Growing profitability for your rental business starts with increasing occupancy while selling nights for the highest price possible. We’d like to share with you a strategy to generate stronger profits now and in the longer term. 

We’ll explain how you can use Guest Booking Options to provide guests with more choice and increase your booking conversion, while maximising your nightly rates and lowering your financial risk of guest cancellations.

How have vacation rental bookings changed?

During the COVID-19 pandemic a large and permanent shift has occurred in the short-term rentals industry.  

Travel restrictions meant that booking travel became incredibly uncertain and financially risky for travelers. Many travelers experienced financial loss, complicated rebooking processes (often with surcharges) and the hassle of trying to rebook planned flights or accommodation from overloaded customer support teams. 

Uncertainty has been amplified by ever changing lock-down restrictions and travel bans. Dates, phases and stages have often changed, with now 3 and in some places 4 waves of COVID-19 being recorded. In the current environment, it is still incredibly “risky” to book travel, and whilst we are seeing strengthening demand for travel, most guests are searching for ways to minimise financial risk before booking. 

I was asked last year whether guests could buy insurance against cancellations due to COVID-19 related restrictions – however I was told by several people in the short-term rental insurance industry that they simply couldn’t provide a product that was not prohibitively expensive. The risk of cancellation was (and remains) too uncertain.

The main solution (pushed by OTA channels) was to offer “fully refundable” bookings. With such policies, the guest has the right to cancel their booking for a full refund for any reason, usually up to either 30, 14, 7 or 5 days before check-in (Your.Rentals supports Free 30, Free 14 and Free 7 policies). While some Property Managers have adopted fully refundable bookings (with highly encouraging results), many others are nervous about being left with empty rooms and no revenue, while others are operating under dated contracts with landlords and cannot take the financial risk themselves.

What does the data say and mean?

Here is a short update to data that we presented earlier this year, summarising the period June 2020 to May 2021:

  • Listings with a “fully refundable” policy have been booked 5.2 times as often as those with a “partially refundable” offer.
  • Average day rate (ADR) for “fully refundable” is 45% higher than for “partially refundable” bookings.
  • Guest cancellation rates of “fully refundable” bookings (where check-in has passed) have just a 20% higher cancellation rate than “partially refundable” bookings.
  • 34% of “fully refundable” bookings are cancelled within 7 days of being created, meaning that the calendar is quickly reopened for bookings again.

Guest cancellation rate (check-in quarter)

Cancellation rate for fully vs partially refundable bookings

Therefore, we’ve recommended that Property Managers utilise “fully refundable” cancellation policies to generate 5.2x more bookings with only a 1.2x higher cancellation rate of those bookings. A third of these cancelled dates are quickly freed up to be booked by other guests, meaning the loss of revenue is minimal.

But we’ve also been hard at work developing a new feature that will provide property managers and hosts with more control, and support them to combine cancellation policies and pricing as a strategy to help earn stronger profits.

Introducing Guest Booking Options

Your.Rentals has just launched a new feature allowing you to set up to 3 different cancellation policies at 3 different price levels ➞ allowing you to create up to 3 different guest offers when they are booking your property.

Booking.com pioneered Guest Booking Options (they call it “Rate plans”) years ago and other channels such as Expedia have recently begun to support them. Essentially, Multiple offers (different cancellation options at different price points) are presented to the guest when they are booking your property, and they choose the one that fits their needs in terms of pricing and flexibility.

Experience shows that when presenting 2 offers (instead of 1), booking conversion increases by around 30%.  And those numbers are from before COVID-19 arrived.

What’s more, by offering “partially refundable” offers at your normal price, and “fully refundable” for a higher price, you can increase your ADR and cover the slightly higher cancellation rate of “fully refundable” bookings.

Guest Booking Options are here to stay, and you should have a strategy to both offer and profit from them. And that time is now!

How to use Guest Booking Options to your advantage (and profit)

To use Guest Booking Options to your advantage, your basic strategy might look as follows:

  1. Set your standard rates (Basic and Seasonal rates) in the Your.Rentals builder according to your “baseline” cancellation policy (the one you normally offer).
  2. In the Booking Rules step, set your Baseline cancellation policy to match the rates that you created in Step 1.
  3. Create 2 additional cancellation policies and increase your rates for more flexible (fully refundable) policies and reduce them for stricter ones (non refundable).

