I felt it would be a fun idea to do a Q&A with her to talk about:
- Trends in our market (cabins up, visitors down)
- Income trends (down with Avada doing about 30% better)
- Philosophy behind our revenue approach (heads in beds at the right price at the right time)
We also take a look at what’s happening in our Gatlinburg/Pigeon Forge/Sevierville market and how that’s impacting min nightly stay, ADR, RevPAR, and other important metrics you should track.
I apologize for the potato video quality, but thankfully the content makes up for it!
Jump to:
0:15 Introduction
1:15 What IS revenue management and what goes into it?
2:38 Are the concepts the same no matter the market?
3:00 Min stay: Why you want it to be small so you earn big.
4:05 How restrictions (booking window, min stay, etc) all impact rates
5:00 Strategies for 1 night minimums
5:58 Min nightly rates
6:30 Being unbiased and realistic to come up with your pricing strategy
8:40 Comp shopping: when it can and can’t work
9:30 How we use Keydata to see ACTUAL booking data
10:12 Demand is increasing but supply is increasing even faster
10:47 Airdna and Keydata comparison. When to use each tool.
12:40 You don’t want to cheat off of a D student.
13:42 Wheelhouse/Pricelabs/Beyond alone can get you 70-80% of the way there
14:40 Handling low demand times
15:52 What a property manager (with revenue manager) will get you
17:30 The Avada approach to revenue management at a high level
22:18 Balancing nightly rate and occupancy to beat the market
23:52 Spike rates when you have pricing power. Lower rates when under pricing pressure.
25:03 Booking timing is important. Don’t hold rates when the market won’t support it.
26:08 Rate setting to come out ahead at the end of the year
27:02 What RevPAR is and why it’s a super important metric
28:05 Why damage worries are really a non-issue
30:15 Can you attract the “wrong type of guest”?
31:02 Cabins can’t be compared to hotels (pricing or otherwise)
33:00 The Smokies are a growing market. 11,363 -> 17,501 units from 2020 to 2023. (65% increase)
36:00 How the Smokies are returning to normal seasonality
39:44 Adjusting pricing to the “new” normal
40:45 Avada outperforms on occupancy and revpar 30-40%
42:10 Average booking window of Avada vs the market
43:20 Difference with 5+ BR booking windows
46:00 Average length of stay
47:30 Min length of stay in the Smokies
48:45 Reviews and the impact on bookings
51:20 Property condition is important… But so are operations!
52:25 Rates can’t go TOO high
54:20 Running cabins well is like having a stool
55:05 Closing — it’s about maximizing opportunities the market gives use
Justin:
Everybody, I want to introduce Valerie. She is head of our revenue management here at Avada. And she’s been doing this for so many years. Valerie, if you would tell us a little bit about your background?
Valerie:
Yeah, absolutely. I got into the short-term rental industry a little over a decade ago working for a property manager in South Carolina really seeing everything boots on the ground, from operations to booking. And part of that was really jumping off and starting their revenue management. At that time, it was a really new concept in this industry. So it was really exciting to get to leverage different demand periods and really maximize our revenue. From there, I actually locked in much work for one of the revenue management companies in this industry working for managers all over the country, and in some cases all over the world, doing their pricing for them. And so I’m really excited to be working in the Smoky Mountains now with Justin and his team at Avada. And really helping the brain that knowledge of, you know, what we see in different markets and different trends and strategies that we can use to help maximize your revenue.
Justin:
Oh, love it. Love it. So what is your definition of revenue management? Like what does that mean?
Valerie:
Yeah, revenue management is booking for the right price at the right time to the right guest to boil it all the way down to the nuts and bolts.
Justin:
Yeah. And I assume it differs from Market-to-Market, even unit-to-unit I bet, right?
Valerie:
Yeah, absolutely. What the right time is and what the right price is, is based on so many different factors. Like you said, unit matters, right? Every unit is not the same, even every 1 bedroom isn’t the same. And then not only did the market matter, right? Because Gatlinburg, Tennessee, is going to behave differently than, you know, the Outer Banks, or somewhere in Florida, they’re all so different. But also the market changes from time to time, right? So not only is May different than September, but May 1 is different than May 15th. And so it really is looking at all of these teeny, tiny puzzle pieces to make sure that we’re making the best possible decision based on all the factors available for the property market conditions, the level of competition in that market or on that date, and every little piece that goes into amenities – I could go on forever.
Justin:
Sure, sure. Well, I guess let’s talk about that. So I assume in your experience, the concepts are the same no matter the market? So, we want to drill into that, like everything from minimum stay to last minute deals, booking windows – at a high level, what does that look like?
Valerie:
So all of those things are really influential of pricing, your minimum length of stay dictates how much of the market you’re available to. And so the comparison I like to give is that when a guest goes online, and they searched for 3-nights stay, they’re only going to see units that are available for a 3-nights stay. And so it’s really important to understand in that market, and for that property type, what that minimum length of stay is that people are searching for. Because if you position yourself above that, right, let’s say you start with five-night minimum length of stay, you’re now cutting yourself off from any segment of the market that’s searching for two, three or four nights days, you’re not even going to show. And so with that, you have to price a lot more competitively, you have fewer guests that you’re competing for your conversion rate has to be higher. So all of these things are married to each other. Right?
