less than 30% and you need the ICU. 

 You need to get out of it immediately. And it's easy but not pretty. 

  • The first remedy would be to move into the Operating Zone. You need feedback from paying guests.
  • Make your rates very competitive. Even more competitive than what you feel comfortable with.  (I need to share with you how I establish competitive rates).
  • If you get one booking in the next week you may be on the right road but I would expect more than one. f not you need to be really bold and reduce the rates even more.
  • When the rate is "correct" reservations will happen - and quickly. 
  •  Now take a deep breath and let it ride out. Let them book. You'll have money to bank. And you will get many reviews.
  •  Let them book. You'll have money to bank. And you will get many reviews. The rewards for this strategy is not only in immediate bankable money. No. The rewards accumulate as you get reviews. And these reviews will launch your accommodation to heights.
  •  When you start hitting 80% occupancy you'll know you are doing it right. Now you can start increasing your rates and try and find the sweet spot.

As I mentioned above; owners who caught on, who went from Hazard to Operating Zone have seen dramatic changes. They are banking lots of money. 

Does it work always? 

Most times, but rates are not the only factor to get back into the Operating zone - it's very important; location, design, luxury, pool, view, etc also impact on how much money is banked.

Too conclude. Let me ask you a question:

Are you willing to make a mistake with too-low rates and bank lots of money? 

Or are you willing to make a mistake with too-high rates and have virtually nothing to bank?

Do you agree? Disagree? Leave a comment below.

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March 8, 2017


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