186. The Math Behind Long-Term Discounts: How to Make Sure You're Not Losing Money

Jun 6, 2023

Discover the surprising truth about occupancy rates: maintaining 100% occupancy may actually mean you’re undercharging. Explore the possibilities of raising rates by 20% and still boosting profits, even with lower bookings. Delve into the impact of long-term discounts, with data showing how these can sometimes enhance revenue rather than diminish it. The conversation balances pricing strategies with real estate insights, encouraging hosts to assess their numbers before resorting to discounts. It's not just about enticing guests but ensuring sustainability!

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INSIGHT

Benefits of Long-Term Stays

Long-term stays reduce operational workload like housekeeping and guest communication.
They can also improve search rankings, potentially increasing revenue despite offering discounts.

ANECDOTE

Long-Term Rental Damage Risk

Tim Hubbard shares a story of tenants who damaged a long-term rental property after three years, costing thousands to repair.
He contrasts this with short-term rentals, which usually avoid such large unexpected expenses.

ADVICE

Calculate Discounts from Averages

Calculate long-term discounts using your property's average occupancy and daily rate to project income.
Avoid discounts that reduce revenue below your typical earnings to prevent losses.

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We would all love to have our properties 100% occupied but many times a 100% occupancy rate is a clear sign that we are not charging enough money per night. What if we increased our rates 20% per night and, even with a lower occupancy, were making more money?

And then we have to think about the opposite equation. What if we have a low vacancy, does it make sense to offer a long term discount to try and increase our revenues?

I know, it’s odd to hear the word discount and increased revenues in the same sentence but with the latest travel trends showing that guests are opting for longer stays this can be a reality.

Many people give out discounts because of the fear of not getting booked but, oftentimes, caving into that fear ends up earning less profit at the end of the day. Whether you are using your pricing tools or not, you might want to stop first and think if offering discounts works out to your advantage.

I know, I know… You hear a lot of opposite opinions about whether to send special offers or not for longer stays. Luckily we have access to a lot of data that can help us figure this out to determine whether a long term rental discount is truly going to help us or not.

It’s not a guessing game. The data shows us what to do, as it almost always does in real estate. This week let’s discuss whether a long term discount makes since for your property:

Pro & Con recap of long term reservations
Do you know your numbers?
Do you know your averages?
Expenses to cover and consider
Duplicating discounts & custom pricing
Things to consider when calculating or giving discounts

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