Rate Pride Strangles Vacation Rental Income
By Wm. May
Published: 06/10/21
Topics: Behavior, Business, Covid-19 Virus, Dynamic Rates
Comments: 0

At every one of my high school class reunions (I would rather not mention the year), my friend Steve makes a point of asking everyone what they now do to make a living.
Steve is one of those people who wants success and money and prestige. He wants them very badly but unfortunately has pursued them very badly.
But Steve has one insurmountable obstacle. He lets pride overcome his goals.
Right out of college, a company offered him an "entry level" job that was right within his major area of study. He turned it down because he didn’t want to "start at the bottom."
At a class reunion, as a bunch of his buddies laughed and talked, another friend, Gary, said, "Well Steve, maybe you’ll win the lottery one day."
To which Steve grumbled, "I wouldn’t want to win because I would just have to pay the taxes."
And Gary begged, "Steve, do the math."
Among his close friends are business owners, corporate executives, engineers, lawyers, mill workers, truck mechanics, teachers, social workers and more. Although I doubt any of them wrote down their goals at high school graduation, all of them have had success because they sought the loftiest of all goals - family, friends, love and happiness.
Maybe my class or friends were unusual but the are universally kind, courteous, respectful people. Maybe that comes from their "success."
Strangely, in business over the years, occasionally I recognize the "Steve" in someone. They have goals, but they let their pride stop them from success. (And, yes, sometimes I recognize it in myself a bit, too.)
In the niche vacation rental management industry, new property owners may have read too many stories about how buying a second home is a "Get Rich Quick" scheme.
On the other hand, I caution everyone to buy a second home only because they can have it for family, friends, enjoyment and relaxation. And they deserve to be proud of those second homes. They have worked to buy the home which is a perk that many people cannot afford. That kind of pride is deserved.
It is still true that guests will indeed help them pay some or all of their expenses. We work overtime to advertise, operate and promote homes to gain maximum income for owners.
But over the decades we have seen earnings in all markets go up and down due to many factors, like the economy, interest rates, inflation and, yes, even pandemics.
Covid produced a huge surge in occupancy capitalized on by savvy managers. Which caused even more people to buy and rent out second homes. Today there are far more vacation rental homes.
That is where owner pride can derail a home. Rates now fluctuate wildly by seasons, market, property appeal, competition and much more. The pace of change is increasing every year.
It is tempting for owners to second-guess the market. But only a sophisticated manager should play the income rate game. And only if they can put aside pride and focus on results. They use yield management science to produce the highest possible annual income.
Managers invest in competitive data, receiving constant telemetry about rates. (The actual income generated which is not necessarily what rents may list for.) They must use dynamic rates and evaluate them daily to produce the highest possible income. Rates must be set far in advance and adjusted constantly, including increases (which make the owner happy) and last-minute discounts (which hurt their pride).
And yet there are owners who adopt a Steve-like equation. "If I can’t rent every date for a high enough rate, it’s not worth it to me." Or "my neighbors are asking higher rates on some dates. My home is better." (Naturally, owners feel their home is better, special, more attractive.)
Or they fall victim to the many research or competitive websites that promote rental projections, while ignoring so many actual factors that affect income.
They may read that "2 bedroom 2 bath houses in my town rent for $XXXXX per year" while ignoring that no 2 homes are alike. Slight changes in curb appeal, furnishings, amenities, the view, precise location, and so forth are bigger factors than just the simple ones.
Setting too high rate will:
- Make the property owner’s heart happy.
- But it will make their wallet unhappy!
Then when invited to study the many resources that talented rate managers master, including vastly complicated trends, variables and competition, (sliced and diced in many ways) the prideful owners can seldom invest the huge amount of time on that homework. They find it easier to just let their pride overrule the market, setting arbitrary minimums. And their income suffers.
Steve-like owners refuse to accept that it is the market that determines the rates. As managers all we an do is calculate rates tightly and use them to achieve maximum income. Shooting the messenger accomplishes nothing.
The most difficult task for managers is when an owner gives them conflicting goals. On one hand they want maximum income. On the other hand, they want to overrule the logic that governs rate setting. If rates must be low at certain times, the owner is offended. If rates are high, due to the owner’s minimum demands producing insufficient bookings, they get to blame the manager instead of themselves.
Should an owner insist on having minimum rates or want to dictate their own rates, that will reduce their income by thousands or tens of thousands of dollars per year. Yet if they persist, managers may have no choice but to allow the owner to become a slave to their pride.
And when that is done, I like to say, "May I introduce you to my friend Steve? You and he think alike."
Author: Wm. May – Rate Guru, Vortex VIP
Blog #: 0755 – 06/10/21
Comments: 0
- Topics
- Advertising
- Behavior
- Business
- Covid-19 Virus
- Dog Friendly
- Dynamic Rates
- Family
- Fishing
- Goldener Inns
- Government
- Gratitude
- Health
- Housekeeping
- Interview
- Lodging Management
- Marketing
- Mount Rainier WA
- Ocean Shores WA
- Packwood WA
- Radio
- Selling
- Sunspots Vacation Rentals
- Things To Do
- Vacation
- Vacation Rentals
- Vortex VIP
- Westport WA