We recommend that you set all 3 policy types, and in the following priority order: 

  1. Fully refundable
  2. Partially refundable 
  3. Non-refundable

The reason we recommend that is:

  • Not all channels currently support Guest Booking Options – in which case Your.Rentals will take the highest converting policy supported by the channel and send that offer.
  • Not all channels support all cancellation policy types – for example Booking.com has stopped support for the “partially-refundable” policies Flexible, Moderate and Strict during May 2021. We have introduced a new policy “Super-flexible” for those who wish to still send a partially-refundable policy to Booking.com. 

Our recommendation is that Property Managers set the following policies:

Offer Cancellation policy Rates increase/decrease Example
1. Baseline policy Super-flexible
(Partially refundable)
Set your standard rates for this policy (ie. Basic Rates and Seasonal Rates in the Your.Rentals builder) * €100 / night
2. Additional policy Free7
(Fully refundable)
Set a 30%** price increase to your standard rates (which apply for the Super-flexible policy above) €130 / night
3. Additional policy Non-refundable Set a 10%*** discount to your standard rates (which apply for the Super-flexible set above) €90 / night

* Note: If you currently have a fully refundable (Free7, Free14, Free30) policy, you might want to reduce your standard rates first if you increased rates when you set this.

** 30% is our recommended mark-up based upon a 1.2x increase in guest cancellations compared with partially-refundable bookings – allowing you to profit from the Fully refundable bookings that are not cancelled. 

*** 10% is our recommended discount based upon 100% guaranteed revenue from Non-refundable bookings.

By using this combination of policies, we’ll be able to send the best converting policy to all channels and most importantly, Booking.com will receive all 3 offers – boosting your booking conversion rate.

Should you be more “risk-averse” or perhaps you see that your occupancy is already high for the coming months, you could skip the Fully-refundable policy and set the following policies.

 

Offer Cancellation policy Rates increase/decrease Example
1. Baseline policy Super-flexible
(Partially refundable)
Set your standard rates for this policy (ie. Basic Rates and Seasonal Rates in the Your.Rentals builder) * €100 / night
2. Additional policy Non-refundable Set a 10%** discount to your standard rates (which apply for the Super-flexible set above) €90 / night

* If you currently have a fully refundable (Free7, Free14, Free30) policy, you might want to reduce your standard rates first if you increased rates when you set this.
** 10% is our recommended discount based upon 100% guaranteed revenue from Non-refundable bookings.

You should assess your own particular situation, and monitor the cancellation rates for bookings on different policies, and adjust your prices accordingly. Your account manager at Your.Rentals can help you with this.

Are all OTA channels on board?

Currently only Booking.com and Expedia allow you to send multiple offers to be displayed to the guests when the book.  We’ll be sending multiple offers that are supported by those channels, and we expect an increase in booking conversion rates. 

We are engaged in discussions with other channels about supporting Multi price offers, and the good news is that some larger channels are planning this. Where a channel only supports one policy/ offer, we’ll send the best converting policy/offer, or the next policy that matches their supported cancellation policies.

Our Direct Booking features are also being updated to support Guest Booking Options – so when a guest is booking via a Your.Rentals Website, or via our booking widget, they’ll have the choice of the offers that you have defined. Keep an eye on your inbox for release dates.

Summary

Guests are asking for more options to manage uncertainty (during COVID-19 and in the future). By providing more options you’ll have a higher chance that guests will book your property. Offering fully refundable bookings should not be seen as increasing your risk of lost revenue, but rather as a chance to increase occupancy and profitability if you set your pricing correctly.

A relative veteran of the short-term rentals industry (12 years and counting), Andrew grew up in Australia and has called Scandinavia home since 2000. He founded Your.Rentals in late 2016 and is CEO. His first MBA was from Melbourne Business School and his second he has earned over the past 20 years as an entrepreneur.

Andrew Martyn

CEO & Co-Founder, Your.Rentals