In this episode, Chris & Ritchie look at the best methods for managing your properties to maximise the revenue. Basically they tell you how to make more money, and who doesn’t want that from their properties?!
From pricing research methods, to seasonal or weekend pricing plans, plus that all important last minute pricing. If you have some accommodation you want to make more money from, or are getting started and want to maximise your revenue from the beginning then listen in.
The Serviced Accommodation Podcast is a show brought to you by Chris Poulter and Ritchie Mazivanhanga aimed at new and experienced property investors alike. With each show we help you Start, Systemise and Scale your Serviced Accommodation Business.
If you would like to ask us a question or discuss anything in this episode, please join our Facebook group and ask away. To listen to more episodes or get more information go to www.thesapodcast.com.
Hi I’m Chris.
Hi I’m Ritchie.
And welcome to the Serviced Accommodation Podcast.
Today we’re going to be talking about revenue management.
Today we’re going to talk about how you can make a lot more money from your property by using some basic revenue management techniques.
Ritchie, do you want to kick us off then with talking about how we do our initial pricing research?
Definitely Chris. So first and foremost we look at the competitor’s rates and we look at their rates for each day because you can’t compare Saturdays to a Monday or Tuesdays to a Friday because rates tend to change over days. So we look at competitors rates on these different days and we compare different sized groups. So you might have couples going there so just two people or you might have a group of three, a couple and a young one. Or you might have weekenders going there, two couples so four people. So we compare different size groups and compare the prices that our competitors charge for each particular group.
So where would you be doing this pricing research?
Pricing research, we’re looking at booking.com, Airbnb. So you look at the OTAs.
And quite often booking.com and Airbnb will have quite different rates. How would you deal with that?
It depends on your particular area. So if your areas bookings are predominantly booking.com then you would focus on booking.com stats whereas if you’re in an area like London and your bookings mainly come from Airbnb then you focus on the Airbnb stats and so it’s mainly down to your particular area.
Brilliant, and what about areas like Southampton then? Where we find we have kind of a 50/50 mix between booking.com and Airbnb bookings?
50/50 is a good thing because we get the best of both worlds! So what we tend to do with our bookings is we’ve got some pricing for Airbnb and we’ve got pricing for booking.com so we use both stats and then we price accordingly depending on which OTA they are going on.
Yeah and I know a lot of people say well how can you do that because they don’t the booking engines say oh well we demand having the lowest pricing. Do people say that to you as well?
Yes, they have. I’ve had a few people say that because we use Tokeet and they’re like how do you do that via Tokeet because if it’s on booking.com for this price then you can’t have it any lower elsewhere and that’s not the case.
No it is actually very nice and easy with Tokeet You can set up different rate categories so you can have a completely separate Airbnb rate which is going to push through different rates to Airbnb from booking.com.
Now like I said one of the main objections that people say is OH but I thought booking.com insist on being the cheapest priced. Well in theory they do. However if you’ve got an Airbnb listing, if your title is the same title as maybe the name of your property on booking.com then you’re probably doing something wrong. You want it to be “comfortable spacious apartment in the city centre” not the name of your property because that’s not really going to attract people to it.
No because Airbnb is very personal. So yeah people aren’t interested by the name, the big brand now it’s got to be very personal.
So it means it’s going to be very hard for them to automatically look at it and go well this is your listing on Airbnb because unless they have someone, a person doing it which they’re never going to do, then they’re not going to be trawling through listings and matching up photos to work out which listings is which. So basically it’s going to be very hard for any computer algorithm to realize that that’s what’s going on.
And secondly all they actually say in that case is that if someone books with booking.com and they complain because it would have been cheaper elsewhere then yes they might refund. I believe it’s double the difference to them and basically charge you for that. But what is the likelihood of that happening?
Very little, well we haven’t had it yet so no.
Absolutely and in fairness when we’re looking at pricing and we’re thinking what we should be pricing on booking.com or what should we price on Airbnb, typically we’re seeing that the rates we have on Airbnb are very similar to what rates booking.com would be minus their commission charges. So if you look at what our net is for each platform it tends to be within a couple of quid of each other. So even if someone did have a major complaint on a big booking and they needed a refund it wouldn’t be a huge amount of money you would earn.
Not at all. And going back to look at competitive rates and the group sizes, after you establish the pricing and you then look at where you want to sit in the market. Do you want to sit below your competitors, do you want to sit above your competitors, do you want to sit higher? So it depends whereabouts you want to this. You price accordingly to where you want to sell in comparison to your competitors.
