More bookings don’t always translate into more profit.
You can have high occupancy but too low rates to make decent money from short-term rentals. Add maintenance expenses, property damage, and unexpected financial losses, and you may even go into the red.
Short-term rental revenue management can help you make Airbnbs truly profitable. After analyzing the market and your property booking metrics, you will know the best price for every night.
Vacation rental revenue management can also increase the number of bookings, attract the right guests, and let you stay ahead of local competition.
Find everything you need to know about vacation rental revenue management in our guide. Who is a revenue manager, revenue management metrics, why you need a separate pricing strategy, and how to achieve maximum profits.
What is vacation rental revenue management?
Vacation rental revenue management is an approach to managing rentals that focuses on maximizing income. Hosts or property managers track Airbnb KPIs and market trends to select an optimal pricing strategy for each booking.
They also use dynamic pricing tools to automatically adjust rates according to demand. As an option, you may also hire a revenue manager. It’s a dedicated person with relevant experience who will do Airbnb revenue management for you.
Short-term rental management is not solely about money. It’s about finding the balance between high profitability, full occupancy, and guest satisfaction. You still care about good reviews and keeping guests happy, but not at your own cost.
Why should you have a revenue management strategy?
Effective short-term rental revenue management requires a comprehensive approach. It must be data-driven and tailored to your case. That’s why you need a strategy.
A strategy relies on local market insights, trends, and historical data to determine what rates can bring you the most revenue at a specific time. It makes your pricing flexible and adaptable to frequently changing market conditions, such as demand, economic growth/decline, or seasonality.
For example, you can detect that December to March is your low season, and your competitors reduce the rates. Hence, offering more affordable prices may bring you more profit thanks to increased occupancy.
Higher profits are the key point of having a revenue management strategy but not the only benefit. A deliberate pricing strategy optimizes property management efforts. You achieve better occupancy and more predictable bookings. You also know how much to charge, avoiding guesswork and losing potential guests due to unrealistic charges.
Finally, if you don’t implement a revenue management strategy, those who have it will outperform you. They will be more sensitive to guest needs and moods, offering perfect rates and getting all the bookings.
Key STR revenue management metrics
Historical data is useful and can tell you whether short-term rentals are profitable, but the world changes too fast to ignore it. That’s why you should collect data about your rental performance in real time. Below are the main metrics to monitor for revenue management for vacation rentals:
Occupancy rate
The occupancy rate is the number of nights booked per month. It shows how busy your property is during different periods and helps you understand the lows and highs.
To determine the occupancy rate, divide the number of nights booked by the total number of nights available, and then multiply the result by 100. Exclude maintenance days and other days when your property was not available
Occupancy Rate (%) = (Number of Nights Booked ÷ Number of Nights Available) × 100
Average daily rate (ADR)
It’s the average cost per night in your property. Use it to better understand the effectiveness of your pricing strategy and calculate your potential income.
The formula for the average daily rate is simple. Divide the total revenue by the number of booked nights.
ADR = Total Revenue ÷ Nights Booked
Revenue per available room (RevPar)
RevPar is super informative when it comes to short-term rental revenue management. It shows revenue per available rental and provides a deeper insight than occupancy rates. Sometimes, 100% occupancy just means your rates are too low. RevPar combines pricing and occupancy to measure the overall profitability.
To calculate the revenue per available room, multiply your occupancy rate by your average daily rate (ADR).
RevPAR= ADR × Occupancy Rate
You should monitor these metrics for your own property, but you can also compare them with the market average. It will give you a bigger picture of what’s happening in the industry and how to revise your revenue management strategy.
Who is a revenue manager?
If you feel like outsourcing STR revenue management, there is a dedicated specialist for that. A revenue manager analyzes booking metrics, competitor rates, and the local market to build a pricing strategy that drives profit.
They can do it manually or use short-term rental revenue management tools like PriceLabs or Beyond.
A revenue manager can have access to your accounts to set prices and configure minimum and maximum rates, duration of stay, and demand sensitivity.
It may be a separate person from a property manager or a property manager who combines two roles.
The key benefit of using professional short-term rental revenue management services is experience.
You get someone who knows the market in and out and can help design an effective pricing strategy.
Do you need a revenue manager, or can you automate it?
Cooperation with a revenue manager can eat into your Airbnb earnings, so make sure you need it.
A dedicated person who handles revenue management for vacation rentals is a good choice only if you have multiple properties and want to optimize your efforts.
It also works well for luxury or high-earning properties where the margin is higher and the market is more complicated. In many other cases, you can do a lot with automated tools for vacation rental revenue management.
Automated revenue management tools: What and why
Manual vacation rental revenue management is possible. You can manually monitor your property performance and market changes to adapt the price. But there is little point in doing it since automation tools are pretty affordable and easy to use.
