vacation rental business

Key Performance Indicators for a Vacation Rental Business

Vacation rental KPIs sounds like a corporate boardroom with PowerPoint presentations and pointy ties. You are a vacation rental manager with a few properties trying to get by. That doesn’t mean you shouldn’t track your business. Leaving aside profit at the end of each month there are metrics you can track to see the health of your vacation rental business. Are you improving or losing traction? What can you adjust for better results? I’ll try to stay away from complicated financial terms. You just need to look at:

Occupancy rate

Take the number of booked nights and divide them by the total number of bookable nights for a given time frame. That’s your occupancy rate. This could be anything between 30% to 100%. For my properties, it’s sitting at 78% on an annual average.

The average length of stay

This one is easy as well. You look at the total number of occupied days throughout the period and divide by the number of guests. Interesting about the length of stay is comparing it to the city average. That will give you a first indication of how well you are doing against the competition.

Cost per night

This is the first type of cost we’re going to talk about. The cost per night takes into account all monthly subscriptions for your property. electricity, gas, internet, heating, garbage to list a few. You sum all of these up and divide by the number of occupied nights you had during that month.

This shouldn’t change much month over month. Even if you have seasonal changes it should average out through the year. In the winter heating costs are higher but in the summer air conditioning increases the electricity bill.

In practice, you should try to keep this at a minimum. Installing LED lighting around the property can decrease your bill by over 40%. You can install faucets that are sensor activated to reduce water consumption. Another idea could be motion sensors for the exterior lights. The lower the cost per night is, the more flexibility you have with your price per night.

The cost per stay

This one gets a bit tricky. It includes costs for one booking and providing the service. You include here cleaning fees. These are the most common expenses per stay. In some cases, you might have damages you need to consider and add up.

How do you know a certain cost should be calculated per stay? It’s a fixed cost independent of length. Even if your guests stay 2 or 6 nights the cost stays the same.

A big one here might be property management fees. If you choose to go down this path they can end up charging up to 35% of the cost of the booking. Some managers choose to do a fixed cost per booking. Depending on their pricing structure they either get calculated here or in the cost per night.

The price per night

Now that you know the two costs you can easily calculate the price per night. It should be bigger than the cost per stay plus the cost per night multiplied by the number of nights. Sounds complicated? Let’s take an example.

The cost per night is $3. The cost per stay is $50. The commission for the listing website is 15%. The guests end up booking for 8 days. Our minimum price per night would be $3*8+$50 = $74. Taking into account the commission $74/85% = $87. So the price per night ends up being almost $11.

At this price point, we are just breaking even. But surely we can charge more than this. Of course! As long as our number of bookings stays constant. You see, there is a fine balance between price per night and occupancy rate. With time and a lot of trial and error, you will learn to juggle both.

I’ll leave some scenarios here, for now. Increasing prices per night over a certain value will decrease the occupancy rate. One way of increasing price and keeping occupancy rate up is decreasing the length of stay. On the other hand, this affects the break-even point. The only thing you can do is A/B test different scenarios and see which fits best.

The average number of guests

Depending on the size of your property you will host anything from 2 to 6 people or more. But not all reservations are the same. I calculate the average number of guests by just doing a normal average for all reservations. For me the average number of nights per stay is similar. If for you they differ a lot you can weigh those in the formula.

I like to look at this because it gives me a new perspective. For roughly the same price/night some people decided to split it by 2 others by 6. I’m interested in learning more about the one couple that travels alone. They are clearly willing to pay more and have a higher chance of upselling.

Value per customer

And that’s a perfect way to introduce the concept of value per customer. The value that affects profitability the most. This is the metric you should always try to increase. You can do this by increasing the price, but this can only take you so far. Another way, as I was mentioning above, are upsells.

You can upsell anything, but of course, some stuff works better than others. The easy approach would be merchandise, branded cups, and t-shirts, either with your brand or with your city or a famous landmark nearby. Upselling can be taken to the extreme. I know a guy in London who sells mattresses. If you liked how you slept on his bed you can buy the same exact mattress. Books fall into the upsell category. Or extra services are another way to go. Renting out bikes, or hiking equipment.

Another way to increase the total value per customer is with cross-sales. Did your guests buy insurance for this trip? You can help with that and earn a commission on the side.

The health of your vacation rental KPIs

Not all numbers and KPIs will look good all the time. Your small business will have ups and downs. The health of your vacation rental business will be determined by how well you manage it. Understanding some of the major KPIs and learning how to influence them is the first step towards success.

Be patient and take your time. You’re not going to get everything right from the very beginning. But with time and a lot of practice you’ll get the hang of it. A vacation rental business is not the hardest thing to manage. If you love hosting, meeting new people, and putting a smile on someone’s face … Hey, that’s another good KPI… number of smiles per person. You should try that one.