Absolutely and we always recommend that if you’re going into a new market or anything like that you always price towards the bottom because the higher price you go, the bigger the risk you’re taking in terms of an assumption that people are going to be willing to pay that price. Whereas as we found in virtually every market you have a good quality product and your pricing is coming in relatively competitive at the cheap end of the market, it is always going to go. Yes.
So off the back of that pricing research then as Ritchie touched on earlier is quite important that we differentiate between weekdays and weekends because they can end up being very very different markets.
Now most of our partners in Southampton actually we’ve got similar pricing for the weekends to the weekdays and that that tends to work quite well. But similarly we’ve got apartments, we’ve got mentees in other areas places like Brighton for instance where you might find that the rates go up 30, 40 per cent or even more at the weekends. And again that’s not uncommon for quite a lot of areas who have quite a lot of demand at the weekends for the weekend prices to shoot up even a lot of areas of London that happens.
So essentially when we’re working out our pricing we want to treat our weekdays completely different to the weekends. Treat it like it’s a different property or a different number of people and just do the research completely separate from what your Monday to Thursday rates are going to be and what your Friday Saturday rates are going to be.
Now what’s interesting there is that I’ve completely left out Sunday’s right? And that’s because we all know that Sunday’s don’t exist in the serviced accommodation world do they?!
No they just disappear! Just withered away.
And I’m sure all of you with apartments up and running will have seen this already is that Sunday is the dead day. It’s the day where you have very very low occupancy rates and it tends to be because this pattern that we’re talking about the weekdays and the weekends. So typically we’ll see people coming in Monday to Thursday like say four day booking during the week and then a changeover on the Friday into a Friday Saturday night booking. But typically on a Sunday night your tourists, your people visiting friends and family have to go home because they’re working the next week so they’ve got to get back to wherever they come from. And for the people who are going to be working during the week in the area they don’t want to lose you know half of their Sunday travelling down to an area that they can stay there for the night. Typically you’ve not got the tourists; you’ve not got the workers so it’s a pretty dead day now.
That doesn’t mean that you don’t need to have a pricing strategy for it but you need to be very careful about and clever if you like about what you’re doing because what we’ve found, and this is more applicable to the type of hotel sites which we run as opposed to the serviced accommodation where with the hotel sites we might have a one night minimum stay and what we found with the hotel sites one particular example for instance in Southampton it’s got a total daily rate of about fifteen hundred, sixteen hundred quid a night. And what we were finding is that running 90 to 100 percent occupancy all during the week six days a week, Friday or Saturday of course as well. But then you come to Sunday and it was you know turning over maybe 300 quid. So really really low occupancy rates you know maybe 20 25 percent and hardly generating any money at all. Now when we looked at it we did some analysis. We realized that actually the best way to generate money on this was to drop our prices and drop them a lot. So what we actually did in that particular case is we dropped all of our prices across the board by 40 per cent on a Sunday and that’s a massive discount. But what happened as a result of that is we went from 20 percent occupancy on a Sunday to 80 percent occupancy. Now because you’ve dropped your rates off that’s obviously not as good as 80 per cent at full rate but what it meant was that we were generating about £900 a night as opposed to £300 a night before.
So although it’s sometimes a bit counterintuitive and again we’ll look at this in a little bit, sometimes by down pricing we can make a lot more money from the properties and in terms of how this might apply within your own serviced accommodation because obviously we’re not going to have one night stays on Sunday. Well we can still actually go and do that and typically we do recommend down pricing on a Sunday but by between 30 and 40 percent because you’re going to be pretty quiet on a Sunday anyway.
So two things will happen with this, one is that people are more likely to extend their stay or stay a night earlier if they know that the price is quite a lot lower than it is for the rest of the week. And second of all you’re going to have people who are making inquiries which involve staying over the Sunday. Now in essence that booking is more valuable to you because otherwise the chances are your Sunday would be empty. So by down pricing on the Sunday for those longer inquiries which include a Sunday in them, you’re actually a lot more competitive than the rest of the market and you’re therefore more likely to get that booking in and therefore because you’ve got a booking in on a Sunday where a lot of other people don’t or you might not have had otherwise you can make more money from it.
