The length of stay (LOS) in short-term rentals can significantly impact your revenue and overall profitability. Whether hosting short or long-term guests, understanding how to calculate revenue per stay and adjusting your pricing strategy accordingly is crucial for maximizing profit. In this article, we’ll explore how LOS affects revenue and provide actionable tips for optimizing your rental strategy based on guest types.
Calculating Revenue per Stay
To analyze how different lengths of stay affect your revenue, it’s important to start with the basic formula for calculating revenue per stay:
Revenue per Stay = (Nightly Rate x Number of Nights) – Total Variable Costs
- Nightly Rate: The price you charge per night for a guest to stay.
- Number of Nights: The total duration of the guest’s stay.
- Total Variable Costs: Expenses that fluctuate with each booking, such as cleaning fees, utilities, and guest amenities.
For example, if your nightly rate is $150, and a guest stays for 3 nights, the gross revenue before costs would be $450. If variable costs (cleaning, utilities, etc.) amount to $100, the revenue per stay would be $350.
This formula helps gauge the profitability of each booking and gives insight into how the length of stay impacts your overall returns.
Impact of Short Stays
Short-term bookings typically offer higher nightly rates, as guests are willing to pay a premium for flexibility. However, these bookings come with increased turnover and associated costs, such as cleaning and utilities. Here’s how short stays impact your revenue:
- Higher Nightly Rates: Short stays allow for competitive pricing due to demand for flexibility.
- Frequent Turnover: More frequent cleanings, laundry, and restocking of amenities increase costs.
- More Gaps Between Bookings: Frequent guest turnover may result in more vacancies and booking gaps, lowering overall occupancy rates.
Example: A 2-night stay at $160 per night yields $320 in gross revenue. If variable costs are $120 (due to higher cleaning and amenity expenses), the revenue per stay drops to $200.
Impact of Long Stays
Long-term stays, on the other hand, offer consistency and fewer turnovers but often require lower nightly rates to attract guests. Here’s how long stays can affect your revenue:
- Lower Nightly Rates: Guests booking longer stays often expect discounted rates, as they are providing guaranteed occupancy.
- Reduced Turnover Costs: Fewer cleanings, restocking, and guest management reduce the overall variable costs per stay.
- Higher Occupancy: With long stays, you ensure more consistent occupancy, which can stabilize revenue.
Example: A guest books a 10-night stay at $120 per night. Gross revenue is $1,200. If variable costs (cleaning, utilities, etc.) amount to $150, the revenue per stay is $1,050—showing that despite the lower rate, the revenue per stay is higher due to fewer expenses.
Tips for Optimizing Revenue Based on Guest Types
Balancing between short and long stays can significantly increase profitability if done strategically. Here are some tips to help you optimize for different guest types:
- Adjust Nightly Rates Based on Length of Stay: Offer discounted rates for longer stays to attract guests while maintaining higher rates for shorter stays to capitalize on high demand and flexibility. For example, implement a 10% discount for guests staying longer than seven days.
- Incentivize Mid-Length Stays: Target guests who want more than a weekend but less than a month. Offering a weekly rate discount can be a great way to fill gaps between shorter and longer bookings.
- Create Custom Packages for Long-Term Guests: For guests staying 30 days or more, offer amenities or services that cater to longer stays, such as laundry services or weekly housekeeping. This can enhance guest satisfaction and encourage extended bookings.
- Manage Cleaning and Turnover Costs: Streamline your cleaning processes or negotiate lower rates with cleaning services for longer stays. For short stays, make sure your cleaning fee covers the cost and is not cutting into your profits.
- Monitor Booking Patterns: Pay attention to booking trends in your market. If you’re noticing more demand for longer stays, adjust your pricing and marketing strategy to appeal to those guests.
Maximizing Revenue with a Balanced Approach
Optimizing for different guest types—whether short or long stays—requires a balanced strategy. Short stays can bring higher nightly rates but come with frequent turnover costs, while long stays provide stability and lower variable costs. By carefully calculating your revenue per stay and adjusting your pricing and offerings based on guest preferences, you can maximize both occupancy and profitability.
The key to success is flexibility and a deep understanding of your target audience. Tailor your rental strategy to meet the needs of each guest type, ensuring that your short-term rental thrives, regardless of the length of stay.
