April 29, 2016

VRMA East: Revenue Fundamentals and Vacation Rental Fees

Despite the rapid growth of the vacation rental industry, George Volsky in his session on revenue fundamentals for property managers explained that it’s a tough time for vacation rental managers to profitably operate:

  • Guest rates are not rising as fast as expenses.
  • Homeowners are entering the industry as self-managers, but are perfectly fine with operating at little-to-no profitability when their time is accounted for.

Due to these major trends, Volsky explained that it is imperative that rental managers be proactive and intentional in covering rising costs while staying competitive with both guests and owners.

Volsky’s answer?

Charge owners for specific fees (separate from the commissions on guest rates) as they arise.

Common industry fees include can help cover overhead costs, labor and marketing expenses, maintenance, and more.

These fees can likewise be the difference between you renting out a property and not being able to rent out a property.

For instance, to cover a $20 expense with just commissions, you would need to increase the rate you as a manager charges to a consumer by $100 (assuming a 20% commission rate). Instead of raising prices, charge a $20 fee that is separate from the guest rate and the gross rate that you split with the owner, and you can keep your prices competitive.

Charging fees can have a variety of benefits for a vacation property management business:

  • Boosting the effective commission rates: In one example at a recent VRMA event, a manager saw their effective commission rate go up to 47% from their advertised rate of 20% by implementing management fees.
  • Insulating yourself from prevalent discounting: You can bring your rates down to stay competitive with guests while keeping fees the same to cover fixed costs.
  • Staying profitable in non-peak seasons: Once again, you can bring rates down substantially in offseason while maintaining fees to cover those costs that still remain high in offseason.
  • Retaining owners who will trade service for reduced costs: This allows you to reduce your costs and time if managers are not willing to pay certain fees without affecting the overall rate you are charging guests.

Want to see more from the VRMA Eastern Summit? Check out our other articles from the event:

  • Vacation Rental 2016 Trends & Regulations: Read More
  • How Property Managers are Growing and Onboarding New Vacation Homes: Read More
  • How Homeowners and Property Managers Can Compete With a Consolidating Vacation Rental Industry: Read More
  • The Guide to Selling Your Vacation Rental Company: Read More

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