Whilst you’re on the point of lowering prices to increase the occupancy levels it kind of segues swiftly into seasonality because you’ve got areas like Bournemouth. Wintertime is dead, it’s a very seasonal market there and the low season, you’re charging low prices to try and get the people in. What a lot of landlords or guest house owners tend to do or hotel owners tend to do in Bournemouth is get people in for emergency housing because they’ve got licensing that permits that. Moving on to midseason where you can charge slightly more but you’re getting a consistent amount of people in, not as much as you would do in the high season and these are like spring and autumn times you don’t get as many people in so pricing is also kind of the mid-range and come the high season the example yet again of Bournemouth when the sun comes out and you got beaches and everyone flocks down to the coast you can charge extortionate, no I don’t mean extortionate, you can charge ridiculous amounts in the summer and that’s the high season. So you price accordingly to, according to the market or according to the season so to speak not just the market.
And would you say in every market you need to have high, mid and low seasons?
Not necessarily. I know we’ve got a mentee who’s over in Cornwall and that’s a very seasonal market so I know there it’s very very seasonal markets. They tend to have that. Places like Bournemouth you tend to have that but in Southampton I wouldn’t say we have a high, mid and low season. We do have some variations in pricing.
Can you elaborate on that Chris at all?
Yeah I mean if we look at this year we’ve pretty much had a three month low season didn’t we? And December, January and February were absolutely dead, really really quiet.
What we then found was that it wasn’t just us, it was nationally because a lot of people we were speaking around the country were just saying “What’s your January been like? Mine’s been awful, dismal.”
So yeah start of the year was pretty poor I think all round and typically again because we mentor a lot of people so we get to see what’s going on a lot around the country. And we were seeing it with kind of mid to late March by the time stuff was picking up and having talked to a lot of people I think by the time April came around a lot of people were in really good flow. We certainly had a great April. A lot of other people we know had a great April. And that’s really when you know the markets picked up.
To answer the question I think yeah the Southampton market has as probably a three month low season and then the rest is relatively consistent in terms of the rates and occupancy and probably every city that we look at has different patterns like that. When we we’ve been looking at the Brighton market for instance then it has, it’s interesting, it has relatively steady occupancy year round but the rates are what vary there, so it’s not like it gets really quiet during winter like we see in Bournemouth. But for instance we see similar maybe not quite so high levels of occupancy. Let’s say so maybe 70 percent occupancy over the winter. But you know maybe the three star guesthouses and BnBs are charging £60-70 per night and where over summer are they charging £90-100 a night and hitting the same or even a little bit higher kind of occupancy. So I think you know working out the seasonality in your city is really key when you’re implementing these kinds of rates.
Yes. So most areas tend to be a little bit seasonal and if you’re in an area which gets all year round demand please let me know!
Yeah because actually it’s a good point before we got involved in the London market, we kind of assumed well that’s got to be the most all year round market there is. But even with London we were talking to people in the first few weeks of January it’s like wow this is so quiet. You know okay being London like everything else whether it’s house prices or short term accommodation, it tends to pick up relatively quickly. But certainly the first few weeks of January were really really quiet for all the London operators who we were talking to who didn’t already have long term bookings in.
So Chris how about managing the minimum night stays?
I think that’s probably the secret weapon of revenue management. I mean when people think about revenue management obviously it’s all in the name, it’s about the price that you’re charging but that’s not necessarily the case. Revenue management it’s actually about generating more money and quite often having a play with the minimum night’s stay can be a really good way of doing that. I mean I guess it’s fairly intuitive that if you had 100 percent occupancy for the week but they were all one night stays then your cleaning costs would be massive and so you wouldn’t make that much profit.
Similarly if you had a one week booking then you make a hell of a lot more. But at the same time there’s a lot of power behind being able to be a little bit dynamic with the minimum night stays.
So for instance in the Southampton market our ideal is to have a three night minimum stay during the week and a two night minimum stay at the weekends. Now the main reason behind that is we found that with a two night minimum stay during the week you’ll occasionally get a booking for Tuesday and Wednesday and that’s a bit for revenue killer because what happens when someone books for Tuesday and Wednesday is no one’s going to book for a Sunday and Monday night. No one’s going to book for Wednesday and Thursday night, they can’t do that because it’s already booked on Wednesday! You know no one is going to book for a single night on Thursday so it means that you’re really stuck in terms of revenue.
Now you can work around that by working with the minimum night stay. So you could for instance open it up for one night stay on a Monday and a one night stay on a Thursday which is typically how we do deal with that situation if we had a Tuesday-Wednesday night booking.
But at the same time you’re better off not being in that position in the first place so having the three night minimum stage in a week is really critical if you want to maintain the profitability of what you’re doing.
