Revenue Management Glossary for Vacation Rental
4 minute read
Revenue Management in the vacation rental industry is a discipline that is growing and developing at a fast pace. At VRM Intel, we collaborated with industry leaders, including Jason Sprenkle and Cliff Johnson, to identify key terms and metrics utilized in the vacation rental industry. As comparative data and revenue management tools continue to mature, establishing a base line of vocabulary will help us advance as an industry. The following glossary is a first step at establishing a common understanding of the terminology necessary for successful revenue management for vacation rentals.
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The nightly price that a vacation rental manager (VRM) is presenting to the consumer.
A series of repeatable steps for carrying out a certain type of task with data. As with data structures, people studying computer science learn about different algorithms and their suitability for various tasks. Specific data structures often play a role in how certain algorithms get implemented.
APPLICATION PROGRAMMING INTERFACE (API)
API is the acronym for Application Programming Interface, which is a software intermediary that allows two applications to talk to each other. Each time you use an app like Facebook, send an instant message, or check the weather on your phone, you’re using an API.
ARTIFICIAL INTELLIGENCE (AI)
Refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. The term may also be applied to any machine that exhibits traits associated with a human mind such as learning and problem-solving.
AVAILABILITY, RATES & INVENTORY (ARI)
The minimum data set that is required to be synchronized between a VRM and a distribution channel to enable online booking (a.k.a. ARRI, which also includes restrictions).
Also known as Room Supply or Nights Available. The total number of nights that the VRM is authorized to rent out. Typically, this is the total number of nights less owner reservations and maintenance-related down-time.
Calculates the percentage of guest nights out of the total nights available for guests to book. By comparison, occupancy, the traditional hospitality KPI, calculates the percentage of guest nights out of the total nights in the period, without considering the owner nights and hold nights. Because owner reservations and hold nights take up some of the nights typically, Available Occupancy is helpful to how well you’ve filled up the properties from the nights that were available for you to fill with guests.
AVERAGE BOOKING WINDOW
Represents the average number of days between when the reservation is made by the guest and the check-in date. Average Booking Window is calculated as the average number of days the property is booked in advance of arrival for the selected period. Understanding the expected booking window for a property or group of properties helps you know when to adjust pricing by demonstrating when you should expect the property to book for certain seasons. Larger properties that sleep more people may have longer booking windows since they take more planning. Smaller properties typically have shorter booking windows. Booking windows are also different for different times of the year, and differ between markets.
AVERAGE DAILY RATE (ADR)
The calculated average nightly rate for a property or group of properties. Calculated by dividing the total rental revenue by total nights sold. It is one of the most common financial indicators to measure performance in the vacation rental industry.
AVERAGE LENGTH OF STAY (ALOS)
Calculated by dividing the total number of nights by the number of stays in a property or group of properties during a specified time period.
AVERAGE RATE INDEX (ARI)
A vacation rental KPI that measures the performance of a VRM’s ADR compared to a competitive set during a specified time period.
BEST AVAILABLE RATE (BAR)
The lowest available unqualified rate, representing the fair market value for a property for each day.
BEST RATE GUARANTEE (BRG)
The promise that the unit price a consumer receives when booking directly with the VRM is the best rate offered in the marketplace. VRMs implement a Best Rate Guarantee (BRG) policy to drive consumers to book direct.
The theory that accommodations listed on third-party distribution sites gain a reservation benefit in addition to direct sales. That benefit, coined the “billboard effect,” claims a boost in reservations due to the property being listed on an OTA website. Would-be guests gain information about the property from its OTA listing, but then opt to book directly through a channel controlled by the VRM.
A tool that visually displays bookings over a certain period of time (e.g. room pickup, bookings, and availability). Data is displayed in a graph which shows how bookings develop over time. The data needed to create a booking curve is usually taken from a Property Management System (PMS).
An application which helps support an online reservation. For VRMs, the Booking Engine commonly refers to the application included on a VRM’s website which facilitates online booking through an API connection to the Property Management System (PMS).
The rate at which reservations are made for a property or group of properties over a specified time period, usually compared to another specified time period. Many VRMs also collect competitive booking pace data for a set of like-type properties.
The number of days between when the reservation is made by the guest and the check-in date.
The percentage of reservations that canceled during a period.
The number of guest stays for check-ins during a given period that canceled prior to arrival.
CHANNEL FEE, OR CHANNEL HOST FEE
Fee charged by a distribution channel, channel manager, or marketplace. Typically, this fee is deducted from the payment before the VRM collects it.
An intermediator that provides connectivity between a VRM and third-party distribution channels. The channel manager keeps ARI in sync between the PMS and the third-party systems (a.k.a. Switch, Dumb Pipe, EDI).
