Revenue management for holiday lets: a practical guide
Revenue management combines information on demand, bookings, prices and channels to support commercial decisions. For a holiday let, it helps assess available dates and the income they could generate, without confusing revenue with profit.
A holiday let’s distribution may involve booking channels, direct sales and a management company. Coordinating them requires a reliable calendar, clear terms and an understanding of the property’s data.
The strategy must respond to demand for stays, available capacity and service costs. Copying another property’s price or using a single rate all year is not enough.
The work can be carried out by the owner or a specialist team. What matters is defining what is measured, who decides on changes and how their effect is checked.
Professional management coordinates price, availability, minimum stays and listing conditions. Tools help identify changes; decisions must be checked against the property’s actual circumstances.
The aim is to improve operating results within the property’s possibilities and requirements. No technique guarantees a full calendar or maximum profits in every market.
Our holiday let agency in Madrid therefore explains some key concepts to help you understand how to improve your holiday property’s profitability.
First, let us look more closely at what revenue management means.
What is revenue management?
Revenue management is a management approach that uses tools to set prices, manage bookings and secure sales. It is now essential to the tourism sector.
The definition is both specific and broad: revenue management means “selling the right product to the right customer, at the right time, at the right price and through the right channel”.
In other words, it uses analysis, combined data and decision-making to optimise sales and improve returns.
In practical terms, it means deciding at what price, through which channel and under which conditions to offer available dates. Selling every night does not always produce the best result.
To interpret performance over time, use several indicators and keep calculation methods consistent between periods.
What, then, should we know about this approach to improve returns and make a holiday let more profitable?
How can revenue management improve a holiday let’s profitability?
Improving a holiday let’s profitability requires an understanding of some basic concepts, which we explain here at Alehost:
Rack rate
The rack rate is a published reference rate before discounts. It is not a universal formula for profitability and does not guarantee that demand exists at that price.
To set commercial limits, calculate your costs and the contribution you need separately. Then compare that target with demand and similar accommodation.
For example, charging €135 when you estimate €100 in costs does not guarantee a €35 profit: commissions, unbooked periods, fixed costs, taxes or investment may be missing. Price and profit are calculated on different bases.
ADR (Average Daily Rate)
ADR is the average rate achieved by a property over a given period.
ADR = accommodation revenue / nights sold over the same period. Define whether you are measuring rooms or entire properties, and do not mix the two.
For one property, add the accommodation revenue from sold nights and divide by those nights. Adding rates without dividing does not produce an average.
For several properties, combine the revenue and sold nights across all of them. Calculate the weighted average from the totals rather than taking an unweighted average of each property’s ADR.
ADR shows the average price achieved, not profit. Interpret it alongside occupancy, costs and the mix of booking channels.
RevPAR (Revenue Per Available Room)
RevPAR = accommodation revenue / available nights during the period. For entire properties, use available property-nights. There is no minimum of two nights required to calculate it.
A property open for all 30 days of a month has 30 available nights. If it was open for fewer days, use the inventory actually available and explain which closures you have excluded.
For a portfolio, add the available nights across all units during the period. On the same calculation basis, RevPAR = ADR × occupancy expressed as a decimal.
At 100% occupancy, using the same inventory and revenue, ADR and RevPAR are equal. Below 100%, RevPAR will be lower than ADR.
TRevPAR
TRevPAR relates total operating revenue to available units. Define which additional services are included and use a consistent basis. Offering extras requires assessing cost, capacity, channel conditions and applicable requirements; more revenue does not automatically mean a higher margin.
Pickup
Pickup measures the change in confirmed bookings, nights or revenue for particular dates between two observation points. State which unit you use and whether cancellations are deducted.
Compare progress with an equivalent booking lead time and season. A fast booking pace may indicate strong demand or a price that is too low; a slow pace does not always call for a discount. Additional bookings still incur costs.
If booking pace is low, first review the calendar, visibility, conditions, events and comparable prices. Then decide whether to change rates, minimum stays or distribution, and measure the effect. One day’s data is not enough.
Other key indicators and variables affecting revenue management, and therefore your aim of improving a holiday let’s profitability, include:
- GOPPAR: gross operating profit divided by available units. It requires a consistent definition of operating revenue and expenses; it is not the owner’s net profit.
- Lead time: the time between the booking being made and the guest’s arrival.
- Forecasting: using statistics to make projections.
- Overbooking: selling more capacity than is available. For an individual property, it is not a recommended way to offset cancellations, as it can leave travellers without accommodation. Synchronise calendars and confirm availability.
- Competitive set: involves choosing 3 or 4 of your main competitors as reference properties.
- Upselling: a sales method for selling a higher-tier product than the customer originally requested.
- Cross-selling: involves selling complementary products alongside those the customer already wants.
At Alehost, we can review your accommodation’s distribution and agree a strategy for pricing, channels and monitoring. The proposal should start with the property’s circumstances and the services you need to delegate.
Example: occupancy, price and returns
A property has 30 available nights and sells 21 at an average of €120. Accommodation revenue is €2,520, occupancy is 70%, ADR is €120 and RevPAR is €84. These are illustrative figures, not an estimate for your property.
If you reduce the average rate to €100 and sell 25 nights, revenue is €2,500: occupancy rises, but income falls and service costs may increase. This is why decisions need to consider margin, average length of stay and commissions as well as the calendar.
A useful monitoring routine
- Review availability, bookings and cancellations.
- Compare equivalent periods, avoiding differences in season or booking lead time.
- Identify dates that need attention and record the reasoning behind a proposed change.
- Adjust a condition consistently with that reasoning and the property’s limits.
- Check revenue, margin and guest experience before repeating it.
For more on interpreting the data, see the key performance indicators for a holiday let.