Now the other thing that I touched on in there is that you might have little gaps come up and that’s you know if you’ve got a one night gap between bookings and well you’d be silly not to drop the minimum occupancy down to one night because would you rather it sat empty or would you rather have got some money.
Exactly yeah, the longer bookings are nice but if all you can have is a one night booking at least make it available for that even if it means putting the price up a little bit to cover the fact that a lot of it is going on cleaning, that makes a lot of sense.
The other thing with one night bookings as well is what we’ve learned from having one night bookings and having a Saturday open. If someone books in on a Saturday that can mess up the whole weekend because usually you get weekenders, people at least booking from Friday to Saturday and departing on a Sunday but if someone is just in there for Saturday you’ve lost revenue on the Friday.
Absolutely and we’ve seen that a few times now with mentees who’ve initially gone in on one night stays. Just to you say you know I want to get something in them when I’m starting off. But the problem is that booking might be in three or four months’ time and that one night booking for Saturday night then means that you know no one’s going to book for the Friday night on its own typically because the Saturday nights are more popular. And if they do it’s generally going to be a lower rate so not only are you having to open up your one night stays again later down the line in order to actually have a Friday night booking in there.
- A) It might need to be at a slightly lower rate than normal and B) because you got two stays over two nights instead of one you’ve doubled your cleaning costs. So that’s taking a big hit on the margins which you actually going to make from that.
So when people talk about revenue management I think a lot of the time they’re thinking about hiking up prices. So what kind of things might drive the demand for a particular night that means you’re going to be able to put the prices up?
When you have particularly events going on in the town or in the city we call that event pricing. And we’ve learned from our own experiences when there was a Rod Stewart concert in town, we put up our pricing, the rooms got fully booked and we had a last minute cancellation and because there was a cancellation last minute there was nothing else available in and around the city. Chris was a bit cheeky because well bear in mind this was a £40 room. How much did you put the price up to?
£150 and how many hours did that take to disappear?
Hours?! It sold in 27 minutes.
27 minutes. It pays to be cheeky from time to time. So it was a great learning.
It was a perfect example of supply and demand in action. If you see all the properties are sold out you can virtually name your price. And in all honesty I probably would have gotten £250 for it. You know I thought I’d be conservative.
You call that being conservative!
Four times the normal price.
So in Southampton we have events like the Rod Stewart concert, you have other concerts going on. I know you got Common People but our best event which is which happens every year is the boat show. The annual boat show and that’s just fantastic, the prices you can charge on that- you can quadruple your pricing if need be.
Yeah and that’s not short is it? It’s like 12 days isn’t it?
Yes 12 days. We love September!
And you don’t get 2 day bookings, some people actually stay for the length of the time as well.
Well we’ve got one booking which is for 20 days isn’t it because it’s guys who have the week before to set it up and then they’re staying there for the duration.
So to people who are looking at event pricing within their own business and what would you say is the easiest way for them to kind of start implementing event pricing?
The best way to do that is to look at what’s going on in and around your city, find out what’s going on in your target area. And yeah if there any occasions going on then look at the competitors, how much they’re charging. If you’re on a similar level then charge a bit higher. Put the prices up, don’t be scared to put the prices higher than you would want because closer to the event the rooms are getting less and less and less and people will tend to come to you. If they don’t you can still lower the price and still get more than you would have in the beginning anyway. So yeah put the prices up and then just wait to drop the prices last kind of minutes.
How much in advance do you think people should be looking then when it comes to pricing?
At least 12 months in advance because if you look at the Boat Show we’ve got a booking ages before the Boat Show, so that’s the thing, at least at least 12 months in advance.
Yeah. I mean for instance with an annual event like that then pretty much as soon as it’s done people book for next year.
Yes they do, yes they do because obviously they have been stung by this year’s prices. They don’t want it to happen again next year.
Yes so anything 12 to 18 months even to make sure that you’re kind of capturing that.
So I guess the other way that you can make more money then is, counterintuitively as I said before, rather than putting pricing up, bringing pricing down. And obviously I showed that example of how with a hotel site we generated a lot more money on a Sunday by reducing our pricing by 40 percent, hopefully that kind of shows that although it’s counterintuitive; you can make more money by down pricing.
Now how you want to be dealing with that within your business well obviously you don’t want to be down pricing for the sake of it. But once you kind of understand the market and how quickly things typically tend to sell then you’ll start to understand when you’re getting to the point where you’re likely to maybe have properties sitting empty because no one’s booked them.
