As I think I mentioned earlier, I don’t ascribe to one best approach to anything because the variables are always different (and sometimes changing). So while the next several blogposts are going to highlight some of the most meaningful lessons I’ve learned over the years (and am still working through today), all of it could change tomorrow. If you could see the nine journals I’ve filled over the last eight years or so, specifically about revenue management thoughts and ideas in the short-term rental space, many of my opinions and beliefs about the things I'll talk about in these "lessons" have changed – sometimes many times over. I try not to be fickle or irresolute about my beliefs, but if I want to be anything, I want to be open to new concepts, new perspectives, and new techniques; our industry has a cadre of brilliant minds that are guiding its evolution daily and I can’t wait to see how we grow. Inevitably, growth often means change – even changing the things that guide all of my current thought processes today.
Lesson #1 – It’s possible for something to be both right and wrong at the same time.
We’ve all likely seen this cartoon depiction of two people looking at a number from two different angles – one person sees a six and one person sees a nine. The unspoken message or lesson I have gathered that the artist wants to portray is that both people are right, given their respective perspectives. I won’t go into my contrarian thought processes regarding this particular illustration, but you get the point. In general, I will say that one of the most valuable lessons I’ve learned as a revenue manager in the short-term rental space is that the concept of one condition being both right and wrong at the same time is not only possible, but frequent. For example…
Revenue managers are always talking about RevPAR, and it is an important KPI, but at the end of the day, it can be ok and even most profitable to focus on driving occupancy at the expense of RevPAR. Let me explain before my Revenue Manager credentials are revoked...
In Zen, the ultimate reality is not something that can be expressed in words or concepts. Zen emphasizes direct experience and insight, rather than relying on intellectual understanding or beliefs. Does this mean that we disregard intellectual understanding or tried and true theory? Of course not. But recognizing the value of direct experience and insight as it pertains to very individualized businesses is paramount when designing and assessing your revenue strategy.
Obviously, revenue optimization is about more than just occupancy. And yes, as revenue managers, our job is to optimize revenue. Right home, right price, right time, right channel, blah, blah, blah. And we accept the general strategy of driving rate in high demand times and occupancy in low. But I push back on blind acceptance of an “either/or” scenario, particularly without proper consideration of all the variables. The thing about revenue management theory is that it’s theory. But we don’t revenue manage in a vacuum, and we don’t compete on a level playing field. And that’s not a dig at you or your competition, it’s just a reality. Every property manager has a different portfolio makeup which requires different and customized revenue management strategies, which must be marketed effectively to get in front of the right consumer; but you only have control over your own resources. If the strengths and weaknesses of those resources in your organization aren’t thoughtfully considered as you gauge your performance against the market, you may end up comparing apples to oranges without even realizing it.
A revenue strategy consists of many components. A large, multi-market property manager (PM) at scale will likely have a different overall revenue strategy than a small, single-market PM. This is not to say that they don’t both have the same goals of year-over-year RevPAR growth per home, but the actions each PM takes to get there may look different or even counterintuitive to the other. Furthermore, each PM may have to make choices that prioritize something other than YOY ReVPAR growth in a specific scenario. It’s easy to analyze the outcomes of your own business when you have access to or create the baselines, assumptions, and measurement criteria, but it’s harder (read: impossible) to fairly critique others if you don’t have the full context. And just as balance isn’t a static state in Zen, neither is strategy; you might have one peak season where you are focused on driving ADR and a follow-up peak where it’s an occupancy play… And your competitor may be doing the opposite as they read the cards in their hand. It doesn’t mean your strategy is right and your competitor’s is wrong – or vice versa; you don’t have the full context to quantify the success of your competitor’s strategy and subsequent yield tactics. The bottom line is that there are some pretty large grains of salt that appear when you start comparing your business to another. It’s generally not a bad idea to refrain from sweeping criticism while only using your own biases as the baseline.
Another consideration when weighting the occupancy variable: It’s generally accepted that occupancy drives ancillary revenue via fees. Hopefully you’re earning a margin on your fees – not to gouge but to cover the costs tied to the fees you charge. I realize this may not be a very Zen-like sentiment, but you shouldn’t be working for free. We’re coming off a pretty significant “high” for most short-term vacation rentals – high demand, high occupancy, high rates. As rates stagnate or fall as demand slows, occupancy becomes even more important for your business – even in seasons when demand has been historically high and RevPAR growth has generally been achieved via rate. We’re all facing significantly higher costs than we were just a few years ago, but nightly rates are now generally back to where they were those same few years ago. Ancillary revenue via fees becomes that much more important; and you don’t get that revenue without occupancy, and in many cases, occupancy turns (perhaps or even likely at the expense of rate).
Years of revenue managing multiple geographic markets as a centralized function for a single company forced me to rethink the “theory” of revenue management as I always knew it. There is a lot of upside to this structure (namely resource – human and tech), but there are also a plethora of considerations which necessitate contextual reframing of the theory, or at least how the theory is applied. Yes, year-over-year RevPAR growth per home is always the goal, but there are cases (yes, generally at scale) which justify a more vertical approach. I’ll say it again louder for those of you in the back –YOY RevPAR growth per home is ALWAYS the goal. And while I’m not trying to make friends or enemies (big box vs. small guy), I’m just saying I understand and respect a big box company for making decisions that a smaller company wouldn’t – and vice versa. Perhaps this is just another “You do you,” moment...
Don’t hate me. LOL.
-Sarah
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