How to Master Revenue Management in 2021

April 16, 2021 | Andrew Kitchell

In this post, my goal is to show you some data and tools that can help you uncover new insights about your market and your listing. I’m highly confident that you’ll be able to leverage these to both save time and make a lot more money. If you’d prefer to learn this content via video, you can watch our webinar on revenue management.

What is Revenue Management?

First off, let’s cover what revenue management is. Revenue management is the practice of optimizing the earnings for a business. In the hospitality space, revenue management is practiced by attempting to predict demand in the market and act to optimize pricing and availability in order to increase earnings. Today, there are a number of tools, strategies and data sources available that can be used to guide revenue management. We will discuss those tools, strategies and data sources in this article.

Revenue management in the short term rental space

I’ve been working in the accommodation space for quite a while. In fact, I paid for my first business by setting up an Airbnb and I fell in love with the category partly because I hosted some of the most amazing people. In fact, Brian Chesky, the CEO of Airbnb was one of my guests. He came to stay with me all the way back in 2010 and luckily he gave me a 5-star review.

Since 2010, I’ve worked in both the operating and the technology side of the accommodation space. On the operating side I built Lyric and other hospitality brands.

Lyric was a premium shortrimental operator. We designed 700 units in 15 markets and welcomed tens of thousands of guests in tourist spaces. Our average review score after all those stays was 4.88. We actually ran the #1 hotel in New York City.

I have been working around technology and data for real estate and short term rentals for a long time. My first exposure to this was with a team called Movity. Movity used data to inform home purchasing decisions. We were quickly acquired by Trulia.

But I learned the power of using data and software to form better business decisions. I then founded Beyond Pricing, before starting Wheelhouse to take a really deep data science dive into revenue building for the short term rental space. This space is so unique that data science can be a real additive tool to anyone’s revenue strategy.

Using Data to Double Your Revenue

Today, we have some very meaningful and impactful data in Wheelhouse. Those using Wheelhouse, increase average revenue per listing by 22.6%. And yes truly we had users who increased revenue by more than 100%. Now, I recognize this seems like a ridiculous claim, so I’ve included a real review below to prove it.

I’m equally proud of how we’ve taken care of customers. So we do have happy customers in 70+ countries. And then we have a CSAT score which stands for Customer Satisfaction Score of 99%.

And you only score that high if you take care of everyone, which Wheelhouse does. Whether you have a single listing or a thousand listings, it’s really important for us to be helpful and additive to your revenue mission strategy. Your business success is critical to our success as well.

So, what is Wheelhouse?

Well, Wheelhouse is a software that can help you with revenue management but also market intel and competitive sets or benchmarking. We’re known for being very easy to set-up, highly customizable and easy to automate as well.

All the software we’ve built, is built on top of the Wheelhouse best in class dynamic pricing engine. Now this is a pricing engine that we’ve been building for a long time. We have 6+ years of data, we ran continuous A/B tests against the data. And every single night we ingest new valuable data to price every single market and every single listing better.

Where is Wheelhouse available?

Today, Wheelhouse is available on 6 continents, in more than 70 countries, in more than 600 markets and more than 2000 cities. And we actually add new markets every single month. If you visit us at usewheelhouse.com/markets, you can see a list of markets. And if we’re not in your market for some reason, please send us a note and we can get it set up quickly.

How to Master Revenue Management in 2021

In this post, you’ll learn, Mastering your Market, and the three local demand curves that you need to understand to set up your calendar for success.

Next, we’re gonna learn how to become a Rapid Responder. And a rapid responder understands that every single night your market evolves. So how can we put in place the right processes or the right software systems to make sure that we are responding to our market in real time.

And lastly, this probably sounds like a big promise as well, but we’re gonna truly teach you how to Capture the Best Bookings.

In each section we will discuss a challenge, a basic solution, and then we will show you how Wheelhouse’s automation can help you and finally we’re gonna show you the expert solution — how to maximize that revenue strategy even further.

Well, it’s really designed for anyone who’s taking an active role in building the business, hosts and owners, property managers, revenue leaders. We’ve designed this content to be valuable for anyone who’s looking to grow their portfolio or to improve the performance of their current portfolio.

