Online Payments for Vacation Rentals

We need to align incentives

It has been possible to make online hotel bookings for nearly two decades, but it is still relatively common that you must email or call a property owner to reserve a vacation rental. How do we explain this discrepancy? Are vacation rental owners technical laggards? Are the tools to take online payments not available? Do vacation rental owners have nothing better to do with their time than answer emails at all hours of the day?

To understand the problem, we need to understand the math behind vacation rentals. It turns out that occupancy is the most important factor for maximizing rental revenue. For example, if just three days are unrented in a thirty day month, the vacation rental owner has lost 10% of the monthly revenue opportunity. Therefore, vacation rental owners work very hard or organize their bookings to minimize gaps between reservations.

Understanding this math, it becomes obvious why most of the existing online booking systems aren’t appealing to vacation rental owners. If an online booking system enables a traveler to make a reservation for 6 days in the middle of a 10 day gap, leaving 4 days unbookable, they have just cut the property owners potential income by 13%. Currently, vacation rental owners avoid this problem by carefully accepting reservation requests that fill their calendar, and therefore maximize their investment.

So, is this situation unsolvable? Absolutely not! I believe we can build a system that enables travelers to make online reservations for vacation rentals without penalizing the vacation rental owner. The key is to provide the right controls that enable the vacation rental owner to minimize gaps in the calendar. A few examples of these types of controls include:

• Minimum nights for a reservation (already available in many systems, but with inadequate implementation. For example a 7 night minimum would prevent a 5 night booking in a 5 night gap. Tools should be powerful enough to distinguish between these 2 scenarios)
• Deny reservations that would cause unrentable gaps (or require approval by the property owner before confirming the reservation)
• Custom rules for specific date ranges to prevent gaps during critical peak rental periods
• Fallback to email and phone calls to request exceptions to rules when instant online booking not available
• Forwarding leads to other properties if instant booking unavailable (This would primarily be for property managers who manage multiple properties at the same resort)

The key concept is that vacation rental software companies need to build tools where incentives are properly aligned. Vacation rental owners want to offer online payments. It is a better experience for the traveler, and it would be much more efficient for the vacation rental owner. However, it doesn’t make sense for vacation rental owners to adopt a product that will cut their income by more than 10%

I look forward to vacation rental software companies closing this incentive gap by building tools that enable the vacation rental owner to accept online bookings while aggressively minimizing gaps. This will improve the experience for the renter and the owner/property manager.

Side Note: Inquiring minds might wonder why hotels don’t have this problem. The key difference is that hotels operate with a much larger pool of properties, and reservations are made for room categories instead of specific rooms, which enables the hotel to play Tetris with the reservations to minimize gaps. Vacation rental owners can’t do this because reservations are made for a specific property, and that reservation can’t be moved around. Therefore, gaps have to be avoided before the reservation is confirmed.