When we look at booking window, we look at how far in advance people are booking what the inventory looks like at that time, how much is actually available in the market, and then, again, leveraging in these other pieces that we know are going to influence price. And so what I like to say is, you know, you start from $1,000 Every restriction that you place on the property lowers your rate because every restriction you place on your property lowers the number of guests that you are available to be booked by and therefore you have to make yourself more competitive to compensate for those restrictions.
Justin:
That’s a good analogy. I’ve never heard of it that way but it really is true right? Because if 20% of the people book one and two nights stays, by saying a three-night minimum, you’re cutting out 20% of your audit straightaway. Or if you say no, Friday-Saturday check-in, you know that immediately chunks out a whole bunch. So extending on that, what would you say about having one-night minimum stays exclusively, even on big properties?
Valerie:
One-night minimums are really nice, because it doesn’t mean your house is going to be booked at a one night stay, right? It can be. But for everyone who’s searching for those two in three-nights, it can still be booked. And so a lot of times what we do with those really aggressive policies is we’re cognizant of the booking window. So let’s say that the booking window is within 60 days, right? And again, it’s going to depend on a lot of factors, we probably don’t want to be at a one night minimum 100 days out, it’s not necessary. At that point, if someone’s going to take up part of our calendar, we want it to be a quality reservation. But as we get into a window, when you open up that flexibility, you give yourself the option. And so I think it’s really important to remember that just because you have a policy doesn’t mean it’s going to book that way.
So same thing with absolute minimum nightly rates, right? If someone’s like, I never want to book below $60. That’s great. Like, that gives you so much flexibility to be competitive in the market, doesn’t mean we’re ever gonna hit $60, the goal is not $60 objectively, but it gives you a flexibility to adapt. And I think that’s the biggest thing when we’re looking at those restrictions, is putting yourself in the best possible position for people who are shopping.
Justin:
Gotcha. So what are some other fundamental things that a property manager or property owners should be looking at when doing their own revenue management?
Valerie:
I think it’s really important to look at what your property is offering relative to the competition in a really unbiased way. And it can be really hard, but it’s really important to do that, right? So like, we know the properties when we get in them, and we touch them, and we feel them. And we experience them, right? There are things that are so special about every single property. But is that coming through? Right? You have to kind of take a step back and look at your listing on Airbnb or VRBO or wherever, and say, Okay, if my views are incredible, and that’s what makes my property special. Am I actually showing that, because the only thing you can price to is what is visible to a guest who’s never been to this property before, and has potentially never been to this market. So you do have to be really unbiased. And you have to really think about what is the point at which I don’t want to book or even what is my goal, right, I think there are homeowners who have that goal, like 100% occupancy, and they’re goal owners who have the goal of you know, I have to have $500 a night. And those are good goals to have. You also have to be realistic about what’s doable. And it’s about leveraging each of these pieces and parts to get you to the best possible place.
I like to say, it may sound a little crass, but like, I would love a Birkin bag. And I don’t know if everyone knows that is right. But you can’t just walk into a store and buy one wanting something doesn’t always mean you can have it. And so it can be really tough when it’s your own asset. But you have to try to step back and say, Okay, this is what I want, how can I get there and what’s reasonable based on what exists and along that’s comp shopping. But the other side is being really critical about how you can get there.
Justin:
Comp shopping is a fun one because we get owners who do want the $500 a night for their one bedroom. And you know, it’s not realistic. But they go and they say hey, I browsed Airbnb, and they’re all these houses that are 500 bucks a night, you know, these cabins? Well, those are the unbooked ones that you’re looking at, you know, for whatever given window you’re looking at. And, you know, that’s you need to use better data analytics, right? And so what what tools do you use to kind of slice and dice?
Valerie:
So here’s a lot of things. I mean, we will go on Airbnb and see what’s available and the price points right? At a certain point, it’s really important to know that’s the best way to see what you’re actively competing against in that given market. We use a tool called Key Data, which plugs in directly to professional managers’ property management systems.
And the cool thing about that is you’re able to see anonymized market data of what is actually happening. So you can look at what one-bedrooms are actually booking for how frequently they’re actually booking. And you can do that by down to the day or all the way out to the year. So we leverage that. And then we’ll even leverage tools like Air DNA, which scrapes Airbnb and aggregates information around, you know, how many of each, you know, unit are there, right? Like, how many properties have a pool? How many properties are one-bedrooms?
And looking at supply, I think that’s one of the things that’s really interesting where we are today in 2023 is yes, demand is increasing in a lot of markets but supply is increasing faster than demand. And so it’s really important for us to kind of understand that at the end of the day, revenue management is about supply and demand, and about being able to convert, right, so increase demand is great. But if you have more supply than you have demand, you still have to be competitive.
Justin:
Yeah, so it’s a constant battle, isn’t it? So I can tell you from personal experience, I started out with Air DNA. That’s a very common one. And I did a breakdown of my personal properties and it was pretty far off. Yeah, it was pretty underestimated, I want to say was like 50% off with my revenue numbers, crazy! And then I noticed, I would do deep dives on competition or competitors, that there are other folks in there who have multiple booking channels. And so they can offer two nights get one free, but their price is $1,000 a night. And so Air DNA since it scrapes data, it doesn’t know that oh, by the way, it’s really given a night free. And so this $1,000 Nights really 666. But that’s where key data comes down using source data. And it really is a better tool, yeah?
