Wednesday, June 23, 2010

How do I decide how much to charge for Renting my Second Home?

1000 Indian RupeesImage by LLudo via Flickr

Hi Everyone,

Today we will cover one of the most common questions I get from Holiday Home and Homestay owners - What do I charge for renting out my Holiday Home? I wanted to cover some of the important things to consider before deciding the pricing:-

1. Check on pricing of hotels and resorts located around your property. This is a very important activity and something that every homestay and holiday home owner must do. This information is easily available by either visiting a online travel website and searching for hotels by name or else calling up your local travel agent or the hotel directly. If you call the hotel directly, please remember that the price they quote to you may be 20% to 30% higher than what they sell their rooms at. Remember to ask for the prices for different types of rooms and whether they include meals as part of the rate. If your property is a 2 bed room apartment, see if they have a 2 bedroom apartment available. It is also best to ask for prices at the well maintained and hotels which are visibly doing well as generally they would have a good idea of what rates should be charged.

2. Have a realistic expectation of where your property stands in terms of luxury and who the ideal clientele would be for the same. It is important to price based on the target audience. Some of us have high expectations from those who come and stay in our homes and if so, it is important that the home must have the luxury amenities AND that pricing is reasonable but not too cheap. If you feel the target audience is college groups then you might want to make some modifications to the property -.e.g by adding many extra mattresses, a dormitory etc. and thus bring down the average cost per person who is staying over yet ensuring that you make more money in total. If the average target is a small individual family - husband, wife and 2 kids then be reasonable - it is rare that they would spend more than 6000-7000 Rs. per night at the maximum.

3. Have rates that reduce for longer stay guests. Remember most people who come to stay will stay for one or two nights - as such, you must have pricing that encourages people to come for 3+ nights and ensures that if a person stays for just one night you make 75% of what you would make if they were to stay for 2. Drop your rates significantly for those who want to stay for longer than a week. In my opinion if you are charging 6000Rs. a night then if a person would like to stay for 15 days - you should not be charging more than 42,000 Rs. in my opinion - roughly a 50% discount.

4. Keep your eyes on the calendar. Remember to keep in mind the long weekends due to festivals and the kids holidays. If you get reservations many weeks in advance for these days you must hold on a little in the bargaining process before discounting as you may get more customer options in the days to come.

5. Keep in mind any important deficiencies w.r.t. a hotel or resort. The primary one I can think of is a Swimming Pool. Esp. in the monsoons when going to the beach is not safe, travelers prefer staying in a property which has an in house swimming pool. If your property does not have one, be prepare to give a slight discount as compared to the resorts. In your marketing, promote other activities that can be done without the pool.

6. Be flexible. Ask every customer where he works and the number of people who are coming along. I would recommend giving those who are influential - i.e. those who work for very large companies or those who are premium travelers - i.e. coming alone and renting the whole home. a better deal and asking them post their stay to tell their friends about the place or to visit you again.

Lastly, Be alert. It is important to beware of customers coming in very large groups and yet bargaining too hard or where it seems like they don't have a budget. If you provide food, esp. be careful if they ask and insist on all meals being inclusive. I have found that sometimes some of these travelers can be very difficult customers to please and may cost you more than what you make to serve them. I would also be vary of customers who don't seem like they would be good guests to have over. Use the messaging system effectively to interview the travelers. How? That I will cover in another article.
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