Part 1: Mastering Your Local Market

Adjusting prices around local demand patterns can be everything from frustrating to confusing to intimidating.

However the thing to keep in mind is as soon as you list a property online you are doing revenue management.

The simplest strategy to take in order to accomplish this is when a host, or an owner, or operator decides to have the same price every single night over the course of the year.

Now, while it’s very easy to describe this pricing strategy to your guest, it’s definitely leaving revenue on the table. Now, a slightly more advanced strategy is a seasonal strategy.

So a seasonal strategy often says there’s a low time or a high time in your market and you priced the two seasons differently. So, low season obviously has a low price. Another strategy we see that involves two prices is the weekday, weekend strategy.

So usually, we see that weekend prices will be increased and during the weekdays prices are lower but again the same price for all those weekends and weekdays throughout the whole year. And lastly, another strategy that we often see is a big event or holiday strategy.

And this is where people have essentially the same price throughout the entire year however they know there are a few big events or a few big holidays near them and they raise their prices by some amount during that big event or holiday.

The 3 Key Demand Drivers

Well, there’s actually some good news and some good learnings in what we just saw. Because, every market has 3 key demand drivers and they are:

Seasonality. Seasonality is a true demand curve, it’s the most predictable, it’s the most reliable and it impacts your whole market. So think about most people arriving at a destination at roughly the same time of the year usually tied to weather. So if there’s a hot or cold destination when there’s gonna be snow people are gonna arrive at about the same time every year. So that’s why it’s so predictable and so reliable.

Day of week. Now that second pattern we saw, the weekday, weekend strategy, well there is a local demand signal or local demand pattern around the day of week. And the way to think about this, is “what day are people arriving in your market on a weekly basis?” Do they show up on Thursday because they want to stay for a long 3-day weekend? Do they show up on Monday to work through the week? Maybe that pricing, maybe that signal has evolved recently but it’s really important to understand that day of the week pattern when people are arriving in town.

Local events and holidays. The last big demand drivers are local events and holidays. So if you’re pricing this differently you’re on the right track. But the challenge with local events is they’re the most unpredictable. They’re the most variable and they have the broadest range of impact. So we see times when small concerts or weddings even can impact a small neighborhood or microhood whereas you can also see big events or festivals, holidays, etc. that literally impact the whole market. So the size and the scale of the events is really difficult to predict.

Now, while we have these 3 demand drivers, the important thing to realize is that when combined, those demand drivers usually add up to a chart that looks something like this.

And you might be asking, why is this important? Why should I care about this? And the answer is actually relatively simple to visualize, so let’s look at it below. Let’s pretend that this light pink area is your current pricing strategy and this dark pink chart that has now been overlaid is your actual demand. Well, this dark shaded area is representative of your revenue opportunity. You’re leaving money on the table.

Based on local demand patterns you can increase your rates when demand is high and you probably want to decrease your rates when demand is low just to capture more bookings from both of those strategies. When done correctly, this will help you increase your revenue dramatically. This is why you need to become a Demand Detective.

Becoming a “Demand Detective”

A Demand Detective has an understanding of market seasonality, day of week and local event demand signals and can price listings more accurately, earning up to 20% more revenue.

Let’s look at how you can use your free market report on Wheelhouse to learn more about your market, and then apply those learnings to your listings.

Predicting Seasonal Demand

So let’s watch this first video. It will teach us quickly how to understand our market’s seasonal demand pattern.

There are a number of ways on Wheelhouse to figure out your market’s seasonality curve and to make adjustments as needed. Look at the overall occupancy and change overtime and see what your seasonality curve looks like.

Wheelhouse is already making adjustments to your monthly base price depending on seasonality for your market. But if you ever disagree with any of our recommendations, changing things is really easy and you can make any adjustment as you see fit.

Predicting Day of Week Demand

Let’s watch this video to learn about predicting day of week demand.

If we wanna figure out our day of the week demand curve per market, we can look at our free market review page, the overview tab. Scroll down and look for a day of week, and look for occupancy changes over time and price factor change over time.

Once you have a sense of your market curve, (and you can filter all this information by performance type, by bedrooms etc.) you can go back to your settings page for a particular listing.

