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Charging for the Extras

By William May
Published: 06/28/04 Topics: Comments: 0

There is a fine line between charging customers for the products and services you sell and nickel- and-diming them into submission. In recent e-mails, online groups and phone calls there have been a flurry of questions from owners about what they can and can not charge for. I've also noticed that a big percentage of group replies and advice is flawed and risky.

On occasion, I have been accused of being negative with certain aspects of landlording, but nothing could be further from the truth. I love hosting guests, offering them a good value for their money and - oh yes - making some money as well. But any kind of real estate management is fraught with risk, especially those with insufficient experience or those who fail to educate themselves to the cons as well as the pros of ownership. Offering strangers the use of your expensive asset is not something that should be done casually.

SETTING GOALS:

New owners often presume they should charge for vacation homes as much as is charged for long-term rentals: kind of a one-fee-fits-all theory. More experienced landlords sometimes become greedy and charge at each and every opportunity. New owners try to design their pricing strategy based on their experience as renters, while long-time owners have learned to approach such decisions from an investor's perspective. So I thought it was time to examine how and why rates, fees and other charges should be structured for maximum guest satisfaction as well as owner profitability.

If you've been reading VROA newsletters for a long time, you know I frequently plead with owners to set specific and personal own goals, strategy and tactics. This is because there is simply no one answer for every owner. In short, how you operate your vacation rental depends on what you want out of it.

On the other hand, there is a proven method for approaching the most intricate projects: think large and then act small. To do that, owners must decide what they want to happen, examine the options of achieving that objective, choose the best methods available and then execute them faithfully.

Sounds kind of like a management seminar, doesn't it? Sorry, but the worst thing owners can do is to ask and heed advice from others who may have little rental experience, or any kind of business for that matter. It's the blind leading the blind. Another sin is to concentrate on the joys of renting without preparing for the headaches. If you think like a Boy Scout (Be prepared!), then you'll love renting your home.

EDUCATION:

The best thing an owner can do is to take the time to study and learn their craft. You may be thinking this reminder is because VROA is developing owner certification and property inspections that will test whether owners and homes are ready to rent. On the contrary, we are providing those programs because we want owners and guests alike to find renting a valuable and worthwhile arrangement. There is nothing we offer that an owner can't develop on their own, and we have learned many owners will take the initiative to start out well prepared. And even though our membership is growing, there are still tens of thousands of owners who choose to go it alone, suffering through their problems without good guidance or support.

As an industry we often have ourselves to blame. Unlike older, more formalized industries, we have failed to set standards (even informal ones) and educate the public on what they can and can not expect from vacation rental homes. In time, as VROA grows we hope to put a dent in that large obstacle. The growth of vacation rentals makes it necessary and inescapable.

ALL ABOUT PRICING:

OK, with all the babble out of the way, let's examine some factors that will govern how you set pricing for your rental home.

MARKET: The rates you charge must conform to the market you compete in. If you have a rustic cabin in the mountains among other modest dwellings, your rates must be comparable. Guests will choose your competitors if you are significantly more expensive. Visitors will choose other homes even if yours has better furnishings and amenities. And if you charge much less, guests will be attracted but they will also presume something must be wrong with your place. It's a delicate balancing act.

DIFFERENTIATE: You can charge more only if you can differentiate your home from the others. Maybe you have better curb appeal (and hence Web site appeal) or have fabulous photos showing your super comfy furniture and heated pool. If so, feature it and charge for it.

SEASONALITY. Ahhh, this may be the most common mistake on owner rate cards: attempting to make prices simple and easy to comprehend. Customers like to study features, benefits and prices before buying. Grocery stores publish thousands of coupons and sales every day because consumers want to believe it is their own diligence that saves them money. In case you haven't noticed, hotels seldom have rate cards nowadays. They set rack rates and then offer discounts to online bookers, wholesalers and others as necessary to fill their inventory.

Landlords should be wise to do likewise. If your rate card says $200 per night in high season and $100 per night in the low season you are leaving money on the table. Some weeks are more valuable than others, such as school vacations, holidays and so forth. Even small differences in rates between key weeks can result in thousands of extra income per year. You have to think a little more to make a lot more.

EVENTS: Keep an eye on upcoming events in your market. We recently bought some condos in a Bavarian-themed village tucked into the Alp-like Cascade Mountains of Washington State. (Leavenworth.de)Leavenworth.de The local Chamber of Commerce does a wonderful job of holding major tourist festivals every two to three weeks year-round. My interviews with other lodging establishments quickly revealed that rates sometimes double on festival weeks. We will be smart enough to follow suit. Other factors that could affect your seasonal rates would be major golf tournaments, conventions, school vacation weeks and much more. Think like the consumers to set your rates.