CLOSED TO ARRIVAL (CTA)
A yield tool used to close days out from reservations arriving on a particular day. This yield practice originated from the airlines and is not considered a good practice in VR revenue management.
COMPETITIVE SET, OR “COMPS”
A defined group of competitive properties that have a similar type, target market, location, and/or concept.
A building or community with multiple units (e.g. Condo-hotel, Condominiums, or Townhomes) usually managed by a Home Owners Association (HOA). Individual units are often managed by multiple VRMs.
Also known as a Hotel-condo or a Condotel. A building which is legally a condominium, but which is operated similar to a hotel with a front desk and onsite staff and services.
The probability that a value will fall between an upper and lower bound of a probability distribution. Data Scientists use confidence intervals to measure uncertainty. A higher probability associated with the confidence interval means that there is a greater degree of certainty that the parameter falls within the bounds of the interval. Therefore, a higher confidence level indicates that the parameters must be broader to ensure that level of confidence.
The percentage of users who take a desired action. Also known as the Look-to-Book Ratio.
Additional fees unique to a property or a group of properties.
The accuracy and consistency (validity) of data over its lifecycle.
A multi-disciplinary field that uses scientific methods, processes, algorithms, and systems to extract knowledge and insights from structured and unstructured data.
A technique in which a computer program extracts data from human-readable output coming from another program.
A system used to do quick analysis of business trends using data from many sources.
DEPTH OF INVENTORY
The number of like-kind units available in a similar region or complex. Inventory can be rolled up onto Representative-Level channels or broken out for Key-Level channels. Example: There are 8 x 2BR/2BA Ocean View units (a.k.a., Key-Level w/Depth.)
Direct bookings happen when a customer books directly through the VRM and not through a third-party channel.
Dynamic pricing is a customer or user billing mode in which the price for a product frequently rotates based on market demand, growth, and other trends.
GLOBAL DISTRIBUTION SYSTEM (GDS)
A network that enables automated transactions between VRMs and third-party distribution channels.
GROSS REVENUE, GROSS BOOKING REVENUE (GBR)
Total revenue the VRM collects, including Guest Fees.
Fees that the VRM charges the guest and are not part of the Rental Revenue (e.g. Cleaning, Booking, Pet, Parking, and Pool).
The number of nights unavailable for booking due to a hold (i.e. maintenance).
KEY PERFORMANCE INDICATORS (KPI)
A business metric used to evaluate factors crucial to the success of an organization (e.g. ADR, Occupancy Rate, Conversion Rate, and RevPAN).
KEY-LEVEL LISTING, OR KEY-LEVEL
A unit-specific listing that represents an exact vacation rental unit. Example: Emerald by the Sea—Unit 312. This is a corner unit on the third floor with a view of the ocean. Individual homes are merchandised as Key-Level Listings (a.k.a., By the Door, Unit Specific).
Machine learning is an application of artificial intelligence (AI) that provides systems the ability to automatically learn and improve from experience without being explicitly programmed. Machine learning focuses on the development of computer programs that can access data and use it to learn for themselves.
A service that helps VRMs optimize online distribution. This includes channel managers and additional service providers such as consolidated contracting, consolidated accounting and reporting, additional content syndication services, revenue and yield management tools with consulting, analytics, transaction processing, and payment services.
A distribution channel that charges the traveler’s credit card and sends the supplier a net rate (e.g. Expedia, Orbitz, Priceline).
MERCHANT OF RECORD (MOR)
The party that charges the traveler’s credit card.
MINIMUM LENGTH OF STAY, MINIMUM NIGHT STAY (MLOS)
A restriction dictating the lowest number of nights a guest can stay at a property.
The total amount received from a merchant distribution channel which is the amount the traveler paid minus the commissions and/or fees charged by the third-party distribution channel.
OCCUPANCY RATE (OCC)
1) The percentage of total available nights that have been rented for a property or a group of properties over a specified time period. 2) The percentage of all rental units that are occupied or rented at a given time.
Nights that remain open for guest stays, that are not otherwise already booked by guests (Nights Sold), owners (Owner Nights), or blocked off. This is useful for quickly determining the opportunity remaining for a given period. When combined with ADR for a period of similar rates it can also be useful in calculating the revenue opportunity remaining, or money still “left on the table.”
OTA SEARCH RANKING
The order in which your property is listed on the OTA channel search results page.
The revenue the property owner receives. Calculated by subtracting the VRM’s Commission from Rental Revenue.
PROMOTIONS, OR SPECIALS
A discounted rate or an extra bonus when booking, such as “4th Night Free.”
In the vacation rental industry, a “property” refers to a vacation unit or home of any type.