You can click to “weekends” and you can either take our Wheelhouse recommendation of more conservative, recommended or aggressive or you can come in and fully customize the settings. For example, if you want to take more,risk on weekends and increase the price by 20% on weekends, all you need to do is customize it and press save.

In every case, you can either take Wheelhouse’s recommended approach, a more conservative or more aggressive approach, or fully customize it and you can do that for every setting available. So, it’s pretty powerful, but mostly you should know that you are always in control.

Predicting Local Events & Holiday Demand

And lastly, we talked about the importance of big events. So there are a number of ways to see events on Wheelhouse, lets watch this video quickly and we can see one of those ways.

Wheelhouse makes it easy to see and adjust around local events near your listing. Click into any individual property to see your calendar which includes prices and pink flags that indicate a local event near you.

Now, you might want to set a custom price for President’s day on February 15th, for example. Even though Wheelhouse will already be adjusting pricing for your listing around this local event. You can customize the pricing by selecting the number of days and then you can either set an automated rate which will increase Wheelhouse’s recommendation by a certain amount, let’s say 20%. Or you can fully customize the rate.

At Wheelhouse, we have our automated pricing engine that does its best to pick up pricing and other demand signals near you but you’re fully in control. We always invite you to make customizations to your revenue management strategy.

Now, let’s talk about automation.

Automating Predictive Demand

Every night Wheelhouse has a predictive Local demand model that evaluates prices at every property near you. By doing this, we’re able to detect price changes and trace those price signals, into signals for how we should price your home.

Lets watch this video and we’ll show you how the Predictive Local Demand model works.

Wanted to learn more about how the predictive demand model works for you? Visit our site here usewheelhouse.com/blog/predictivedemandmodel and we will tell you a whole lot more about how that aspect of our pricing engine works.

Part 2: Responding Rapidly to changing demand

No matter how hard you are trying, you’re probably pricing local events incorrectly. And I don’t say that to be rude. I’m really just saying that because I believe pricing events, local events is really, really, really hard. So for example, let’s just take a look at how quickly a local market is going to evolve. This was the demand signal that Wheelhouse observed in January 1st of 2020 for San Francisco.

All these spikes are local conferences. Now, let’s look just a couple months later and see that by March 15th, all those conferences had been wiped out. So if you zoomed in on the period of Q1 here we’re seeing that all those big spikes are gone, and of course this is because Covid had happened. But by March 15th, well, San Francisco was not even shut down yet as a city, so there still are demand spikes in the future but the market was just changing rapidly.

It’s an extreme example but it illustrates how quickly markets can change by some local demand patterns.

Becoming a Rapid Responder

So, the 2nd critical thing we need to learn is a skill that we call a Rapid Responder. And the definition of this is, the ability to accurately assess the impact of events near you, so you can adjust your pricing strategy around your ever-evolving market.

Let’s watch this video and take a look at our free market reports and leverage that data to make adjustments as we go.

Wheelhouse’s market reports make it easy to see what bookings are currently near you. Let’s look 1 year into the future and we’re going to look to see spikes and demand in the far future.

In this case, we can see that these spikes indicate a big event, Aug 5th, 6th and 7th. If we go back to one of our listings, and click to your calendar we can actually skip ahead to those days in August and take a look at what’s happening in the market.

So in this case, when I click on Friday, I can review that one of the large festivals in town, Outsidelands, is occurring from Aug 6th until Aug 9th.

Let’s say that we want to take a little more risk on these days. We can drag our calendar to select a number of days at one time or we can increase prices day by day, or create a weekend and weekday price.

So again, the first step is to click on events and predict what local demand is going to look like. In this example here, what we did is we went to look at where actual booking patterns were emerging. And that chart showed us spikes of when demand signals were emerging around bookings. So that’s the difference. One is a predictive model, one is the reactive. We’re reacting to booking signals.

Automating Reactive Demand

Wheelhouse can help you automate the reactive demand model. So, when you automate the reactive demand model, not only are we looking at price signals near you to figure out when people are predicting the market will book. We’re looking at actual booking patterns to truly understand when the market is booking. So, let’s look at the reactive model in action. Watch this video.

A reactive demand model can basically detect when events or bookings near you are emerging and make adjustments to your prices. So in this case, we’re just looking at predictive demand near a real listing.