WEEKLY BOOKINGS: Increasing each party's length of stay is generally a good goal. That means less empty days, happier cleaners and less paperwork. But not all markets enjoy the ability to require minimum stays. My first house was in a resort that also had timeshare condos so their owners were accustomed to buying and staying full weeks. That allowed stand-alone home owners, especially during the busy summer season, to require that rental guests book by the week and even to dictate the day on which guests must arrive and depart. Demand weekly bookings when you can but don't reject shorter stays if necessary.

LENGTH OF STAY: In our first Hawaii condo it was clear guests had to come and go every day of the week due to the availability of airline tickets. In this situation, guests were encouraged to stay longer by offering them "length of stay" discounts. A frequent mistake of some managers as well as owners is to offer guests something like 7 nights for the price of 6. A better method is to provide price breaks for staying longer. Such as:

1 to 3 days $200 per night

4 to 7 days $190 per night

8 to 12 days $180 per night

13 to 20 days $170 per night

etc.

Guests love finding this reason to stay longer and we benefit, too. Be careful, however, to double check your math so that guests can not "break the rate system" by buying enough nights to actually pay, as an example, less total for 8 nights than for 7. Think that through carefully.

WONDERFUL WEEKENDS: Like it or not, some vacation rental areas have much higher occupancy on weekends than during weekdays. This phenomenon is a difficult one to fight. In one of our locations I see dozens of owners whose rates are the same every day of the week and they can't figure out why they are booked solid on weekends and empty other times. They would be better off to overload the weekend and make weekdays affordable. As a rule of thumb, if your weekly rate is $700 you need to charge half that amount, $350, or $175 per night Friday and Saturday. Then take the other $350 plus a little more (20%) and divide by 5 for Sunday through Thursday nights.

In such circumstances you should also attempt to achieve the 2-3-4 rule. Two nights minimum, three nights on weekends and four on Holidays. You can't always get it but you must always try.

We recently started booking a home in an uncommon area using these rules. Plus we got the assignment late in the year. Even we were surprised to learn that we filled the high season (and with a good gross). It was a little more work but the income justified the methods.

SPECIAL CHARGES:

This next section is in direct response from the owner who said, "Should I charge for guests who stayed late, smoked in the house and had twice as many people as contracted for?" Do they really need to ask this question? I mean if you keep a rental car a day extra do you pay for it? If you smoke in a non-smoking restaurant will you be asked to leave?

The answers are yes, yes, and yes. I won't bore frequent readers with another lecture on using very clear, hard-nosed leases, but I will list here some of the special charges you must require in your lease and must charge for without hesitation.

- Housekeeping, whether nightly or an out-cleaning charge. (Never include cleaning in the rent.)

- Housekeeping fees for ANY cleaning greater than the "usual and normal usage."

- Early check in fees (4 hours for 1/4 the daily rate. 8 hours for 1/2 the daily rate.)

- Late check out fees (Same as early check in fees.)

- Hot tub cleaning fees (Spas are a hassle, but valuable if guests pay the freight.)

- Firewood charges (I'm amazed at how much people use when it's free!)

- Resort fees (If you pay them, they must pay them.)

- Reservation fees (Especially if you accept credit cards.)

- Smoking fees (We charge $500 if we find any evidence.)

- Pet fees (Either a fee if you allow pets, or a big fine if you don't and they violate. We charge

$500.)

- Extra guest fees for more than the "usual" occupancy (Doubled guests aren't disclosed in

advance.)

- Eviction fees and costs (Most of you will never have one, but you need to recover your time if you

do.)

- Service order charges (Guests pay for problems they cause and emergency requests that prove not to be emergencies.)

- Sales and tourist taxes (Can you believe there are owners risking huge penalties to avoid these unavoidable taxes?)

PAPERWORK:

And of course all these rental rate and service fee ideas only work if you have everything documented in your Web site, guest agreements (leases), in-home notices and guest manuals. And remember, you aren't charging these things to be greedy, you are doing so to make your home well run and a pleasure for those guests who understand and appreciate a nice place to stay.

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INPUT:

As always, I seek your input. Please share your tips, techniques, compliments, and complaints on this or any other subject by writing me at Director@VROA.orgDirector@VROA.org.

FEEDBACK:

I just like to say thank you. This award is meaningful and I have posted it to my web site. Awards like this help in marketing my property. Also I think you site is great for owners. Again, thank you.

- Bob Wagner, Owner of Barefoot Lagoon (and winner of a Home of the Week Award)

You are entirely welcome Bob. You have a great place.

- Wm. May

ONLINE:

Read and download samples of terms and conditions, booking confirmations and so forth on the members-only Web site: (VROA.org)VROA.org.

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If you like receiving these newsletters - if we've helped you even a little - please tell your friends by clicking here (it's automated and easy): (vroa.org/tellafriend/form.asp)vroa.org/tellafriend/form.asp

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VROA OWNER NEWSLETTER

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Author: William May – Volunteer, Vacation Rental Association
Blog #: 0049 – 06/28/04

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