For revenue managers and channel managers, this is a group of similar properties in a VRM’s inventory that are priced together.
The full price at which units are sold to customers before discounts.
Defined as maintaining consistent rates for the same property across all channels.
REPRESENTATIVE STYLE LISTING, OR REP-LEVEL
A listing that represents a certain lodging type in a multi-unit building or complex. This listing might have “Depth of Inventory” and different unit types. Example: 2BR/2BA Ocean View (a.k.a. Hotel Style Listings, By Unit Type, Allocate on Arrival).
RETURN ON INVESTMENT (ROI)
The benefit (or return) of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio. For VRMs, typically calculated by dividing the rental revenue generated from a source by the cost of the source.
The application of disciplined analytics that predict consumer behavior at the micro-market level, optimize product availability, and price to maximize revenue growth.
REVENUE PER AVAILABLE BEDROOM (REVPAB)
RevPAR broken down by bedroom, calculates the amount of Unit Revenue earned per bedroom per night. Because RevPAR offers diminishing value when comparing different property types, RevPAB normalizes the data to allow comparisons across properties with different numbers of bedrooms. This allows you to directly compare the rental revenue per bedroom over the number of available nights for 10-bedrooms vs 2-bedrooms. It also provides a more meaningful KPI for comparing the traditional RevPAR across all properties when benchmarking against other companies, as well as for comparing all your properties against one another.
REVENUE PER AVAILABLE NIGHT (REVPAN)
The revenue collected each night that a property is available to rent out. RevPAN is calculated by dividing rental revenue by the number of available nights for a property or group of properties.
REVENUE PER AVAILABLE ROOM (REVPAR)
A performance metric in the hotel industry that is calculated by multiplying a hotel’s ADR by its occupancy rate. A critical KPI for measuring revenue performance, RevPAR takes into account both the ADR at which you booked the property and percentage of number of nights it was booked (Occupancy). This provides a better indicator of overall performance when compared to looking at the ADR or the Occupancy alone. Compared to ADR or Occupancy as stand-alone metrics, RevPAR provides a more complete measure of your company’s success by giving you an overall picture of both rental revenue and occupancy.
In a single figure, RevPAR helps you understand how well your company has filed its properties both in the off-season when demand is low even though rates are also low, and in the high-season when demand is high and rates are also high. Be mindful that in vacation rentals a 10-bedroom is likely to have a significantly higher ADR, and thus RevPAR, than a 2-bedroom property.
For this reason, VRMs are careful to use filters to draw appropriate conclusions when benchmarking RevPAR. For example, a comparison of RevPAR for 3-bedroom properties in a similar location vs other 3-bedroom properties in the same location may prove more insightful than a benchmarking of total RevPAR for a period inclusive of all property types.
RENT PER AVAILABLE SLEEPS (REVPAS)
RevPAR broken down by the number a property sleeps, calculates the amount of Unit Revenue per unit of sleeping capacity per night. Because RevPAR offers diminishing value when comparing different property types, RevPAS normalizes the data to allow comparisons across properties with different sleeping capacity. This allows you to directly compare the rental revenue per the sleeping occupancy over the number of available nights for properties that sleep 14 and properties that sleep 2.
SYSTEM OF RECORD (SOR)
A system of record (SOR) is an ISRS (information storage and retrieval system) that is the authoritative source for a particular data element in a system containing multiple sources of the same element. To ensure data integrity, there must be one—and only one—system of record for a given piece of information. This is typically a vacation rental manager’s PMS in the vacation rental industry.
External channels such as OTAs (e.g. Vrbo, Airbnb and Booking.com). Third-Party Distribution channels also include Tour Operators, Wholesalers, and GDS.
TOTAL REVENUE PER AVAILABLE RENTAL NIGHT (TREVPAR)
Total revenue by the amount of available nights for a selected time period. For hoteliers, this metric is referred to as Total Revenue Per Available “Room” (TrevPAR) and typically includes total revenue for the period included food and beverage and all other revenue. Because most vacation rentals do not have F&B revenue and concierge revenue is still not widespread, TrevPAR only includes unit revenue and other revenue over the total nights in a given period.
TOTAL REVENUE PER OCCUPIED RENTAL NIGHT (TREVPOR)
Total Revenue divided by the total guest nights for a selected time period.
The fee charged directly to the consumer by an OTA which raises the total rate paid above the rate charged by the VRM or homeowner. Also called the “Service Fee” by HomeAway, Airbnb, and TripAdvisor.
A predetermined fee charged by the VRM to the homeowner, as a percentage of rental revenue.
See Revenue Management. The process and discipline of making frequent adjustments in the price of a property in response to certain market factors, such as demand or competition.