It’s odd to hear the word discount and increased revenues in the same sentence. Isn’t it? Rental property owners likely hesitate about offering discounts, for fear of losing money. However, weekly and monthly discounts should be taken into account if you want to get the most out of your rental.
At Angel Host, we offer dynamic pricing. Meaning we adjust rates daily in order to maximize your rental revenues. We eat, sleep, and breathe calculations. (Really!) We also integrate powerful data analytics and advanced algorithms into this process. To us, “doing the math” is just second nature. It’s easier to understand when you see the numbers, as math is a universal language. And furthermore, when it translates to money and income, that’s something everyone can understand!
As you will read, an important part of setting a good pricing strategy is determining weekly and monthly discounts. And we’ll provide you with the mathematical proof that they work!
What are these discounts?
Most booking platforms give you the ability to offer extended-stay discounted rates. This tactic encourages guests to book longer and helps incent the flexible traveler to stay longer if they can.
Let’s use a real-life scenario in Orlando, Florida; a 4-bedroom home just south of Disney. This particular home is often occupied over the weekends from Thursday-to-Sunday, which means the place is often empty during the first half of the week.
Based on this information above, would offering a 20% weekly discount make sense?
To answer this question, it depends on the average length of stay (LOS). If your Average Daily Rate (ADR) is $160 and you have mostly weekend rentals, then your average LOS is 3 days. This means you’ll make close to $500 for every week your property’s rented. (see chart below)
Now, let’s say you offer a 20% discount and charge only $128 per night on a weekly stay. Despite the drop in the daily rate, you’ll earn close to $900 for the week. That’s 86% more revenue! Of course, there will be travelers who won’t be able to stay an entire week and therefore can’t use this incentive, but there’s always a percentage of the market searching for longer stays. In order to have your property listed at the top of the search results to these users, it’s very important to offer a weekly discount.
Using the same example, would offering a monthly discount make sense? In the weekly discount scenario, it depended more on LOS. In this case, it will depend more on the expected occupancy rate. We know this property has an occupancy of 63% on average, which means renting 19 days out of the month and bringing in just over $3000 of monthly revenue. (see chart below)
Now, let’s say you offer the same 20% discount for the month. When you do the math, again, you’ll see that you will earn more revenue at the incentivized discounted rate than you would otherwise. Sure, there will be a little more wear and tear and use of utilities but not as much as the $800 in extra revenue you will earn on this booking.
The bottom line is, when the correct variables are taken into account, both weekly and monthly discounts are sure ways to increase your annual revenues.
How about discounts in times of crisis?
A crisis often happens when you’re least expecting it. The latest Coronavirus crisis is a great example. During this pandemic, there have been many canceled bookings, refunds, and empty calendars for those in the vacation rental business.
So, does it make sense to offer discounts in a crisis? Again, we say YES. In fact, more than ever during times like these. And here’s why. Using that same property example and doing some market analysis for the coming month, we learned the expected occupancy rate would be about 16%, meaning only rented on average 5 days out of the month! If we don’t reduce our rate at all, best-case scenario, we’ll get $800 in revenue that month.
However, if you offer a very aggressive monthly discount during this time, like 50% off, you’ll earn 3x the expected revenue because you’re renting for the entire month! This has proved to be a very successful strategy for our clients especially during one of the biggest crises our industry has suffered in years!
Is there a magical formula to calculate weekly and monthly discounts?
Yes again! Our revenue management team comes up with the right calculation by taking into consideration these elements:
- Length of stay: If all of your stays are usually 7 days, then it doesn’t make sense to offer a weekly discount. If it’s 3 days but you’re usually booked mid-week then it won’t make sense to offer a weekly discount here either.
- Expected occupancy: The lower your expected occupancy is in the month, the higher likelihood you should have a monthly discount and the higher the discount should be.
- Competition in the area: Most property owners/managers don’t set up any discounts, therefore giving you an edge if you have them!
- Time of year: You don’t want to offer a weekly discount around Christmas and New Years. Nor do you want to offer any steep monthly discount during your high season.
Offering weekly or monthly discounts has shown to be a great incentive for guests requiring a long-term accommodation option or to encourage guests to stay longer. But best of all, it’s a successful strategy to increase your rental revenues without much more effort!