The Secret to 95% Occupancy
By Isaac French
First, let me confess this — I am not the smartest person to write on today’s topic: dynamic pricing (aka revenue management). Not by a long shot. But I want to, anyways.
Now think about this: how many businesses get to change their prices every single day? Gas stations - a little, and airlines too, but that's basic commodity supply and demand.
Restaurants don't (wait: why don't they, to better manage wait times?). Doctors can't. Most businesses just simply can't or don't adjust their pricing daily.
Not so with hotels and STRs. One of the coolest things about the accommodation industry is that you get to change product prices (even dramatically) every day, and with complete normalcy.
It gets even better. With highly-differentiated, non-commoditized stays, you can combine the basic function of supply (how many units you've got available) with the magical allure a one-of-a-kind experience. And, if you own the customer (you have a substantial social media/email audience), you have in your hands a really powerful price lever.
The outcome? Peak revenue AND optimal occupancy (aka more bottom-line profit and higher business valuation). A beautiful thing indeed.
There's an interesting reason behind why this is such a unique opportunity for low-key-count, luxury-priced properties like Live Oak Lake. Let me explain.
When you hear Four Seasons, you instantly think of superb service, opulence, and exclusivity. This speaks to their extraordinary, hard-earned brand value. They're truly one of the best brands in the world (btw, the founder's book on how he built it is an incredible read).
But overall, Four Seasons probably averages occupancy rates of 50-60% I would guess? 70% maaaybe? Someone will correct me if I'm way off here.
Four Seasons Maui at Wailea
What if you could maintain all that business but then add an extra 20-30% occupancy at slightly lower rates that still generates an enormous profit? Wouldn't that be cool?
Well, that's essentially what we achieved at our one property, Live Oak Lake, and it worked brilliantly. Of course, there are a lot of distinctions between Live Oak Lake and Four Seasons, but one of the key ones is this: we are a unique property with just 7 keys and I don't care about setting a precedent for lower-priced stays.
If someone doesn't want to pay what we're asking on a given night, no harm done. They simply find a different night that is less popular and spend (potentially a lot) less.
While most hotels and STRs do employ some basic form of dynamic pricing, they're unwilling to explore the boundaries — both high and low — of the price range their rates fluctuate within. The obvious speculation, for hotels at least, would seem to be that they are afraid of setting the wrong precedent and undermining their perceived value.
But with only one property and 7 rooms, I'm not worried about this, at all. In fact, I've sold some nights as low as $250 and others for as much as $2,500 — yes, for a single night.
Now a crucial point: 100% occupancy is NOT the goal. If you're consistently booked up, you are most likely underselling at least a good chunk of your best inventory. But neither should you aim for 60% occupancy at your target rates.
In my view (this can greatly depend on your market and specific property positioning + offering), you want ~50% of all available nights to book at your target RevPAR (revenue per available room, counting all nights), ~10% of available nights to book somewhere between that number and 5x that, and another 20-30% of available nights to book somewhere between the target number and below, down to your minimum threshold.
Now a word on this minimum number. Establishing a minimum threshold is important, not because of setting some abstract low-rate precedent, but because you do not want to attract the wrong kind of guests.
You will have to feel it out through personal experience in your market, but in ours, I noticed a dramatic increase in problematic guests (smoking, noise, excessive complaints, overall nastiness) below that $250 number. It was astonishing how well that number worked as a filter once we found and committed to it.
Another reason to establish this, of course, is the basic costs associated with that stay, such as general overhead (utilities, prop taxes, management, etc) as well as direct costs (cleaning, more utilities, maintenance, etc). For us that number was about $170/night. So though we theoretically could've charged $171 and made a buck, we didn't, because we didn't want problematic guests. Simple but tremendously important.
On the other end, if your product is truly exceptional and generates a lot of hype (both from your own audience and others'), there's no good reason you shouldn't aim for the stars on the highest demand weekends and push to see how high you can dictate your rates.
I was scared to do this for the longest time, fearing we'd oversell on expectations and set guests up for disappointment, but the truth is, anyone willing to spend in the stratosphere of nightly hotel rates ($1,000-5,000+) probably doesn't fret much about money anyways.
They simply want what you have: an amazing, 1-of-1, transportive experience.
In conclusion, you're solving for exclusivity and status, much like Four Seasons, but you have two advantages:
You own the customer through social media and email, so you control the price better
You're not worries about global brand diminishment, so there's no reason not to capture those lower rate bookings (can also be a gateway for tighter-budget folks to experience what you offer and be blown away + become lifelong guests and word-of-mouth marketing machines).
If your product (property + experience) and the marketing are top-notch, you should max out around 95% occupancy, overall.
And there you have it: my fundamental revenue management strategies from the Live Oak Lake playbook - and another big reason we could command $1M/key.
Lakeside South at Live Oak Lake, one of seven stunning cabins
TL;DR:
Accommodations allow for dramatic daily price changes, aka dynamic pricing
Unique, 1-of-1 accommodations *with an audience* are especially well positioned here
Build and retain high-end brand while adding lower-priced stays strategically
Explore low end and establish min threshold based off market knowledge and min opex
Explore and push ceiling of your assumed price range: don't undersell key nights.
100% occupancy usually indicates severe underselling. Aim for 90-95%
That’s a wrap. Have a great week!
—Isaac
P.S. What pricing tool do I use to help accomplish all this? Wheelhouse. But don't expect to just "set it and forget it." I've devoted a whole lesson of the Masterclass to teaching everything you need to know about how to use dynamic pricing tools to maximize your revenue and squeeze that extra 10-20%+ profit out of your property.
If you're interested in signing up for Wheelhouse, use this link and save 50% for the first 2 months using code LIVEOAK