3 Mistakes Short-Term Rental Operators Make That Leave Money on the Table

The Occupancy Trap

If you had your best booking month ever and you're feeling good about it, I have some bad news. Because you probably left $10,000 or more on the table and I can prove it. My name is Jasper Ribbers and I spent the last 14 years in short-term rental revenue management. And the pattern that I'm about to show you, we see in almost every single portfolio that we analyze.
Most operators measure success by occupancy. If your units are almost always booked, then you might think that you're maximizing revenue. But in the majority of the cases, this is not the case. Maximizing revenue is very different than just getting heads in beds and just being occupied.

The Revenue Math That Changes Everything

As an example to show you, imagine that you're 90% occupied for a certain month. So out of the 30 days, you're 27 nights booked. Let's say your average ADR is $100. So your revenue is $2,700. And you might think that you're doing great because 90% occupancy, that's great. 27 nights out of 30 booked is in terms of occupancy, that's a great result.
But what if you could sell 20 nights at $200? That means you're making $4,000, which is about a 50% increase in revenue.
But how would you know that it's possible to increase your revenue that much? If you're always focused on your occupancy, then you don't know what you don't know. You have no reason to believe that you can increase your revenue. And so in this podcast episode, I'm going to walk you through three mistakes that most operators make that makes them fall into the occupancy trap.

Mistake #1: Set It and Forget It

So the first mistake that we see operators make the most is that they use a set it and forget it approach to revenue management where they turn on their pricing tool and they only look at it maybe once a week, maybe twice a week, or even once a month or twice a month.
And when they do look at the pricing, they only really focus on the next month. What days are still available the next week? What prices can we lower in order to fill up last minute demand? That's where most operators are focused on.
But what about two months from now, three months from now? People typically start booking several months out from the check-in date. And if you're not focused on the early part of the booking window, you're going to miss the biggest opportunity for premium prices. And you're going to be booking your units way too last minute.
But if you're not paying attention to this, then you wouldn't notice. If you're only focused on the occupancy, then you would have no idea that it's possible to get a lot of bookings earlier in the booking window. You might not even know that people are already starting to book.

Mistake #2: Flying Blind Without Market Data

And that leads me to the second biggest mistake that I see operators make, which is they are not looking at the right data. They are not looking at market data. You have to understand when bookings are coming into the market, when similar listings are getting booked.
If you don't focus on that, if you don't track that, then you're basically flying blind. You just don't really have a structure or a system that gives you signals, that gives you advice, if you will, on what your pricing looks like.
So you might be way overpriced early in the booking window. And as a result, you're not getting the bookings during that time frame. And you're relying too much on last minute demand.

The Last Minute Race to the Bottom

Now, as we all know, last minute demand is not the best demand possible. Because what happens is that most operators will drop their prices last minute. Most operators will start lowering their prices about three, four, five, sometimes six weeks out. And they'll gradually reduce their prices.
And then the last week everyone goes in panic mode and pushes the prices all the way to their minimums. And so in the last couple of weeks, it's very difficult, if not impossible, in most markets to get premium prices. You're going to be competing with the other operators that are basically just dropping their prices. You're in a race to the bottom. And that will not maximize your revenue, no matter how high your occupancy is.

The "Beating the Market" Trap

I've seen this over and over again, where operators come to us and they're telling us, hey, we're outperforming the market. Our occupancy is 80%. The market's only 70%. We're outperforming the market. Our average ADR is higher than the average in the market.
And that is a big mistake because the average in the market is not great. It's a very bad benchmark to go off of. Because there's a lot of operators in the market that are not professional. And there's a lot of operators in the market that are not maximizing their revenue. There's very few operators that are focused on revenue management.
And so if you compare yourself to the average in the market, you might think that you're doing great because you're beating the market. We hear this over and over again. And I can guarantee you that 90% of the operators, when they come to us, they tell us, well, there's probably some improvement to be made, but we're beating the market. Our occupancy is great.
And so they really feel that they're doing really well, but they just don't know what the potential is. And that's where we come in to show those operators through a free revenue report that we create. We can show them, hey, look, this is where the opportunity is. This is how much revenue you're actually missing out on.

Mistake #3: Too Many Booking Restrictions

Mistake number three is that most operators have too many restrictions that prevent people from booking their units. So revenue management is not just about setting prices. Revenue management is about maximizing revenue. It's about maximizing the chance that somebody will book your unit at the best price possible.
And so pricing is a big part of that. But if your prices are perfect, but you have a strict cancellation policy and you have a five night minimum night stay and you're not using instant book and you don't have great reviews and your photos on your listing aren't great, well, guess what? Your pricing might be perfect, but you will not get any bookings.
So that's the third mistake that I see operators make over and over again is they only focus on the pricing. They don't think about what we call the bookability of your units.

What Is Bookability?

So what is the bookability of your units? It's basically how easy is it and how attractive is it for people to book your unit in the first place?
Cancellation policies are very important. If you use a firm or a strict cancellation policy, that means that people are locked in and they won't be able to get a full refund 30 days from check-in. So that means in that last 30 day window, you're not going to get a lot of bookings because people don't like to be locked in from the moment that they book.
And yes, I know on Airbnb, you get 24 hours or 48 hours to cancel your booking for full refund. But after that, you're locked in if your cancellation policy is very strict. So make sure that your cancellation policies are not preventing people from booking. We did a full episode on that last week or a couple of weeks ago. So if you haven't listened to that episode, go ahead and listen to that episode and review your cancellation policies.