Valerie:
For our purposes, I would say they both have a role to play right? Scrape data can be really useful in seeing a broad picture. But you have to take everything with a grain of salt, because assumptions have to be made. Right? What our DNA is doing is they’re saying using your example, there were three nights available and $1,000 a night yesterday, they’re now no longer available. What percentage of these do we assume our guests booked nights versus owner booked nights or maintenance block or what have you, right? So they’re making assumptions and they’re also making assumptions to your point of the price it booked at. And so that’s where it can be really valuable. And for me, I tend to really enjoy scraped data more or current active pricing in the market, as well as supply in the market as opposed to what’s already booked.
Source data, like Key Data is going to be what’s really valuable for you for what’s already booked. The other piece, though, that you have to keep in mind when you’re looking at even source data. And the example I like to use is like, you don’t want to cheat off of a D student. Not everyone’s strategies are sound, right? So really far in advance some of the things that are booking, maybe things that were underpriced, or maybe things that strategically made sense for that particular homeowner, that doesn’t necessarily mean that it’ll be our strategy. So at the end of the day, you have to take every piece of data you’re looking at with a grain of salt, and you have to look in and be really critical about, what am I trying to get out of the market. And what is this data tell me that I can squeeze out or where the market is positioned? So you can’t just say, okay, every two bedrooms are at $300, if there’s a lot open, you may need to be at $295. And if there’s not a lot open, you may say I can be at $350 because I think things are going to fill. So it’s not always matching what everyone else is doing.
Justin:
Yeah, that’s interesting. Would you say for an owner, who owns one property, do you think that it needs to be a full-time job to manage the revenue? Or can they get by using a pricing tool like Wheelhouse, PriceLabs, Beyond etc.
Valerie:
So, what I would say is those tools can get you 70-80% of the way there. They do a really good job. But what it’s not doing is overlaying strategy. And that is where it can become a full-time job. If you want to squeeze every last penny out of your property, you need to be really critical about the decisions that you’re making. And so all of those tools have a different algorithm that weighs different things, right? Some of them lean a little bit more on your historic booking data. Some of them lean a little bit more on what’s happening in the market today. But what’s important is for you to know how you want to be positioned.
So I think a really good example is periods of low demand, right? A lot of managers or a lot of homeowners will start high and come down low. As a revenue manager, I may look at that and say, hey, you know what August actually isn’t ever a great month for us. So I’m going to moderate a little bit in advance, I want to come down a little bit lower than the market, because I would rather book at $300 in advance than have to book at $90 at the last minute. And the same can be said about periods of high demand, right? If anyone’s playing that game for Christmas, and saying, Hey, like, I actually just really want to get it booked, I don’t want to worry about it, that’s going into these pricing tools that are then suggesting your rate. And so you may say, Hey, I know this is gonna book we’re a year out, I’m comfortable being 10%, higher. So again, it can get you part of the way there, but like, there are strategic choices you need to make. And that’s how you can make those tools like really crush it for you.
Justin:
Oh, that’s interesting. I sat next to a Beyond guy, the Beyond pricing guy at a trade show at one of our industry conferences. And he was talking about how using a tool versus not using a tool. It’s an easy 20-30%, swing in revenue. Like they did the deep dive on the analytics. And they realize like it’s huge, but even layering on top, someone who knows what they’re doing, you know, who does this every day for a living? Who can pull in the pieces, like, you know, current data and past data, and put it all together? Yeah, I guess that’s where you get in, that’s where the property managers who can afford to have a revenue manager really start to shine I would say.
Valerie:
Yeah, we did the numbers with the pricing committee I was a part of, and I think we saw on average, an extra about 20 to 30% lift, even off of just a tool. So again, it’s gonna depend on the quality of your revenue manager. And, of course, the flexibility and things that you have. So it is variable. But at the end of the day, you can see a much bigger lift by managing those tools.
Justin:
Well, that makes sense. Makes total sense. Well, will you riff a little bit? So I’m of the belief that we should have full disclosure, not should have full disclosure. But at Avada, we disclose a lot. We have good case studies on our blog that show the importance of photography, the importance of interior design. I don’t mind sharing our secret sauce, because I realized that, you know…
Valerie:
It’s not always replicable?
Justin:
It’s not always replicable. There we go. I can say that. Um, so if you would, as you approach our pricing, what do you feel? What are some of the big brushstrokes with regards to, you know, far-out bookings, and playing chicken with high rates, for peak booking windows, when you slash prices, how do you handle orphan days? Like, what is your big strategy with the way we do revenue?
