Experts say that ups and downs are a normal part of the economic cycle. But it is always concerning when the market slows down. From global economic events to seasonal fluctuations, vacation rental businesses face many challenges that are beyond their control.
We’ll review what short-term rental businesses can do now to lessen the negative impacts of uncertainty and economic downturn.
Global events affecting hospitality
The last couple of years have been challenging for every sector across the globe. And the hospitality industry is among the hardest hit. The global pandemic, natural disasters and war conflicts caused a lot of damage and instability around the world.
Inflation, energy crisis, labor shortage and lack of confidence in the future put a lot of stress on hospitality operators. With the impending recession, how can property management businesses prepare?
What happens in short-term rental sector during times of uncertainty
Inflation and rising costs
With the industry recovery bookings are coming back, but the costs are rising. Businesses are seeing significant increases in energy costs, food and drink price inflation and wages increase.
Inflation is 8.5% in the US and 9% in Europe. From gas and groceries to computers and clothing, everything is suddenly more expensive. This is squeezing margins and puts pressure on operators as well as property owners whose properties are managed by professional property managers.
Supply chain disruptions
For consumers supply issues mean that a store is out of oat milk, for hospitality business it means serious problems. Towels, napkins, coffee cup lids, smart locks, etc. can in one moment become unavailable. This can be enough for disappointed guests to leave a one-star review.
Rising energy costs are having an impact on businesses and the travel industry across the world. Average energy prices had doubled, resulting in some businesses deciding to cut trading hours and/or raise prices.
For travelers, the price of transportation to their destination has also risen significantly and becomes a reason to cancel bookings.
Many hospitality companies were short-staffed this summer. Many of them are challenged to employ and retain good talent. The remote work trend, low wages and demanding working conditions, repel good people from the sector.
Mortgage rates going up
More financial pressure from investors coming down to property managers.
High guest expectations and cleaning standards
Cleaning standards and overall guest expectations are higher, which makes it even worse considering the labor shortage and high costs for everything.
In the short term rental sector where Guests pay a cleaning fee, cleanliness expectations are very high, failing to meet them can have a negative impact on review and the overall Guest experience.
All these factors are threatening to put short-term rental profitability at risk. Here are the ways to combat these challenges and bulletproof your business for times of economic downturn and uncertainty.
5 ways for an STR business to be resilient during economic uncertainty
1. Digitizing interactions for higher guest satisfaction and efficiency
Leverage digital tools to optimize operational efficiency and enhance the guest experience.
Digital guest communication
It is the key to combating staff shortages, relieving the workload of employees and meeting guests’ expectations from booking to checkout.
Use digital channels, such as email, SMS, WhatsApp and OTA messengers to interact with your guests. To be on top of messages on all channels you’re using, you might want a unified inbox solution.
Online check-in and remote access
Those are great ways to eliminate waiting for guests and save time on the operator’s side.
Create a digital journey for your guests to easily go through their vacation rental stay, starting right after the booking. Guest verification, fees and payments, agreement signature, check-in instructions and, finally, remote access to the property. All these can be done in minutes.and without any physical presence on the spot.
Your team won’t have to be answering the same questions over and over again, and your guests won’t be waiting for their answer. Send your guests a digital guidebook or two, including the information they might need for a joyful stay. Go ahead and answer their questions even before they request any information.
2. Using automation to reach operational excellence and help your team thrive
Guest messaging automation
Release your team from performing repetitive tasks of sending the same messages to guests.
Remote access automation
for saving your team’s time and a higher guest satisfaction
Property care apps, operational cleaning
for more efficient processes, allowing next guests to check-in earlier (or sell an early check-in)
3. Leveraging dynamic pricing or revenue optimization companies
Use dynamic pricing to make sure that the rates are taking into account your flexible cancellation policies, etc. It can be hard without having revenue managers work for you. With companies like Wheelhouse or Pricelabs, or revenue optimization companies, like Angel Host, you can achieve this without growing your team.
This empowers your team to make better decisions faster, while ensuring you can capture the existing demand with the right prices at the right time.
4. Diversify revenue sources with upsells
In addition to occupancy and nightly revenue, operators should view every touchpoint as a potential to earn money and enhance the guest experience.
Professional property managers can increase gross margins by 55% with upselling and cross-selling.
The accommodation is only 30% of the travel budget. So the remaining 70% could become an incredible revenue source for your business.
Because of the hyper local component to the business, property managers are uniquely positioned to find the best local providers. Guests will also trust their recommendations.
A referral agreement with the top providers in your destination could lead to a significant increase in your gross margins. This ancillary revenue would be 100% yours!
Learn more about how to increase profit with vacation rental upsells.
5. Drive direct bookings
While OTAs help with visibility, streamline guest verification and the entire journey, they have a heavy impact on your margins
By developing your own direct booking website you can increase the profitability of your bookings by removing the 15% commission OTAs capture from your booking revenue. This money saving strategy not only bulletproofs you for the economic downturn, but also removes the dependency on OTAs. Industry experts compare relying on OTAs to building a house on a rented land.
Additionally, OTAs often tend to cut their marketing spend during economic downturns, thus enabling you to improve your visibility.
Use Airbnb, VRBO and other OTAs for visibility, attracting new guests, and making sure they love their stay. Collect their details and use this data to market to these people once they are out of your doors.
As you can see, each one of the ways to stay resilient during the time of uncertainty requires using technology. To build a bulletproof tech stack that will help you weather the economic storm, you will need from three to five pieces of software.
Check out how Enso Connect creates a strong tech ecosystem with best-in-class solutions in a one-stop guest management portal.