A short-term revenue management tool gathers massive amounts of real-time and historical data on demand patterns, occupancy, competitor pricing, seasonality, events, and booking lead times.
Then, it relies on algorithms to determine optimal nightly rates for connected properties. The rate is based on market demand/supply, your listing performance, and other custom parameters.
Then, the tool automatically pushes the relevant rates to your listings across STR platforms like Airbnb. Your involvement is minimized, and you can achieve surprisingly good rates.
“I have my STR in a location that has a ski season and a mountain bike season, but low seasons in spring and late fall. I can set different base rates for each of those seasons. Then they will use those algorithms to adjust the rates based on market data and push them to VRBO and Airbnb. I thought my peak rate during ski season would be $400 a night but they put it at $900 and I still got booked.” – shares a host on Reddit.
With a revenue management tool, you can:
- Automatically adjust pricing. STR revenue management tools monitor market demand, local events, and competition non-stop to set optimum Airbnb rates. It helps you keep high occupancy without price dumping.
- Monitor competitor listings. Short-term rental revenue management tools monitor key STR metrics, including occupancy, average daily rate, and revenue per available rental. You always know what other rentals make in your location to keep up.
- Optimize booking calendar management. STR pricing software syncs with multiple OTA platforms to automatically set minimum night stays and close/open availability in calendars based on the demand.
- Track rental performance. Revenue management tools gather historical data to track performance and predict demand. Property owners receive custom reports to see how their income changes and what to expect.
Besides more efficient Airbnb revenue management and higher profits, automated tools also free your time for more important things.
Instead of anxiously monitoring prices manually, you can focus on scaling rentals or spend time with your family.
Some property owners prefer to keep control over automated pricing and manually tweak some rates. They believe that pricing tools often cannot provide the necessary level of customization. It may be true since a local host or property manager knows the market better than automated tools.
If you are afraid to let go of control, you may monitor the rates set by pricing tools and adjust them when necessary.
They do the dirty work while you step in only when the rates can be more relevant based on seasonality or other factors automated software may fail to consider.
How to choose the right revenue management tools
There are various tools for short-term rental price management, both built into STR platforms and add-ons. None of them is perfect, but each can considerably simplify rentals.
To select the right one, you must do some research and assess your needs. Here are the key things to do:
1. Know your expectations and needs
Before choosing a revenue management tool, you must know why you need it. Ask yourself the following questions:
- How many properties do I plan to manage?
- Do I have listings across multiple platforms?
- What are the routine pricing issues I face?
- Do I expect full automation or price recommendations would be enough?
- What is my level of experience with the local rental market and price management?
- Are there any local regulations that may affect pricing and occupancy?
Answering these questions will shape your expectations toward Airbnb revenue management software. It may turn out that some tools cannot meet your needs. Particularly, if you have listings across four and more STR platforms.
“If you work as a property manager, the task is not to find the best channel manager, but to analyze the market and choose one which will satisfy your requirements and match your tasks and market.
Mind how many channels you plan to use/sync via channel manager. If you are using just 2–3 leading OTAs like Airbnb, Booking.com, Tripadvisor (Flipkey, HolidayLettings), you will likely discover plenty of channel managers to solve your problems. If you’d like to promote your accommodation at least at 4–10 portals, the corridor of your variants significantly decreases. (Airbnb Host).”
2. Analyze market offerings
Go to the web or use ChatGPT to find 3-5 options of short-term rental revenue management tools. These may be Pricelabs, Lodgify Dynamic Pricing, Wheelhouse, Beyond, etc. Spend some time to visit their websites and research their functionality and pricing. You can also read user reviews to gain insight into their hands-on experience.
Features
When checking the features, make sure the tool has:
- Dynamic pricing
- Automated price updates across STR platforms
- Custom pricing and minimum stay rules
- Market and performance analytics
- Reliable customer support
Pricing models and cost of use
The cost of revenue management tools varies, with some being more suitable for 2-3 listings while others work well for large-scale rentals. Monthly fees per listing, percentage of revenue, and a freemium model are the most common pricing models. You can calculate how cost-effective each model is to decide whether it’s worth the investment.
A property manager has done such testing and shared his results on Quora:
“I have used the big three dynamic engines. Over a three month head to head competition (identical units in the same building) Beyond had the best revenue but by a tiny amount. When you factored in the cost of service, PriceLabs was the clear winner, especially when you are operating at 70+ units.”
Yet, each case is unique, and you should determine what pricing models and tools work best for you.
3. Prefer tools popular in your location
Rental markets in the US and Europe greatly differ as well as rentals in urban vs. rural areas. Some tools may generate more relevant pricing in your location, so you should clarify this before choosing STR pricing software. Overall, Beyond is considered a good option for high-volume markets with lots of data available. PriceLabs shows decent results in less popular markets, such as Eastern Europe, due to more granular settings.