Valerie:
So with Avada, I think it’s really important to note that what we are doing is trying to maximize every day in the calendar, right? So one of the things I mentioned earlier is some homeowners are really focused on average daily rate. And there are some homeowners or property managers who are really focused on occupancy. I would say with Avada, we are really focused on the combination of those two. And so because of that, what we really do when we’re talking about advanced days, outside of the normal booking window for a property, we try to position ourselves high relative to the market, what we never want to do is head into a peak booking window where we have the peak of our pricing power, and already be booked. And so we’re really cautious about that. Now, that is different, again, when you’re talking about periods of low demand. And so that is where we might give a little bit more because a bird in the hand is worth two in the bush, right? And so we’re really thinking that through, we’re then also focusing on that booking window, right? So when we get into the booking window, it’s about making sure our prices are fair, that it’s bookable, and that we’re competitive in the market. Again, we’d rather book a little not early, but like we’d rather book when that booking window hits than have to focus on expiring. Now, we still focus on expiring. If something doesn’t book in its booking window, we start getting more and more aggressive. At that point, you’re searching for occupancy, right? At the end of the day, yes, we have homes, condos, villas, mansions, like everything under the sun in this industry that we price and we sell. But really what we’re selling is time and time expires. And so that is why you’ll notice that we get really, really aggressive at the last minute. It’s really important that we sell those nights because if those nights passed, we’re never gonna get revenue on those. And so you’ll see that all kind of play out and how it’s going. Now, a lot of the things that we’re considering are gaps, day of the week, holidays, and all those other fun factors that dictate demand for any given day. In this market, we know Friday and Saturday are our highest days of pricing power, right? So having Friday and Saturday available in the right booking window is a great thing for us. We know that we can push right there, we can really capture it. Well, once that weekend books, and if the weekend before, is already booked, let’s say we have a Sunday, Monday, or Tuesday floating out there, our best shot of getting that booked, knowing that there are fewer people searching for that, is to be more aggressive and to really fine-tune that rate and try to in some cases be slightly under market value. Not saying that we’re going to go by half, but if the market’s at $199, we may want to be on $185. We want to incentivize someone to take that because we know we’re not going to have nearly as many shots at it. And so that means that when we’re going through the calendar, we’re being really critical about what’s open and what isn’t.
We’re not going to drop that Monday, Tuesday, or Wednesday if Thursday, Friday, and Saturday are still open. If somebody wants a long stay, we don’t want to completely discount those nights. But the second those weekends are gone, you can treat them differently. So there is a lot that’s really, really conditional. And again, that’s where it is important for us to understand what’s happening in the market with booking windows to know when we’re in the sweet spot. And when we’ve kind of passed that and need to, you know, kind of moderate and just get a bit more aggressive with just trying to fill things.
Justin:
Now it makes sense. It’s disheartening isn’t it, because I’m an owner here in the market, to see that say in May, occupancy levels are 20% or 30%. And with more than 15,000 cabins, if it’s 20% occupied, how are you part of that 20% that gets booked? You can make it up in a lot of ways, you can have a great property, you can have great photos, and you can have good reviews, but at the end of the day, pricing is the dial that you can control the most.
Valerie:
Yeah, and a good example I’ve given many times over the years is you could book once in a year for $5,000 – you can book one night for $5000. It’s a great ADR. You can sell every single night at your cabin for $5 and you’ll be 100% occupied, right?
In both cases, you’re selling yourself short. And so I think one of the really cool things about what we do at Avada is that we really do beat the market on occupancy. And we do that not by absolutely sacrificing price, but by being really mindful and when we get to that last minute, trying to squeeze every last drop of juice out of the lemon, right?
And so it’s really important that at the end of the day, that leads to more revenue because we’re not just focused on one of these two metrics. We’re focused on those metrics when those metrics make sense. So when we have pricing power, we’re raising rates – we’re focusing on that high daily rate. When we are under pricing pressure, right, there are 5000 cabins available, and there are only 500 people looking, then we’re going to be really competitive. We’re just going to try to be one of those ones that get booked. Cause, at the end of the day those bookings are paying all of your bills, they’re covering all of your expenses, they’re lining your pockets. And it’s that end-of-the-year number that matters, right? It’s not any one night, there are some nights that are great, there are some nights that are less great. It’s about compiling them at the end of the year for the best possible result.
Justin:
Everything counts in large amounts.
Valerie:
Absolutely.
Justin:
It’s funny just looking at it individually, you know, even this morning, I got an email, Hey, why is this cheap booking coming in, you know, where did it come from? And it’s to fill a gap. It was $100-night, but the reality is if there are two or three of these a month, times 12 months you’ve got say 30 days booked at a lower-than-you-want rate, but that’s $3,000 you wouldn’t have had otherwise.
Valerie:
Yeah, absolutely. And I think the piece of this too, right, it’s a lot of times we got those questions around why did this book for what it did? I think you see that a lot around holidays, right? Last year, I got $300 a night, this year I got $250, right? Well, if last year booked 60 days out, and this year, we booked 30 days out. That’s why, at a certain point, you do have to kind of come off of your current strategy to kind of get booked. Because if you don’t book 30 days out, and you book five days out, you’re probably at $150. And so all of those conditions really, really matter. And so when we’re looking at it from a pricing perspective, we have to be mindful of all of those pieces. And to your point, letting it sit there because we wanted $500 and we didn’t get it, not booking it is costing you a lot more than booking it at $100 or $200, less than last year.
Justin:
Yeah, that totally makes sense. Okay, so I’ve used an analogy when we say, if you poke a hole in it you blow it up here.
You know, I tell people that I want to see 50% of our bookings at, you know, maybe a little bit ahead of the curve and above-average nightly rate. 25% of the bookings will be at nightly rate. And then 25% will be those fillings, the perishable inventory that’s about to go away. And so even though we might have some of these 25% that are cheap, across the average, you know, we’re gonna win more than we lose. And over time, we’re going to come out way ahead.
