Driving More Revenue per Guest for Short-Term Rentals
Welcome to the first edition of Enso Hospitality Unlocked - an industry newsletter for short-term and vacation rental property owners and operators. Here you’ll find the latest industry trends, insights, interviews, and best practices with a focus on optimizing efficiency for owners/operators.
Global Short-Term Rental Market
According to SciTech Today, the global short-term vacation rental market generated a revenue of USD 109 billion in 2022 and is expected to reach USD 228 billion by 2030. Europe leads the earnings (33%), followed closely by North America and Asia (approx. 21% each).?
While market research indicates year-over-year growth in the vacation rental space, external pressures—such as local regulations, rising bank lending rates, and cost-of-service inflation—are squeezing profitability for many operators. For example, AirDNA reports that the average revenue for an Airbnb property in the U.S. is about $33,000 per year, but top-performing properties can earn significantly more. However, many once very profitable properties are now at risk due to these challenges and pressures on the bottom line.
As we head into 2024, it’s safe to say that many operators are feeling the pinch. So, how can your property become a top performer? The key lies in effective upselling strategies.
For those Short-Term Rental Operators that do offer upsells, they drive 34-50% more revenue per guest.
The Unit Economics of Upselling
Understanding the potential of upselling can transform your business model. Let’s break it down by looking at small, medium, and large vacation rental operators.?
Small Operators: For operators with just a few properties, the potential for upselling may seem limited, but even a modest strategy can yield impressive results. For instance, small operators can generate an additional $500 to $1500 annually per property by offering operational upsells like early check-in and late checkout. This may not seem like a lot, but for a small operator managing three properties, that’s an extra $1,500 to $4,500 each year—significant revenue that can be reinvested into marketing or property improvements.
Medium Operators: As we scale up to medium operators with a portfolio of 10 to 100 properties, the revenue potential grows substantially. By implementing a mix of operational and experiential upsells—like guided tours or unique local experiences—medium operators (say with 50 units) could potentially add $25,000 to $75,000 per year. This not only boosts revenue but also enhances the guest experience, creating loyal customers who return for future stays.
Large Operators: For large operators managing 100 or more properties, the potential for revenue growth through upselling is immense. For an operator with 250 units, with effective upsell strategies in place, they could see additional revenue upwards of $125,000 to $375,000 annually. Imagine leveraging data analytics to personalize offers for guests based on their preferences and behaviors—this could significantly enhance conversion rates and guest satisfaction.
As a property manager, it’s about growing your gross margins - you can do this with upsells
What to Upsell?
Now, let’s dive into the two types of upsells: operational and experiential.?
Operational Upsells
These are typically straightforward and can be automated using technology. Examples include:
Early Check-In + Late Checkout: Flexibility is a top priority for many travelers, and most will pay a fee to optimize their stay. Offering early check-in and late checkout provides convenience for your guests and can be a deciding factor for those who prioritize their time.
In-Room Upgrades: While you may not be able to charge for a better view like a traditional hotel, you can charge for additional amenities like snacks, welcome baskets for special occasions (anniversary, birthday), and even fluffy robes and slippers. If your property has amenities like a fire pit or hot tub, consider creating a ‘VIP’ package that includes special preparations before the guest’s arrival.
Mid-Stay Cleaning: Offering mid-stay cleaning services can be a valuable upsell, especially for families. This not only generates revenue but also enhances the guest experience, making them feel well taken care of.
Gap Nights: Offering slightly discounted rates for gap nights or ‘orphan’ nights is another excellent way to maximize revenue on your property.
Pet Friendly: Properties that welcome pets can earn 11% or more than their non-pet-friendly counterparts and enjoy higher occupancy rates, appealing to travelers who want to bring their furry friends along.
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Experiential Upsells
In contrast, experiential upsells require a more nuanced approach. These involve offering unique experiences—think guided local tours, cooking classes, or special dining experiences. While these can be more complex to coordinate, they often yield higher returns because they cater to the growing demand for personalized and memorable experiences.?
Over 72% of guests who choose vacation rentals are looking for unique experiences along with their stay.
To succeed with experiential upsells, consider the following:
Local Tours and Experiences: Partnering with local tour operators to offer exclusive experiences not only adds value to the guest’s stay but can drive revenue for you while supporting local businesses—a true win-win.
Restaurant & Shopping Recommendations: Collaborating with local businesses and providing guests with curated recommendations ensures they explore and enjoy the region, often earning you a referral bonus in the process.
Airport Transportation: Offering airport transportation can significantly enhance the guest experience, providing convenience and reducing stress for travelers. This is another opportunity for revenue generation that can easily be integrated into your upselling strategy.
While operational upsells may be easier to implement with the right technology, experiential upsells can enhance the overall guest experience, making it memorable and unique.
Key Takeaways
Upselling presents a significant opportunity for vacation rental operators to increase their revenue while enriching the guest experience. By understanding the unit economics, leveraging both operational and experiential upsells, and engaging with guests thoughtfully, you can ensure your property thrives in a competitive market.
The Non-Upseller: This host/operator chooses not to implement any upselling strategies. While they may enjoy steady bookings, their revenue potential remains limited. On average, they might earn around $33,000 annually per property, with little room for growth. By not considering upsells, they leave significant revenue on the table, ultimately impacting their bottom line.
The Operational Upseller: This STR Operator incorporates operational upsells like early check-in, late checkout, and in-room amenities. By automating many of these processes with the right technology, they can enhance the guest experience while saving time. This operator could potentially increase their annual revenue by an additional $1500 to $5000 per property. With automation, they not only streamline their operations but also boost their gross margins by up to 30% without adding a substantial workload.
The Comprehensive Upseller: This operator goes further by integrating operational and experiential upsells. They offer early check-in, local tours, dining experiences, and more. By leveraging technology to manage these upsells effectively, they can significantly enhance guest engagement and satisfaction. This comprehensive approach can lead to an impressive increase in annual revenue—potentially $50,000 or more across multiple properties. By focusing on upselling, this operator could boost their gross margins by as much as 50%.
The data clearly shows that with the right technology and systems in place, focusing on upsells can dramatically increase revenue potential. Whether you’re starting from scratch or looking to enhance your existing strategy, prioritizing upsells can unlock substantial opportunities for growth. Embrace the power of upselling to transform your vacation rental business and maximize your success!
Take the Next Step
Sources:
?1. Based on STR Operator survey, 2024. N=4467
2. ?Based on AirDnD research https://www.airdna.co/industry-report/2023-us-airdna-outlook-report
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