Setting Holiday Rental Rates: Does One Swallow Make A Summer?


Let’s Look At Setting Holiday Rental Rates

Setting Holiday Rental Rates

We come across many homeowners who want to market their Cape Town accommodation. And all they care about is what rate they can get per night. They want the most. That makes sense. Or does it?

I believe that before you can start counting money people need to come stay in your place. And if they stay for one night you may have achieved your goal – they paid your maximum rate.

But have you made money?

Aristotle said that one swallow does not make a summer. (read more here)

Or one instance of an event does not necessarily indicate a trend.

You will only really make money when your home is booked out many nights during the year.

And today you may have no clue what the best rate is to ensure maximum annual income.

If your 365-day occupancy is above 80% then you are doing very well. Below that you have to tweak your rate and other factors. But don’t feel alone when your occupancy rate is a lot less. I just read an interesting blog post on setting rates:

HomeAway says that the average vacation home is rented for 17.4 weeks a year (about 30 percent).

That’s low.

I think that annual income calculated as follows:

Many happy guests times a good nightly rate x high occupancy over a year. As soon as you have this base trend you then want to find ways to continually increase your annual income.

How do you setup your best nightly rate?

This article discusses the topic under the following headings: Know your costs, know your competition, set your highs and lows – seasonality (also discussed here), look at your property objectively. I would add location and length of stay.

  • Know your costs. It will help to know how much it cost to run your property. And the aim would be to at least break even. If you have the breakeven for a month you can potentially calculate the minimum rate. Let’s say you work on 30% occupancy or 9 days a month, your overheads are R20000 then your minimum rate would be R2222 per night. (30 days x 0.30 x R20000). If your minimum rate in slow season is above your competition then cut the rate even if you will not break even (making less is better than nothing).

  • Know your competition: You should do some market research of similar accommodation at the same location, with similar features and finishes. Have a look at TripAdvisor, Safarinow, CapeStay and compare prices. Or access the Accommodation Network and verify rates there for 1000’s of Cape Town accommodation. The article I mentioned above makes a valid point that hotels and guesthouses are also your opposition. Check their rates and features and be aware that they will grab your guests.

  • Set your seasonal rates: As a very general guide I see minimum low season rates of 30% to 40% of high peak rates. During Cape Town’s high peak period there’s more demand, for quality accommodation in popular suburbs, that what’s available. Therefore setting high peak rates may not be as difficult as setting rates during low or slow season. If you want people in slow season you have stiff competition and you have to aggressive in setting rates. If you need bums on beds set winter rates correspondingly.

    • Take the next year’s calendar, show your low, high and peak seasons. Then mark all school and public holidays, major events like the Argus and Two Oceans. And adjust your rates to the particular circumstances.

    • Setting your rates too low can cost you dearly. I would never suggest a strategy where you cut your rates a lot lower than your competition. There’s a lot of psychology in setting higher rates. This article discusses why high rates are better.

    • Length of stay and location: With an over demand during Cape Town’s high peak season you may set your minimum stays to 14 days. Everyone in Camps Bay and Clifton gets 14 days minimum. This does not mean that your accommodation in the Southern Suburbs will get it. If you have a great self catering home in a great area at an established rate then I would suggest you set your minimum stay over high peak for 14 days six to 12 months in advance. If you have not rented your place 40 days before peak starts then your home is not in high demand and 10 days may be your only option. Long stays over peak is the norm but we have one very successful self catering owner with 4 homes in three suburbs of Cape Town, not one on the Atlantic, and he’s minimum stay is one day. His occupancy throughout the year is way above the norm. This is his November and December calendar. His January is nearly fully booked as well.  *During winter short stays are the norm as it will increase the number of bums on beds. And the shorter the better. But it’s needs a different managing mind-set.

  • Take an impartial look at your attitude, your property and your marketing efforts: At the end it’s gut feel. Are you willing to experiment? Are you willing to work with self catering accommodation agents who can share your accommodation via their network? Are you willing to pay commissions? Do you have returning clients? Have you asked impartial and trustworthy friends for their view on your property? Are you getting feedback from your guests?

Let me know if you agree, disagree or can add some advice.

Regards

Johan Horak

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November 8, 2013

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