Valerie:
I would agree with that. I think those percentages probably do vary a little bit based on the type of property, just considering how much or how little competition they have in the market. But yeah, as a general rule, we see that come through in the data.
The metric we use for that is called RevPAR and its revenue per available room night. It’s home night, but we’re stealing the hotel term. And what that does is it says, we had 30 nights available to book in the month. And let’s say we made $3,000, how much did we make per available night? And that’s a much better metric for measuring success than occupancy or daily rate because it normalizes it. And what we find at Avada is that we beat the market consistently on RevPAR. And it’s by doing exactly what you just described, we’re getting high rates where we can, once we’re in that sweet spot, we’re really right in line with the market, and then we’re not afraid to sell it, when it’s about to expire. And all of those booking types together lead to success. Just choosing one of those tends to lead to leaving money on the table.
Justin:
That makes sense. And something else that I think it’s worth throwing out there for other owners is damage doesn’t happen that often. You know, fewer than 1% of our stays have damage claims. Like it’s a non-issue. I hear a lot of people saying, you know, the wear and tear on my place is more. I mean, what is really the wear and tear, you know, it’s pots and pans, it’s shower liners, the, you know, one night stay is gonna make up for a year’s worth of that minor wear and tear. And so it’s a non-issue.
Valerie:
Absolutely, it’s a non-issue. I think it’s one of those things where if something bad happens to you once you focus on that bad thing, right? As opposed to realizing, well, hey, this worked 500 times. I think a good example is a one-year-old, she’s learning how to walk, right? And she’s really good at it. And every now and then she falls down, right? And she skins her knee. If the first time she skinned her knee, she was like, I’m actually not going to walk on the sidewalk anymore, because there was a crease and I tripped over it, she’d be in a bad spot. It’s the same thing, right? If you’ve rented 10,000 nights, and one time somebody does a bunch of damage to your property. It happened once and the fear, if you react in fear from that you’re actually missing out on a lot more. And so I think that’s, you know, something that we all need to be really mindful of.
Justin:
That is a good visual. And I guess I take it for granted too, right? Because we have over 1000 stays a month. Like I am able to see the bigger picture. But one owner with one or two properties they don’t have that perspective that we do. And so it’s easy for me to say, you know, hey, don’t worry about that crack in the sidewalk but, they feel it because you know, whatever a guest ripped the TV off the wall or something. Something crazy.
Valerie:
I mean, I get it, I’d be mad, too. I think we all are. I don’t think anybody would like to deal with that. It’s not fun. But you know, at the end of the day, it isn’t super common. I think we hear this a lot around minimum length of stay and even minimum rate, is like, I don’t want to attract the wrong guest. The biggest companies in this industry have done constant analysis, there’s just no correlation. I’ve seen people trash a house on a stay that was booked a year out and they spent $30,000 on this stay. People do crazy things, and you can’t attribute it to the price they paid, how long they stayed, or when they booked. And I think it’s easy for us to say, well, if it’s cheap, and if it’s last minute, and if it’s a short stay like the risks are higher. There’s just no statistical relevance to that. And so I think that’s more of a feelings thing than a fact thing.
Justin:
Oh, it’s so hard to get out of feelings sometimes, but yes. You know we have things we do to try to avoid parties like locals and one-night stays and weekends and holidays and stuff like that. But I would agree that price doesn’t correlate. You know, if you’re one of those 20% who’s being booked in low season, well, you have the affluent, you have all of the strata of society in there, the good folks and the bad folks. It doesn’t matter, it’s just you’re adjusting to what the market has, and at the end of the day, when you’re booking a cabin, you have extra fees, you get the booking fee in the credit card fee and the cleaning fee, and it’s more than a hotel. It will always be more than a hotel. And so that’s another fear that people say, 80 bucks nice, cheaper than a hotel that’s $100. But really the guest is paying, you know, $150 a night because of all the nicky nack fees and stuff.
Valerie:
Well, yeah, absolutely. That’s a very important point. I think a lot of us lose sight of it sometimes, is they’re structured differently and hotels are also able to do things differently. I think that’s something that is always important to me to point out to homeowners, right? You have a $300 room Hotel, you can sell $100 of them cheap in order to leverage. The other $200. That is not something we can do in this industry because we’re never going to put one homeowner’s financial future at the expense of another one, right? So like, we may make that strategy internally with someone’s property. If we see that, we have, to a point, 50% of the bookings we want at the rate we want, okay now we can get a bit more aggressive but we’re never going to do that within our inventory and hotels do. So that’s the other thing you have to keep in mind when you’re looking at hotel pricing is, they are running a very different strategy because it’s all one entity and it’s all going one place.
Justin:
Yeah, well okay, so I think we hit Revenue Management conceptually. How about let’s talk about the Smoky Mountains specifically, I would love for you to just riff on what you see in the Smokies or on all the important things that owners need to know as they figure out their pricing and know when it’s time to worry and not worry and all that good stuff.