This listing is in Melbourne, Australia. And now we’re going to tag along the reactive model to see what a reactive model is seeing.

So in this case you can see that over the next 4 months or so, we’re actually seeing a lot more bookings, that means that people on this market have lower prices but Wheelhouse is detecting a lot of bookings near you.

We would be recommending you raise your prices. This is a kind of automation you can set up, when we detect bookings near you we can automatically raise your prices. Now, we’re also seeing in the far future that Wheelhouse is seeing a signal of strong demand, in this case next November, December we can see that all the way in the future.

Now, you also see periods where people are priced higher than our reactive model would recommend. In this case what you can see is there is a really slow period, relative to our market. So, the reactive model is really good at just looking at your booking signals and making adjustments.

Now, we run the reactive model every single night, we’re always making adjustments. And if you want to breakout the signals behind or the reasons behind price recommendations we can show you that for the reactive model just like we can for the predictive model as well.

This is a really powerful addition to your tool set. Again this is our automated model. When you automate pricing with Wheelhouse, you’re taking advantage of both the predictive and the reactive model. They’re combined really nice together.

Imagine you could understand how your market is booking on any given day, and you could see every booking near you. Well, the nice thing is, with Wheelhouse, you don’t really have to imagine it.

We’re actually, truly helping you with that. If you want to learn more about how our reactive demand model works. You can go to our blog, you can read about it here. This will give you more insights on how the reactive model is working all day long to price your listings perfectly.

Part 3: Capturing the Best Bookings

So, a decent bet is that bookings make up the vast majority of your revenue. And where some people drive a little bit of auxiliary revenue for early check in, late checkouts or other guests fees, bookings make up a huge percentage of revenue in our category.

Which means it’s no surprise that it is extremely important to capture the right bookings. Now, there are a number of things that kind of impact your ability to get these best bookings. Not all bookings are created equal either.

So, one $800 booking does not necessarily equal another $800 booking. By that I mean, there could be things that lower the value of booking A vs booking B. Let’s take a look at a few of those things.

Automating Reactive Demand

The first revenue reducer that I’m sure you’re aware of are channel fees. Channel fees are what we pay every channel when they bring us business. And while we probably don’t like paying channel fees, the reality is that selling on more channels is a definitively good strategy for increasing revenue.

We’ve been able to see it across all sources of data but you don’t want to sign on many channels and if we can help you distinguish the right strategy for you, please reach out to us. We’re happy to talk more about it.

Cancellations

Now the second revenue reducer is your cancellations. When guests decide to cancel a week or 2 weeks or in 3 weeks sometimes before a stay day. Those rooms can be really hard to sell. So, cancellations can really impact your revenue.

Now, the interesting thing that we’ve seen is that cancellation rates vary a lot by channel.

We see some channels where cancellation rate is basically non-existent and we see some channels where the cancellation rate is more than 10%.

So, our recommendation on how to handle this is actually to set cancellation policies by channel. Usually on channels you can have strict, moderate or relaxed cancellation policy, or a flexible cancellation policy.

If you have a channel near you that has a low cancellation rate, set the cancellation policy to flexible.

If you see a lot of cancellations on another channel, set it to the most strict.

That is the revenue maximizing strategy. Again, we’ve been able to A/B test that so we know that to be the case.

Cancellations

The third revenue reducer and probably the biggest of them all is accepting bad bookings. The good news is this is totally in your control. So, what is a bad booking? Let’s say there was a big event that stretched over 7 days.

And let’s say that 6 months before, you got a 2-day booking, on Thursday and Friday. Well, I would say that this is a bad booking. It’s going to cost you a lot of revenue, because a lot of people were coming to search for that 7-day stretch of time where they can come stay at your place. And now these smaller sizes of inventory are a lot harder to sell.

Particularly because Saturday and Sunday nights are unlikely to book and neither is Monday, Tuesday, Wednesday. So, this booking actually cost you a lot of revenue.

How to Become a Calendar Guardian

The last skill we’re going share with you, but arguably the most important is what we call Calendar Guardian.

The definition of this is leveraging length of stay and lead time. Remember we learned lead time in the earlier section. In order to create dynamic minimum stays that help you bad, avoid bad bookings and capture the best bookings.