Maximizing OTA Visibility

A big part of revenue management is also maximizing visibility. Visibility on the OTA platforms. Because if you're on page 10 on Airbnb, then again, you might have great prices, but you're not going to get booked because people are not going to be able to find you until all the other units that are ranked higher than you are booked up.
And now the only units that are left are going to be showing up higher in the search results. But you don't want to be in that position. You want to be in the first couple pages of the search results early in the booking window when people are booking far out and people are willing to pay the premium price for your unit.
So visibility is extremely important. And to get great visibility, yes, price is important. When you lower your price, your visibility will increase because most OTAs prefer to show their users the properties that are most attractively priced.
But there's a lot of other factors that are involved in visibility. For example, Instant Book. If you're not using Instant Book, it's going to hurt your visibility. If you're using strict cancellation policies, it's going to hurt your visibility. If the listing quality isn't great, it's going to hurt your visibility as well.

The Minimum Night Stay Problem

Now, minimum night stay settings are also very important. Most operators are too strict with their minimum night stay rules. Their reasoning is, hey, when people book far out, we're not in a hurry to fill up. I mean, we could still fill up last minute.
They only think about, I need to get booked. And if I don't get booked three months out, two months out, I don't care because I could still have plenty of time to get booked.
But if you get booked further out in the booking window, you're generally going to get a higher price. So if you're restricting your guests from booking shorter stays further into the future, then you're missing out on a lot of high ADR bookings. Because when people book a shorter stay, they're willing to pay a higher price.
And also the visibility on the OTAs will go down if you're more restrictive. The less dates that are available to be booked, the less visibility you get on the OTAs.

The One Night Stay Strategy

So it's very simple, right? If you talk to an Airbnb account manager, they will always tell you to just allow one night stays across the entire year. And we have some portfolios where we have that strategy in place, where we literally allow anybody to book a one night stay anytime into the future.
And the occupancy and average ADR on those portfolios is very high because you give extreme flexibility to the booker. The OTAs love it. So you get a ton of visibility.
Now, I know that one night stays is not always a good choice to host one night stays. I know there can be problems with parties and bad quality guests or your operations might not be able to handle it. But my point is, more flexibility leads to more revenue. There are a few exceptions for sure. When it comes to special events, there are exceptions. But in general, more flexibility will lead to higher revenue. So make sure that you're not being too restrictive.

The Standard Minimum Stay Trap

A lot of operators have sort of a, what I call a standard minimum night stay strategy, where they allow a two night stay to be booked in the last 30 days. And then between 30 and 45 days, they're looking for a three night stay. And then it goes up to a four night, a five night, sometimes even a six night, a seven night.
And in the vast majority of the cases, that is not optimal. You're basically restricting yourself from a lot of demand. And that is going to hurt your revenue.

The Three Mistakes Recap

So these are the three top mistakes that I see that operators make that will make them get into this occupancy trap, if you will, where they are not maximizing their revenue. But they think that they're actually doing really well because they're just focused on occupancy, right?
So number one, the set it and forget it approach. Just setting up your pricing tool and letting it run. And the second mistake is only focusing on the short term. Only looking at your prices for the next two, three, four weeks and making price adjustments there and not focusing on the entire length of the booking window. And number three is being too restrictive. Just making it too hard for people to book your units.

The Revenue Opportunity

If you focus on these three things, if you can fix these three things in your business, I can guarantee you that you're going to see a significant increase in revenue. You could see 10% more. You could see 15% more. You could see 20% more. We have portfolios where revenue has gone up 35, 40 or even 50%.
So there's a lot of opportunity probably that you are not aware of. And so that's why I wanted to record this episode because I want everybody to be aware that just because if you're driving high occupancy, just because you're doing better than the market, just because you're doing better than last year does not mean that you're maximizing your revenue.

Take Action Now

So my advice is take action right now and put a rhythm in your calendar to focus on revenue management. Schedule out at least an hour a week and 15 to 30 minutes a day. Block that off in your calendar and force yourself to focus on revenue management.
And don't just look at the next couple of weeks. Look at your booking window. When are people starting to book for the different times of the year? And are you getting your fair share of the bookings in the entire booking window? Which units are falling behind? Which units might be even ahead?
This is more rare, but sometimes we see operators that are way ahead of the booking curve. So they're actually priced way too low. And there we can raise their revenue by just raising their prices. You can also get booked too much too early. And so there's a fine line. There's a middle ground that will maximize your revenue. And that's the art of mastering pacing in your business.

Get Your Free Revenue Report

So make sure that you schedule out time to focus on this and then focus on those three things that we went through today. So with that said, hope you enjoyed this podcast.
As I mentioned, if you want to know where the opportunity is in your portfolio and if you're managing at least a million dollars in total booking value per year, then go to freewyldfoundry.com/report and we will create a free revenue report for you. And we'll walk you through where the opportunity is, how much we think you can increase your revenue.
And if it makes sense to work with us, we're very selective with who we work with. But if we think it's a win-win for you to work with us, then we will also let you know how we can make that happen.
Thank you for listening and we'll see you next time.