Valerie:
Let me… I’m just pulling off a couple of things so that I can make sure that I… I need to glance at what I can. So, the really interesting thing about the Smokies specifically is that it’s a quickly growing market, that is true of demand but it’s also true of supply. And so that’s something we’re really hyper-aware of especially during periods of low demand. What we’ve seen is that you know, Sevierville Pigeon, Forge Gatlinburg, all of them are adding supply pretty consistently. And the thing that’s really interesting here is the bulk of the units in these markets are 1-3 bedrooms. That is the highest concentration, and so I think that’s where we see a lot more price elasticity as the markets are moving as the inventory increases and as guest behavior changes.
I think that’s where you, you know, kind of see it and feel it the most. I think that’s the thing that’s really cool about what Avada does. What we’re able to do for our homeowners is be really hyper-aware of that and make the most out of everything that we possibly can. So I think what you see, if you look at, you know, supply growth over the last three years, let’s say, in Sevierville itself, we’ve gone from 5600 listings to over 9,000 listings in three years. And so, that’s really, really important for us to kind of keep that context in mind and be really thoughtful about how we are treating our inventory and how we’re approaching that. So, that doesn’t mean that there’s not some kind of demand on that same side, right? People are discovering it as a place where they want to buy a house and put it on the rental market because more and more people are visiting the Smoky Mountains. And so it’s about making sure that if that demand is rising to the same level that we’re able to still be really competitive, but I think that’s where a lot of homeowners have seen, you know, how early they book or how much they booked sometimes change.
And we’re seeing this in Gatlinburg and Sevier County entirely but we’re also seeing it all over the country as we return to more traditional seasonality. So during Covid, right, like the peak of that, kids were in school, people were all working remotely, and you know where’s a great place to do that? The Smoky Mountains!
Justin:
Let’s just get a cabin and hang out.
Valerie:
Yeah. absolutely. We can hike, we can fish, like there’s really cool stuff here. We can be out in nature like there are a lot of advantages to it.
And so what we saw is that like there was demand during periods that maybe there isn’t normally. Well in 2023, pretty much every market including the city or county is all kind of coming back to baseline, and with that, there are months throughout the year that have lower demand, right? They maze one of them just because you know, kids are still in school. It’s not really vacation time. Yeah. We have Memorial Day weekend but otherwise just pretty soft. Same thing in August and September, it’s still hot. Kids are going back to school you know, it’s just like not the time… leaves, haven’t changed yet, it’s not the time people necessarily want to be in the mountains and so I think that you know it’s really easy to have that recency bias and be like, okay well last year or the year before, you know, we saw a ton of stuff in May or, you know, August is actually really strong. Well, conditions have changed and so I think that’s something that I’m always really hyper-aware of, but I think it’s also important when you’re evaluating an owner statement or, you know, looking at how their properties performing that like, we’re actually a lot closer, this markets a lot closer to the seasonality of 2019, then it is of 2020, 21, 22. So, it is really important for us to just realize that socio-economically, things have changed. And to that same point, this is very much a drive market so most of our guests are coming in from areas that they are driving from. And so we also have to be thoughtful about what happens with the price of gas or people’s comfort level with, you know, traveling. So that’s the other piece, right? It’s like as the economy softens are people so engaging in discretionary spending the same way they do. I’m not saying anyone should be afraid of what we’ve seen and I worked in this industry during times of economic uncertainty and what we see is like you still have travelers, they may be slightly different travelers than before, but it kind of takes us a step back, but they’re still traveling, but we have to be mindful, right? You have to understand what people are doing, what people are thinking about, and all these things affect this market in the city or county just as much as they do anywhere else.
Justin:
Yeah. Our average guests, our typical guest is a little more blue-collar than say, a Colorado market. And so they’re more… they feel inflation a little bit more for sure. And we even get guests who will talk to us about it. They’ll say, hey I would love to come but you know I can’t afford gas, can you give me a refund? It sounds… we definitely see that too but I agree that we’re going back to what it was and we just have to acknowledge and adjust to the new reality both economically and, you know, travel habits, if that makes sense.
Valerie:
Yeah. And I think that’s where our strategy becomes really important, right? And I think we kind of talked about this a little bit earlier, but like, if we know it’s a period of low demand, we don’t need to shoot for the stars, right? I think when we know that we can moderate a little bit earlier and so I think that’s something that we focus on and has been focusing on knowing that things are a little bit different is like yeah, we like those advance bookings to come in at a high rate, but if in advance booking during the low demand period, we’re actually going to be a bit softer there because we don’t need to go for broke knowing that, yeah, the markets going to hit 20 percent not 50% and so like, we adapt to these things but it’s also, you know, worth just kind of keeping that in mind as you look year-over-year and like, okay, well last year, we got this. Well, it’s going to change because behaviors change.
Justin:
Makes sense. What, what are some other good stats about the Smokies that you think are relevant?
Valerie:
Yeah, so I think it’s really important to recognize that on Avada, I think we mentioned this a little bit but I think it’s important to note is that we consistently outperform the market on ADR or sorry, on occupancy. We’re consistently outperforming the market on occupancy. And so what we see is that in periods where markets, only getting about 46% we’re hitting about 74% occupancy and that is not by dropping every single night in that period. It’s about being really thoughtful about what we’re getting. And so I think it’s important to like really think that through and that you know statistic is specifically for five bedrooms and smaller. Our delta from the market is usually anywhere from 30 to 40 percentage points on occupancy when a month is said and done. Now we may phase behind the market a little bit in advance so if you’re looking at December and you see that your neighbor has a booking or two and we don’t, that’s okay.
