Setting Self Catering Rates: Margins Or Searching For A Mirage?

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This post is all about setting self catering rates when self catering owners start out marketing and they want to maximise their income. Other rules may apply if you just would like some form of return.

Depending on your optimization goals for your self catering accommodation setting rates are very important. Initially, when you start out, you have a blank screen to work with. You have no track record. This is where many homeowners look at margins, do a spreadsheet and smile at the money they can make. But all they see is a disappearing mirage.

What we want is turn over. I remember, from spending 10 years in retail, that the more people talk about our business the more people came to our shop. But to get them talking had to offer them the right product and find the sweet pricing spot. This was not easy. Initially, we made mistakes. But we tweaked the prices all the time. The stuff started moving out. As the stock moved out people started talking and more people came to visit. More interest generated more income.
Setting self catering rates:
When you set out and sit with this blank sheet in front of you, you need to ask: What is the least I want ideally clear per month? Let’s look at a few options: Let’s say you can make R20 000 per month from long-term rentals. Then you may use that as an aim. You have a three bedroom house sleeping 8 people. As per my other example, you could look at 8 x R250 per night during winter. This will give you R2000 per night. If there where no costs you needed 10 nights to break even. That’s 33% occupation.
As you may know I did a marketing survey and 14 homeowners responded.  Three of them are getting 75% occupation during winter. The average is 36%. I understand this to mean that some are doing poorly and others excel. (During a followup I will try to set up the magic formula used by the three performers). Let us assume you hit the sweet spot with your home’s description, rate and immaculate photos then reaching 50% during winter may not be that far-fetched.
Let’s say you get to 50% then your gross becomes R30 000 per month. I believe this should be the aim.
Now we have two options; we still have a blank sheet, do we try to hit 50% or do we try to make R30 000 per month?
Is this part of the mirage. It may be very possible to make R30 000 and more, per month, in the future but today, with a blank canvas? No. You don’t know. This is when you be bold and say I want 50% and more occupation, but I want people to talk and share my unique place. Then you cut your winter rates to the white bone. Say you ask R1500 per night during winter. Then you may do R15 000 gross at 33% occupation or you may hit the jack pot and hit R22 500. A bonus.
Now that you are getting some colour on your canvas you let it continue to create a picture you can work with. When you have done this for a 8 to 12 months. Then you tweak rates and you increase your minimum stays to fit your best optimization rules.
If you are new to renting out your self catering home and you want to maximise your short-term rental income do you agree with the above on how to set self catering rates or not?
Let me know in the comments area.
Johan

 


September 10, 2014

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