For vacation rental owners and managers, it is essential to evaluate the performance of their properties to determine whether the business is performing optimally and to identify areas for improvement to correct any deviations that may arise from this analysis. In general, the evaluation of property and business performance is based on the observation of return on investment, occupancy rate, revenue and market positioning.
However, before starting to evaluate the performance of your holiday rental, it is necessary to build a proper Revenue Management strategy, as this is what will allow the business to maximize revenue and optimize profitability. At Icnea, our clients have Revenue Management tools for their businesses such as Abal Consulting. In addition, it is also advisable to use a Business Intelligence tool such as Abal MyReports, integrated directly into our software, which presents this data easily for analysis and interpretation in the shortest possible time.
What elements should be taken into account to evaluate the performance of the holiday rental?
Occupancy rate: the objective of a holiday rental business is to maintain an occupancy rate at the highest possible levels. The occupancy rate shows the percentage of time a property is occupied by guests, so the higher the occupancy rate, the more certain we are that demand for our business is at a good level. However, it is an indicator that must always go hand in hand with the price, as a very high occupancy rate will not make sense if the price is too low and we do not obtain profitability.
To calculate the occupancy rate it is necessary to divide the number of occupied days in a period of time by the total availability and multiply the result by 100.
Total revenue and revenue per night: Total revenue, as the name suggests, shows the volume of revenue achieved over a period of time. This can give us a good overall indicator of the health of the business, but to obtain valuable data it is necessary to complement this information with other indicators that we explain in this article. One example is the revenue per night, also known as ADR (Average Daily Rate), which shows the average price charged by an accommodation to guests for each night spent at the property. Having a record of the revenue per night is useful to analyse the revenue obtained in comparison to the average price that has been set and the occupancy volume.
With this information, the owner or manager can evaluate the revenue performance of his or her holiday rental against competing businesses in the region where he or she operates and apply corrections to the pricing strategy by also comparing it to the occupancy rate.
To obtain this data it is necessary to divide the revenue earned in a given period of time by the number of nights the property has been rented in that period.
RevPAR: also known as ‘Revenue per Available Room’ is an indicator that helps to evaluate profitability based on occupancy and average revenue per night. In this way, RevPAR shows the revenue generated by the property each night it is available, i.e. only the number of available nights of the accommodation will be used for its calculation. This indicator allows a comparison between different periods of the same property.
Having a high RevPar indicator indicates that the property has good revenue with high occupancy rates and revenue per night, while a low RevPar indicator indicates that the property has good revenue with high occupancy rates and revenue per night, while a low RevPar indicator will require attention to pricing strategy and work to improve occupancy.
To calculate RevPar it is simply a matter of multiplying the occupancy rate by the average revenue per night.
Return on Investment (ROI): ROI is the indicator that shows the profit made in relation to the costs of refurbishment, repairs, servicing and maintenance of a property. To determine that a property is profitable, it must maintain a positive ROI.
ROI is calculated by dividing the net income over a given period of time by the investment made during that period and multiplying the result by 100. If the ROI is low, it is necessary to work on strategies to improve occupancy and income.
Length of stay and booking window: these two indicators provide information on guest behaviour and help to fill gaps in occupancy. Length of stay is a factor closely linked to seasonality and the area in which the business is located, so it can vary throughout the year. Taking this data into account can guide decisions on setting a minimum length of stay based on the knowledge we have of what guests come to our area for. Thus, it is not appropriate to set very long minimum lengths of stay if market information tells us that weekend stays are more sought after in our area.
On the other hand, the booking window displays information about the booking behaviour of guests. Do they book well in advance or at the last minute? If last minute bookings are common in the market where the business operates, we should not be so concerned about having spaces available in the immediate weeks and, on the contrary, if the trend is for early bookings and no long term bookings, it will be necessary to review visibility and pricing strategies.
Competitors analysis: Revenue Management and Business Intelligence tools help provide insight into the performance of a holiday rental business compared to competitors. This information is invaluable in determining whether the business is aligned with local prices and occupancy levels. As with other types of business, this analysis can identify opportunities and threats to work on in order to optimise performance.
Some of the key points to consider in the competitive assessment are:
- Competitor identification
- Comparison of tariffs
- Pricing strategy
- Occupancy rates
- Reviews
With these first indicators, it is possible to assess the performance of a holiday rental by taking into account the current state of the business and to prepare or redirect the necessary strategies. This will make it possible to cover weaknesses and ensure that growth is sustained over time.