From minimum stay to minimum booking value: the newest vacation rental pricing trend

Talking to property and revenue managers within our vacation rental industry every day allows the Lighthouse team to spot trends in strategy and revenue management practices.

Here is one of the latest trends that our conversations with leading short-term rental players across the world has unveiled: more and more property managers are moving away from minimum stay restrictions and instead utilising minimum booking value restrictions. 

Usually, property managers have a set of fixed costs related to a particular reservation: check-in cost, guest services, cleaning and what we could call administrative. For that reason, in many cases, property managers of short-lets, unlike most hotels, set up minimum stay requirements for all of their reservations allowing them to ensure they cover these base costs.

However, more and more property managers worldwide are starting to opt for a minimum booking value set up, that also allows them to cover their base costs but earn a few extra reservations each year. 

A real life example:

- Real life check in example

This property manager quotes a stay in one of their properties to be the same total amount for a 1, 2 or 3 night stay. 

This reflects the fact that with a total under 1,311€ for this property, the manager would not achieve the required profitability to accept a reservation.

Setting up a 3 night minimum stay would completely eliminate the chance of a booking from somebody looking to stay only 1 or 2 nights. By this new approach, the property manager is still able to capture this demand at a higher price point. 

Ultimately, this method ensures that you achieve the profit margin your require whether it’s for your minimum stay or a longer booking. It also means that you are open to securing a higher value for a shorter booking whilst retaining some availability for an extra booking and, crucially, your property will remain visible on OTAs to different bookers. Further, you ensure that you don’t forgo a more valuable booking in the event of a shorter booking occurring first.

There are however some important considerations. Applying a high minimum price will lead you to price out a large proportion of booking types or customers. It is possible to use this method more broadly, with a higher booking minimum, further from a check in date to try and encourage bookings of a higher value initially. As a vacancy draws closer however, you will want to ensure that all stays are priced around their bottom line, with your minimum booking value applied to those unfeasible stay lengths. It is important to keep your value restrictions sensible in order to maximise occupancy.

Restricting length of stay on your stock will dramatically decrease the number of guests you are selling to, which, in turn, can also affect your listing’s ranking on OTA platforms. The general idea of pricing by minimum booking value is to avoid restricting your consumer audience with stay settings but control your revenue through a tailored pricing strategy. It can be a less restrictive approach to set your shorter-stay pricing according to your minimum booking value.

In order to do this effectively, it is crucial that your rates are in tune with your market and your competitors’ pricing, and also your performance. Controlling your revenue through minimum booking value rather than minimum stay length can be a very beneficial strategy, but only if that booking value is sensible to your market and your occupancy through the booking window. As a rule, you should always track your performance and make adjustments if possible to ensure that you are maximising your overall revenue.

Lighthouse Dashboards provide property managers with a current state of their performance, market and competition, allowing you to strategically price your listings to maximise revenue.

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