Unpacking Occupancy in Short-term Rentals
Kate Stoermer 
Insights to understand and optimize occupancy for short-term rentalists
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Understanding the Occupancy Formula
Revenue in the realm of short-term rentals is a simple calculation: ADR (average daily rate) multiplied by occupancy. However, as we all know, simple doesn't mean easy. The formula's straightforwardness belies the complexity influencing its variables; and as a key variable in understanding income potential for an acquisition or to ensure our STR business is running at its best, understanding the nuance of occupancy is critical.
Occupancy itself is simply the number of rented days vs the number of available days. Is there an ideal occupancy rate? Well, it depends a bit on your approach - some folks prioritize cash flow vs revenue and don't mind more turn over but I personally favor optimizing revenue. Neither is wrong or right. What that means is I may have an occupancy rate that is slightly LOWER than benchmark - but significantly higher revenue. Someone else in the same market may have higher occupancy but less revenue overall. i.e., there is not an "ideal" occupancy because there are too many factors - including your own business approach (see last paragraph for more on that!)
Supply, Demand, and Economics
At the heart of our occupancy discussions lies a fundamental principle of economics: the delicate balance between supply and demand. Occupancy isn't just about the allure of our listings or the savvy of our marketing; it's inextricably linked to the supply of available properties and the demand from travelers. An oversaturated market (more supply than demand) can depress occupancy rates as guests are spoilt for choice, while a scarcity in supply can lead to a surge in bookings.
By keeping a pulse on market trends, upcoming events, and seasonal patterns, we can anticipate shifts in demand and adjust our offerings accordingly. And, when we talk about supply, we're not just counting properties; we're considering the quality, uniqueness, and value proposition of each listing that competes for attention in our shared marketplace (I go into a lot of detail about this in my Listing Optimization Course, available HERE)
Striking the right balance is less about luck and more about the art and science of economic foresight—a skill that we, as a community, continue to refine and excel in. Through data-driven strategies, experience, and sharing wisdom - we can navigate these economic waters, influencing our occupancy to hit goal.
Benchmarking: Knowledge is Power
As the CEO of your business, you know the value of running your business from the data. Benchmarking our market and - more importantly, comparable properties, offers a clear picture of what to expect. This isn't about emulating the competition; it's about understanding where we stand in the grand scheme and identifying the unique selling points that elevate us above the rest. If we don't know our market and our comps, we truly are simply running our business without any real understanding of what is possible. Its like plopping a palm tree in the middle of Canada and hoping it grows - and then wondering why it doesn't. And keep in mind, averages are simply that - averages. This is why understanding your properties value - and your comps, is so important.
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INFLUENCING OCCUPANCY
Unique Selling Proposition
Every property offers a unique experience; defining and communicating your USP is key to ensuring your target audience connects with your offer and recognizes that it is precisely what they were looking for. Often, by the time the property gets listed we are ready to rest a bit but in fact - acquiring and setting up is just the tip of the iceberg! The real work is in niching down and ensuring your listing and marketing connects with your audience. A well done niche can increase occupancy and/or ADR significantly. If you aren't sure how to do this - Learn how HERE.
Social Proof and Reviews
The journey to the book now button has many conscious and subconscious influences - a point I get deeply into in my Listing Optimization Course (which is great even if you are new to the business!) . But none impact our business more than reviews. As a new listing, there is a sense of "risk" - its an untried product. So discounting helps alleviate that risk. Expedia recently released a report that shows an average rating of 4.7 and above is the cut point for consumers feeling confident in a host. So if you aren't there, it will impact your occupancy and its imperative to fix it as soon as can be!
Location within a Market
It's a tale of two properties within the same market: The oceanfront villa versus the cozy cottage a few blocks away. While both may thrive during peak season, the off-season tells a different story. A second-tier property might struggle to maintain occupancy when the prime options become more available and affordable. Recognizing this disparity is crucial in adjusting our offerings and expectations accordingly. The difference in average occupancy may be 20, 30% or more annualized. Understand demand for your specific property/location, not just market averages
Can you Create Demand?
Have you heard of the potato-shaped short-term rental in the middle of no where? Courtesy of herculean marketing efforts, its a wildly popular short-term rental. When we list our properties on platforms like Airbnb and VRBO, they are promoting our properties for us, but these are inbound leads. People have to be looking for what we offer. Doing our own marketing means we can make others aware that we exist and drive demand specifically to us rather than passively waiting; but marketing requires repeated exposure to your offer by your target audience; in the end, that’s not the easiest goal. But yes, with effort and time, it is possible to drive demand assuming your property offers something that is desirable; but don’t expect it to happen overnight. In fact your marketing efforts may take some time to bear fruit even for the most experienced marketer. Keep in mind, the more unique, rare, and desirable a place the more likely it will be to be able to create its own demand - and not every marketing effort will bear fruit. In fact, most won't. Mike Michalowicz shares in his book Get Different that 9 out of 10 of our marketing efforts will net very little difference - but number 10 will make up for it. So keep at it!
Upsells
Offering discounted added days tacked on to stays already booked is a great strategy to increase occupancy - especially if the days are unlikely to be booked otherwise.
Minimum Stay Requirements
Dynamic minimum stay requirements in line with market demand and the booking window is a great opportunity to ensure longer stays get prioritized over shorter stays. What's appropriate will be different by market; for example, in one market where weekend stays are king more than 60 days out I have a 3 day minimum and it drops to 2 days at the 60 day point and it drops to 1 night required at the 14 day mark. In another market, I have longer day stays only for high season and holidays; I drop that requirement a month or so in advance.