Again, we’re gonna go to our free market report to learn a little bit more.

To prevent breaks one of the best tools you can use is minimum stays. Watch this video about it. Click over to our historical tab, and go down to the distribution curve section.

We’re gonna look at the length of stay in our market. We’re gonna go to last month, and see that right now in our market, the average length of stay.

These bars are the average length of stay. So in this case 9% of all stays were 4 or 5 nights but you can see that 54.3% of all the stays were less than 5 nights. That means that about 46% of all stays were more than 5 days. Now we can take that information for your market and apply it to a listing.

In this case we can go to our strategy section, and to our minimum stays and set a global minimum stay of 5 nights.

We can also toggle the Gap Nights functionality, meaning if a 4-night block of days emerges, Wheelhouse will automatically adjust. We can set whatever controls we want on a single day as well.

Whatever you want, you’re fully in control.

You can take the average stay in your market.

You can set a global minimum that is close to that if you want.

And then you can make adjustments as these days approach.

This is how you avoid calendar breaks.

Excellent. So, again just now we went into the market reports, we looked at those distribution curves which I recognize are a little more complicated than some of the other charts we have. But they are really really powerful. And getting your dynamic minimum stays right means you can protect your calender in the far future and still capture the best bookings based on how your market and how your inventory type books. This is really, really powerful.

And of course, you can actually do all these things, all these settings. Everything we’ve reviewed on the portfolio level all at the same time.

You can select any number of properties and adjust their min stays etc all at once . A super powerful way to update your entire portfolio in a matter of seconds.

Automating Minimum Stays

Now, let’s talk about automating minimum stays. Setting minimum stays, and dynamic minimum stays without automation, is really a bit challenging. So, you gotta automate.

If you do decide to automate, Wheelhouse can evaluate your calendar after every booking or every single night and we can see when something emerges that might violate your minimum stay requirement.

We can actually automatically make adjustments to the minimum stay for that small set of nights. We can automatically adjust it to be the right new minimum stay. Let’s take a look at how Wheelhouse can automate minimum stays for you. Watch this video.

The best way to leverage Wheelhouse’s dynamic minimum stays is to automate your pricing counter. First let’s imagine we set our global minimum stay to 5 nights. This means every night on our calendar is gonna be a 5-night minimum stay.

Now, should two bookings emerge where there’s 3 nights between those bookings. Those nights would usually still have a 5 minute minimum stay. However, if you toggle on Gap Nights, Wheelhouse will evaluate your calendar after every single booking and every single night and find those periods that are less than your minimum stays settings and adjust your minimum stays automatically on those days. It’s super powerful.

Also, should we set a time-based minimum stay, so maybe 30 days out, we wanna lower your minimum stay to 4 nights. In 15 days out, we wanna lower your minimum stay to 3 nights. Well, to make these adjustments based on time, Wheelhouse has the permission to go and update your calendar.

So, if you automate you can jump with minimum stays, you’ll save time and you’ll earn a lot more revenue. We think it’s a really powerful tool.” If you wanna go read more about dynamic minimum stays and how they can be applied to your portfolio, of course in our blog you can go read a whole lot more at this link.

Conclusion

Let’s do a quick recap. We learned how to improve revenue with 3 new disciplines:

01. Mastering your Local Market
02. Responding Rapidly to Changing Demand
03. Capturing the Best Bookings.

We also learned 4 new skills. So we learned being a

01. Demand detective- going and finding the 3 signals of local demand near us that we can leverage to set up or counter perfectly for success.
02. Rapid responder- looking at bookings, putting up on our own property and responding to the nearby environment to figure out how to sell inventory at the right price at the right time.
03.Pacing pro- looking at bookings, putting up on our own property and looking at pacing in the nearby environment to figure out how to sell inventory at the right price at the right time.
04.Calendar guardian- leveraging lead time and minimum length of stay to protect our calendar especially in the far future but still capture the best and most profitable bookings.

If you wanna download this material or a cheat sheet, we have it available at usewheelhouse.com/webinar.

Please reach out to us at any time at hello@usewheelhouse.com.

I hope you learned a lot here and look forward to hearing from you soon!

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TAGS: Dynamic Pricing Market Reports Revenue Management Tutorials