So for instance for us when it gets when it gets to about a week or so beforehand then we’re thinking okay we kind of need to get these properties or rooms filled now. So what we’d generally be looking at is giving a small amount of discount maybe in the last week or so. And as it gets down to the last couple of days then dropping it off even more cause you don’t want to be at a point where it’s sitting empty because unless it’s less than your cleaning costs you’re actually getting in from it then you still generating more money than you would be if it’s saying empty right.
And again this is something which people come up against a lot when they’re starting a new apartment and saying well how should I price it. And my answer is usually price it so it sells. You want to be in a position where your apartment is always full, particularly if you’re starting out. And there will be a price point in a market where you can do that. You know if we want to go to silly extremes then if you’ve got a two bed apartment and you price it at £10 a night do you think it’s going to sell out? Yeah! Judging from that laugh I’d say that’s a yes.
So we know that there is always going to be a point where it would definitely sell, now it’s probably not going to be £10 a night depending on your area it might be £50, £70, £100 whatever it is you kind of need to know the dynamics of how your market works to know okay if it’s Friday now and I’ve got a vacancy on Monday what kind of pricing do I need to put it at tonight 90 percent probability that someone’s going to take it up? By knowing and understanding that market we’re down pricing but hopefully only to the degree where we make sure that we’re definitely going to get a booking in. And so by filling up some gaps where otherwise it might sit empty then that’s going to really improve our revenue and ultimately if we don’t have these bookings our overheads are still going to be covered right so essentially any money that we can generate by doing this is profit. So this is where the real cream of your business comes in and this can really drive your profit margin on the business by maximizing and getting every last pound if you like out of your bookings.
You’re right Chris. Active revenue management is vital. Like you said earlier on, it’s best to have people in the property than the property to be sitting empty because as you say you’ve got already got overheads that are covered so any money that you get in is profit.
Yeah absolutely and like I said it’s not just about managing the pricing on there but also about managing the minimum night stays because similarly if you’re sat there on a Saturday and your property is empty from the Monday and maybe you’ve got a normal minimum three night stay you might want to drop it down to two nights. You might want to drop it down to one night if you’re getting to the night before and you’ve got a small gap of two nights and you’re not sure if someone’s going to book for two nights. So again if you’ve got two nights free and then you’ve got a big booking coming in after that are you better off having it sitting empty for those two nights or dropping it down to one night minimum stay and having at least getting some revenue in for some of that.
Whilst you’re on the point of minimum night stays how much of an impact can that have on your revenue?
Well I mean we did this exercise probably about four or five months ago with a mentee and they were up and running with like nine apartments. And we did this exercise and we tried to optimize the pricing a little bit and we also did some tweaking to their minimum night stays and implemented some dynamic minimum night stays. And I believe it was in the region about £2000 extra that that added in terms of the revenue for the next month. Now that was nearly all profit as well because obviously you’ve already paid your bills and everything like that. This is the cream on top and this is why it’s so important because this is just extra money you can have. You’re going to have the extra little bits of cleaning fees because obviously you might have some extra bookings in there from it as well but it’s mainly profit.
So that’s kind of a big impact really if you look at where the profit margin was before and after. That’s going to have a big difference .
That’s a summary of revenue management and how you can increase your revenue and predominantly your profit margins by quite large amounts for very small amounts of effort. Now I’m very much about systematization and hands off with not being too involved in your business. Now this is the one exception, this is the one area of the business which I am involved in in a day to day basis now that only probably takes me five minutes or so. But I would be surprised if that 5 minutes didn’t generate at least a couple of hundred pounds.
So like I say it’s a real critical area of the business where you can generate a lot of money very quickly and very easily.
So hopefully you found that useful. What we’ve talked about is basically doing your research right in the first place, thinking about how the weekday market works in comparison to the weekends, thinking about your Sunday pricing. And could you have a massive advantage if you’re the one in your city who is dropping your prices off by 40 percent on a Sunday?
We’ve also talked about how important it is to understand the seasonality of your market, whether it’s an all year round market in which case we want to know where you are or whether it’s somewhere which has maybe a mid and low season as well as a high season.
We talked about the importance of minimum night stays and also being dynamic with those and maybe bringing them down if you get closer today to the day just to make sure that you get a booking in there.
And of course we talked about event pricing and how you can make a lot more money just by being aware of what’s going on in your area and keep an eye on the market and what the supply and demand situation it’s.
So we hope you found that really useful, if you’d like to discuss it any more than just jump onto our Facebook group which is the Serviced Accommodation Podcast Community.
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