Justin:
It doesn’t worry me at all, no.
Valerie:
Doesn’t worry me either. Like our average booking window in this market for a house, 5 bedrooms or smaller, which is, or four bedrooms or smaller, which is technically about 90% of our inventory, roughly the average booking window is 30 days. Now, that’s obviously a mix of high and low, but we are right in line with the market. Maybe a night or two slower just because we take fewer advance bookings but fully in line with where the market levels out. And so that also means that when we are, you know, two months out, it’s not yet time to kind of signal that panic. We’re so very much in the booking window, we still are going to see the bulk of average reservations come in there and so we need to be thoughtful like, okay you know if that average booking window is 30 days, we have time still. And at that point, you know, we’re still searching for a good rate and it’s not until we’re within that 30-day period that we’re really going to start being like, okay like how do we actually get aggressive here like how can we fill this in?
And so that’s really you know, that booking window that we’re looking at, it is a little bit longer, big homes, or bigger cabins. So like 5+ bedrooms is usually closer to 60 days. It just takes candidly a lot more planning to get that many people together.
Justin:
That’s not a drive market anymore at that point, right? You had to get the coordinate Grandma flying in, from Florida and everything else. Yeah,
Valerie:
Yeah, exactly. And so those behave a little bit differently and we treat them differently. But the other thing that I think is important to kind of keep in mind is that doesn’t mean that a six or seven-bedroom cabin can’t book in the last 30 days, but what’s different is, you’re typically not filling it in the last 30 days. So what I like to tell property owners, is once you’ve gone into expiring, you’re looking for somebody, who’s like, you know what, this place is just really nice and it’s not that much more than a four bedroom and they will spring for it. I’ve done it. My husband and I have rented a 5-bedroom house before for literally just the two of us. But we were heading to Colorado in the off-season. It was beautiful. It had a hot tub. It was last minute and they had lowered the rate. And so we were looking at smaller places and we’re like, we can have so much more space, more amenities, and not. And so, we still booked it last minute. And so, when you get into the last minute on big houses, you’re really not appealing to partiers. That’s not what’s happening. It’s usually somebody with like a family of five who’s like, you know, all the kids can have their own bedroom, it’ll be fine because they’re willing to spring for something, little nicer with, you know, whatever a pool table or an arcade to make it fun for the kids. Because it’s not that much more and so that’s the thing to kind of keep in mind as we’re pricing last minute for big houses.
Justin:
Yeah, my very first cabin was a seven-bedroom, and yeah, low season trying to fill in those gaps. That might be 225-250 a night for a seven-bedroom with all the bells and whistles. But at the same time during peak season, like coming up in the summer. Yeah, you know, it’s 1,500 bucks a night often you know, could be on the weekends is $2000 a night. Yeah. And it doesn’t give me any problems. And you know what? Like I’ve never had any damage issues from the $250-a-night people.
What other stats are useful for our little market here? I guess we talked about booking window. For us the average booking length is three and a half days, is that pretty equivalent to the market?
Valerie:
So, the average length of stay in this market is usually between three and four nights, very much where we hover right along with the market. I think again, right? Like, it’s all going to depend on what it looks like. Absolutely see a ton of two-nights stays in this market. There tends to be more last minute.
We see three, four, five, six, seven-night stays too. They tend to be more in advance, but it really does average out right there around three and a half or two where we are. The market every now and then will average about 3.8-3.9 but again it’s usually skewed by cheap advance bookings which aren’t necessarily bookings that we want to take because it’s not a recipe for success when it’s not the right rate. So that’s really something that we’re really thoughtful about at the moment.
Justin:
It’s funny you say that. I’ve booked a house in Colorado for Christmas. Actually, it was Christmas week for my extended family as those big Lodge and someone had priced incorrectly and I instantly knew it and got it for about half price.
Valerie:
Okay, good for you?
Justin:
Yes, yes, good for me, but you know what? Like you said, if you’re cheating off the D student, if you’re using those advance bookings to try to figure out what your price should be. Yeah, that will sabotage you. So thank you for not doing that.
Valerie:
Absolutely. That’s our goal. I think the other thing that kind of keeps in mind around minimum length of stay, right is about 50% of the market and Sevier County has a two-night minimum. And so by doing that we were very much in line with the market. Now about 34% will go down to one night and so that is something that we need to be thoughtful of. We do that for gap-filling. In a lot of cases that’s about how much of this market will accept a one-night stay.
Justin:
So we generally as a policy do one-night stays. It’s just as the properties get to 6 plus, that’s when we say, well, let’s just remove that off the table. But yeah, I’m with you, I’m all about filling-the-gap stays and it makes sense.
Valerie:
Yeah, it does. And right, like, it’s all about putting your best foot forward. So, you know, we need to make sure that we’re not being restrictive. Now, there is about 14% of the market that doesn’t drop below 3-night, minimum, and that 14% is missing out on bookings.
Justin:
Hmm. Well, what else can we do to help other owners out there? What other stuff – maybe this summer versus last? Or what are we saying for our particular market?