4. Check integrations
If you already use property management software, check whether a pricing tool is compatible. It must support your listing platforms (Airbnb, Vrbo, etc.) and other popular rental solutions, such as Guesty, Hostaway, or Smoobu. Prefer solutions with easy and versatile integrations. Even if Airbnb is everything you’ve used so far, you may want to add more tools in the future, and switching between systems down the road can often be troublesome.
5. Test the demo version
After all the initial research, you probably have one or two favorites matching your needs. Don’t rush to buy the full-pack premium subscription. Request a demo or use a free version to assess the functionality and ease of use. The app should be convenient and meet your everyday needs.
You can also double-check the accuracy of data in the tool. Compare the information on occupancy and rates with data available online and rely on your personal experience for estimates.
Tips on building a revenue management strategy that maximizes profit
Creating an Airbnb revenue management strategy requires discipline and analytics skills, but it’s pretty intuitive. You just need to analyze the current situation with your STR rentals and take steps to raise rates without compromising occupancy. The tips below should help you optimize expenses and start earning more.
Evaluate the current income and set goals
Calculate the gross revenue, which includes base booking rates and extra charges like cleaning fees, early check-in options, breakfast, etc. You can find this information through an OTA platform or in your property management system if you use any.
Once you know the gross revenue, deduct expenses, such as booking platform fees, mortgage, taxes, and cost of maintenance, to see how much you make from short-term rentals. This will give you a realistic picture of STR efficiency and serve as a baseline for building a revenue management strategy.
Analyze existing data on listings
Rely on the booking data from OTA platforms to capture how your place has been performing so far. Check average check-in and check-out rates, number of guests per night, duration of stays, and differences in reservations over a year. If you start changing rates to increase revenue, you will need to monitor these indicators to ensure they stay at a decent level.
Review and optimize expenses
Growing revenue through smarter dynamic rates is a nice move. Yet it may not be enough if your expenses are too high. Avoid buying expensive furniture or going out of your way to please guests with luxurious staff in basic properties. Write down all routine and unexpected costs to find ways to save your budget.
The owner of three properties, Jan Mitchell Johnson, shares a few of his expense management ideas:
“Decrease your expenses. I don’t provide fancy cable channels – just a basic package of high-speed Internet and local channels. Most people know how to stream from their own devices and many travel with a Fire Stick or have a Netflix account they can use. I also don’t purchase artwork or other items that are not going to directly increase my revenue. My places are furnished, and that’s that. I DO, however, replace linens, towels, and other core items on an almost annual basis, and I DO handle routine maintenance.”
Connect a pricing tool
Use the recommendations and steps in the previous section to select a suitable dynamic pricing tool for short-term rentals. You can monitor and adjust prices manually, but it’s quite time-consuming. You may also consider a hybrid approach, where you rely on automated price updates for most bookings but keep a close eye on performance and step in when needed.
Get an insurance
Buy specialized short-term rental insurance to avoid financial losses in case of unexpected property damage. Damage protection services by Truvi offer up to $5,000,000 coverage with automated guest screening for short-term rentals, which allows you to decline suspicious booking requests right away.
“I shop my insurance rates annually to be sure I’m getting the best deal. (PS: Don’t skimp on insurance. Be sure to carry the appropriate coverage for a short-term rental. Many carriers will NOT cover STRs, so if you have a claim, they could deny you if you have not been honest about the property use.) (Owner of three properties, Jan Mitchell Johnson).”
Offer additional services
Consider extra ways to make money, like early check-in, mid-stay cleaning, grocery delivery, damage protection waivers, airport transfers, spa kits, pet amenities, etc. Such simple things can significantly increase revenue and enhance the guest experience.
“If you want to make some extra dough, consider offering additional services or amenities for an added fee. Who doesn’t love paying for those mini shampoo bottles, right?
(Travel industry expert, London Kim).”
Ask guests for reviews
Properties with positive reviews get more bookings and higher revenue. That’s why you should encourage guests to leave positive reviews by sending a thank-you post-checkout message or leaving them a nice review first.
“Now, here’s a secret sauce for you: leverage the power of reviews and ratings. Positive guest feedback can do wonders for your bookings, so go the extra mile to provide a memorable experience. And don’t forget to showcase your listing with stunning photos and catchy descriptions (Travel industry expert, London Kim).”
Keep historical records to measure your strategy
Before implementing a new STR revenue management strategy, write down your current metrics. Keep the records for every month to track how your pricing decisions affect overall revenue. It will allow you to see the weaknesses in your revenue management approach and improve it.
