My experience on this topic began with a foundation in the hotel industry where I saw distribution, revenue management, and use of online travel agencies (OTAs) become a big part of how we planned revenue.
When joining the vacation rental industry, I brought that experience with me. Initially, I ran my revenue budgeting and planning very similarly as I did when I was a hotelier because I simply did not know any different. However, I soon discovered the things I had learned from my hotel days also worked really well for vacation rentals.
One of the biggest lessons that transferred was thinking about distribution as not just how much business is “allowed” from each channel but at what price and when. To create an effective revenue plan, distribution is a necessary part of that plan.
In general, distribution channels include:
Your branded website
SMERF – not little blue people, but an acronym for Social, Military, Educational, Religious and Fraternal groups and refers to group business that falls into a social category
OTAs – including several platforms and models (although we will only cover two)
Hotel-Style and Industry-Specific OTAs
All OTAs are marketing platforms; they market your products to consumers who might not otherwise find you. In addition to the reservations made through the OTA, property managers will also see a lift in direct bookings if they market and brand properly on these platforms.
Traditional OTAs include Expedia, Booking.com, and TripAdvisor—let’s call them hotel-style OTAs. This is not an inclusive list, and many of the other OTAs are owned by one of these larger entities. Hotel-style OTAs charge a 15–25 percent commission.
What I like most about using these platforms for vacation rentals is that you can access exposure to new guests because the shoppers on these sites are typically hotel guests, meaning that the product is in front of someone new to the category of vacation rentals.
In our industry, the industry-specific OTAs that we are most familiar with are Vrbo and Airbnb. Vrbo started as a listing site that delivered leads for guest stays, and then converting those leads was up to you. Some PMs still use this model with Vrbo, but most of the industry has transformed to a commission model where you pay part of the commission, and the guest pays part of the commission (via a fee). It is no secret that both Vrbo and Airbnb have started rolling out a commission fee of 12–15 percent to be paid by the property manager. What was once a very low acquisition cost is rapidly increasing.
I am unsure about whether these platforms bring new guests who were not already interested in vacation rentals; however, with their brands being so strong, it is imperative to include them. Luckily, these marketing platforms are fairly inexpensive (for now). Understanding acquisition costs related to OTAs is both essential to the business and to understand the rest of this article.
The last year has been an “E” ticket for the vacation rental industry.
Approximately one year ago, I had conversations with a PM who believed that they were going to lose the business they loved. Many companies laid off team members they considered family and loyal employees, which meant that marketing budgets were slashed not only for PMs but also for OTAs.
During the pandemic, travelers felt more comfortable driving someplace and staying in a vacation rental home or condo, which resulted in phones ringing off the hook with much of the industry seeing record-setting occupancy rates. Because most hotel-style OTAs’ revenue is derived from the hotel industry, they could not invest in marketing to the levels that they had invested previously.
This was a coup for the vacation rental industry. The year 2020 was very profitable for rental managers in drive-to destinations that were allowed to have visitors, which led to record business combined with lower acquisition costs.
Bookings for vacation rentals in 2021 continue to outpace those in any previous year. Demand is higher than available supply in many markets (for various reasons, including more owner use), which leads us to wonder how property managers continue to capitalize from this environment. The answer is that PMs can capitalize in two ways: more inventory and lower costs (specifically, acquisition costs).
A Good Time to Shift-Share
Acknowledging that obtaining more inventory takes time, PMs must do something I call “shift-share.” Shift-share means focusing on shifting from a more expensive channel, such as some of the more expensive OTAs, to a less expensive channel. I will admit that this is a slippery slope because many OTAs offer benefits for having availability year around.
Strategic channel management will help keep inventory year-round but lower conversion on those sites by increasing rates for those channels. Shift-sharing allows PMs to shift attention and marketing dollars to the most profitable channel(s).
The vacation rental industry also has another headwind; Expedia, Airbnb, and Vrbo specifically have returned to investing in marketing—including performance marketing and TV advertising—taking the lead position on where to book vacation rentals. The foot race to own the vacation rental category is ongoing, and the budgets of these brands are substantial.
Part of their advantage is that they—Vrbo and Airbnb—understand their audience (your guests) even better than most of us do. Millennials want to stay in vacation rentals but also want to have an easy way to search, compare, and book. Their selection is larger, and their websites (including mobile sites and apps) are easier to use.
The vacation rental industry is unique. Every destination is different, and in most cases, every home is unique, which is not something that can easily be commoditized. We do have the upper hand regarding our product and brand.
So how does a professionally managed vacation rental company compete with Goliath?
1. Plan in advance how much from each channel you want to capture. Understand your true costs for each channel.
2. When you list with OTAs, ensure you are branded at every opportunity.
3. Once guests from a channel stay with you, own them for all future stays.
4. Own your brand in your market. Most vacation rental destinations are in drive markets, which means you can carefully target (without huge expense) those potential guests. Ensure you are well represented at your brand and destination levels.
5. What does conversion look like on your website? What can you do to increase that? Does your marketing company work with you on strategies to improve conversion?
6. If you are still not mobile-friendly (not mobile-first), you will lose bookings. Make mobile search and booking easy.
7. When you are investing in PPC, ensure that you truly understand how you are investing every dollar. Dig into each campaign, and make sure you are not overspending on keywords that are not converting. This is an ongoing effort.
Many destinations are already full for summer, so ensure that you are utilizing, targeting, and booking through the most profitable channels for any remaining inventory. Next, start working on the future. I hope 2022 is another record-breaking year for all of us, but I suggest that everyone look at their channel costs this year to make sure next year is as profitable as possible by participating in shift-share.