Valerie:
The one thing I think is really important for us to talk about is reviews. Reviews are absolutely massive for conversion rate on properties. I think the thing that’s really cool is that the big managers in these markets, Avada tends to average only 4.8 stars. Whereas most of our competitors are actually 4.6 or lower. Now they’re all over four stars but for the biggest ones you know you have a pretty large competitor that’s around 4.18 on their average review score. That affects how much they’re able to charge for those listings. But at least it’s really important, right? Like we’ve all shopped for things, no one wants to buy the thing on Amazon that’s got 3 stars if you got something that’s got like 4.8. You know, we’re putting ourselves in that position. We’re putting our best foot forward. We’re soliciting those reviews. And all of those things allow you to have more pricing paths or convert better and rank higher in search. If you’re coming up on the 10th page of Airbnb, it’s going to be really hard for you to book. I don’t know about you or anyone watching this or any of our homeowners, I fell to make it to the 10th page of any search results, like I don’t have that level of time and I am looking for the right thing. You can usually find it, sort of sooner than the 10th-page reviews play a big role in that.
Justin:
So I’ve got an interesting data point from our Airbnb rep. So he said across the United States, all the Airbnb’s, that once you hit 4.6 stars, you lose 9% of revenue.
Valerie:
Wow, I believe that.
Justin:
And then he said it gets even worse as you go down from 4.6, 4.5, and 4.4 and so like it’s quantifiable and they track it and they worry about it.
Yeah so for us we’re at like 4.82 across the last I think 7000 or 8000 reviews. But that also, for us, we attribute that, like, we would be around 4.9 if you excluded around 20 ugly properties. So those definitely drag down our average and that’s kind of subject for another discussion. I guess, you know, how to get good reviews. But, yeah, it definitely plays a big role.
Valerie:
Yeah. And I think it’s important to really know like look, yes, property condition comes into play there a lot, but a lot of operational things come in as well. How well houses are clean, how well they’re maintained, and how well they’re inspected, and companies like yours, like ours, Avada, we do a really good job at that and so just having a great property on a program where they’re not, as operationally focused does not mean you’re still going to get great reviews because you have to be adding well every time so I think you can pat yourself, we can all pat ourselves on the back a little bit. The other side of that too is value and I think that’s where the dynamic pricing size kind of comes in. Yes, we want to take the best possible rate, we also never want to be at a point where someone’s like, oh, I don’t feel good about what I got for what I paid for.
Now, generally, homeowners are weirdly more nervous about this than I am. Sometimes, I’ll be like my house isn’t worth $500, and like, I’m telling you the market says it is. Yeah, yeah. I promise you it is. If I can get a penny for every time I ask an owner and they said they are unhappy with the rate, I’ll be very wealthy. But no, like you do have to keep that in mind, right? And so like you can’t go too crazy and it won’t book but also you don’t want someone to feel like they’re not getting their money’s worth. And again that’s where some of the operational stuff kind of comes in, if you walk in, and it’s like, not quite clean, and you paid quite a pretty penny, or you paid a big housekeeping fee, then you’re what am I paying for?
Justin:
Yeah, it’s true. And one other thing that we really focus on is response time. And so we’ll average 5 minutes response time to guest messages, 24/7. And so when there is, because it’s human business, when there is a cleaning hiccup, you know like there’s a Cheerio underneath the table. If we respond right away in a caring, appropriate way, then we’re able to preserve the review and stay on top of it. And yeah, I know, we’re deviating from pricing where I wanted to keep this, but sorry.
Valerie:
It affects pricing though, it really does. It makes such a big difference because if you feel like you’re paying platinum prices and getting silver service, no one wants that. And so if I have ever been pricing for a company that I’m a little concerned about operationally, I know I can’t go for broke. And I’ve been in those positions before where you have to be really thoughtful around, what is the product I’m actually selling? Because that dictates the price you can charge.
Justin:
Yeah. It totally makes sense.
Valerie:
It all is like, one big circle. I have always said that this business is a stool right? There’s marketing, there’s pricing and there’s operations. You get rid of one of those legs that three-legged stool does not stand and so they’re all interrelated and you can’t do one without the other.
Justin:
That’s funny. I said the same thing, but I use cleaning, maintenance, and yeah guest support.
Valerie:
Yeah, different perspective. But you know, same thing.
Justin:
That’s cool. Well, we’re running up on an hour, any last words that we want to throw out there to someone looking to price? Any market tips for the Smokies or…
Valerie:
I think that’s everything that’s off the top of my head. I mean, I think at the end of today, there are a lot of opportunities here in the Smokies. It’s about maximizing that opportunity and that’s what we’re trying to do. And so I hope, I mean, one of our homeowners or prospective owners knows that when we’re setting a rate, it’s because we feel that’s what we need to do to get the property booked. We never want to shortchange a homeowner. We never want to book lower than we need to. I think, you know, as I’m working with any revenue manager, that’s always something for me, right? We don’t need to hit 155 if we can close at 160, so I just hope everyone kind of takes that away is if we’re making these pricing adjustments, it’s because that’s what the market is kind of dictating and at the end of the day we’re always going to want to make the most for you that we possibly can.
Justin:
Love it. That kind of sums it up nicely. That is your entire role. You’re the one that makes people happy. You make everybody the most money. So thank you.
Valerie:
No problem.