Marketing and Social Media
As we just discussed, demand creation is all about marketing. Be that social media, organic (unpaid) or paid advertising, direct mail marketing, email marketing - etc, driving customers to the book now button is a key activity for our business. If you opt to have the booking platforms handle this for you, there are risks and benefits - just like with any business. The downside is they aren't just promoting your place - but every place in your market, but the upside is you don't need to learn or expend time and energy marketing. It may keep your place booked without putting in the effort. For others, it may be key to optimizing your property.
Return Guests.
Once you've got'um - keep 'um. Tread carefully here - guests booked via Airbnb or VRBO or other platforms are not "your" guest. There are rules in place in terms of booking them off platform if they book them via one of these platforms. That disclaimer out of the way, there is nothing more beautiful in our businesses than return guests. Cultivate those relationships and reward them. But also know that not every guest will be a return guest. I myself am what is called in one marketing textbook is a "butterfly" - I'm profitable once, but I like to try new places so I'm not likely to return. Barnacles - they appreciate the certainty of a repeat experience and once you have them - keep them happy and on return. Ways to connect with guests? I personally don't like being asked for my email in exchange for access to Wifi in a home, it feels too commercials given the experience I want to provide. So I have QR codes to urge folks to join my email list in my rentals - and assume these folks who actively sign up are more likely to be return guests anyway. I also have business card magnets and contact information in my printed guest guide. In one property, I also have printed drink coasters with our direct booking website on them.
Oh, and I've got some tips for your Email Campaign - see that blog HERE
Balancing Act: Occupancy and Overhead
More bookings mean more wear and tear, and a busier administrative schedule. There is a sweet spot where price and occupancy meet to create operational efficiency. It's not about achieving 100% occupancy; rather, it's about finding the level that maximizes profitability without taxing available resources or creating high levels of wear and tear. Measures of the sweet spot? Average or slightly less than average occupancy with a higher-than-average ADR. Cash-flow kings probably have a higher occupancy and average to lower than average ADR (assuming both are optimized!)
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NAVIGATING SEASONALITY
Seasonality
Seasonality significantly impacts occupancy. It's a cycle of peaks and troughs that happen in every market - yes every. Some markets it might be winter and summer, others it might be hurricane season, others still may be shifts linked to sporting seasons. For some of us, choosing markets with less pronounced seasonal swings is a strategy to stabilize monthly cash flow. But for others, optimizing for revenue may lead to embracing the wild ride of high-demand seasons. I have properties in highly seasonable markets and in more stable markets, and in my highly seasonable markets the annual costs and profit come from about 3.5 - 4 months of the year and there are months of zero occupancy.
Elevating Occupancy: High Season Strategies
High season (or seasons!) is our time to shine, and getting the balance right between price point and length of stay is paramount. A slightly higher price coupled with longer minimum stays can be the formula for success. Implementing dynamic length of stay requirements ensures we don't prematurely clog our calendars with short weekend stays, leaving extended weekday vacancies.
Shoulder Season Opportunities
Shoulder season - those few weeks book-ending high season, is often our best opportunity to optimize profit. Occupancy in the market overall is not peaked, supply is plentiful, and demand - while dropping off or just ramping up, is still present. Guests can typically still enjoy many of the perks of high season without the the crowds or highest price. Using your market booking window timeline to target potential guests looking for shoulder season stays, leveraging your email list to reel in past guests who might enjoy less crowds for a quick getaway, and ensuring your listing is optimized to speak directly to your niche for shoulder season stays are great ways to increase occupancy and optimize revenue.
Incentivizing Longer Stays: Off-Season Tactics
The off-season presents a unique challenge, and this is where creativity comes into play. We've found success in offering incentives for extended stays. For instance, a third day at half price not only offers value but also flexibility for our guests – they can either enjoy an extra night or the leisure of an unhurried arrival or departure. Shift your listing and marketing efforts toward folks who might be interested in a remote work get-away.
Many folks look toward mid-terms stays, which can be a great approach although it may not be the right strategy for every market or property (but keep in mind if material participation is your goal that your annualized average length of stay needs to be less than 7 days). Alternatively, off-season may be a great time for other purposes - such as Lifestylists and Strategists to enjoy using the properties themselves, doing work on the property, or simply shutting it down to minimize operational costs.
BUSINESS GOALS
Is Cash Flow King?
Finally, it's worth reflecting on our overarching business philosophy. Some of us aim for maximum occupancy - cash flow is king, heads in beds means money keeps flowing regardless. Others seek a more balanced approach, prioritizing revenue overall. Neither is right or wrong; they are simply reflections of our individual goals, lifestyles, and business models. Its helpful to be aware of this, as there is a lot of advice/strategies/methods out there - make sure your strategies map to your business goals - and if you aren’t sure about your investing style take the quiz to learn more about your style and grab some strategies specific to your goal!
In the end, occupancy is not a static number to chase but a dynamic element to be shaped and nurtured. It's a reflection of our market understanding, strategic pricing, operational efficiency, and, ultimately, our business philosophy. As we continue to navigate the intricacies of the short-term rental market, let's share our insights, learn from each other's experiences, and build a community of thriving, prosperous hosts.
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Interested in learning more about Short-term Rental Investing? I have a great getting started guide - check it out HERE
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Hey Boss! I'm Kate, owner/founder of The CEO Host. If you are interested in taking a leap into short-term rentals - or have some questions about your existing business, my goal - passion, and career, is to help YOU succeed. I've coached hundreds of folks getting started or looking to optimize, analyzed more deals (and duds) than I could count, completed thousands of hours of education and training, attended conferences... So don't be shy. A good CEO knows to bring in expert help - and that's what I'm here for! Lets HOP ON A CALL and chat!
P.S. Got questions? Need more guidance? Feel free to reach out. We're in this together!