Are You Losing Money Because of Discounts?

One of the most uncomfortable questions a vacation home business can face is the dreaded “do you offer any discounts?”

It’s a perfectly legitimate question. Who of us, as consumers, doesn’t gain pleasure from garnering a great deal?  Consumers Love (again, with a capital L) a deal, travelers included. This fact was further echoed by other owners at the HomeAway Summit this past weekend.

On the flip-side, as business owners, discounts lower our nightly revenue and ultimately cost us money, don’t they?  I can vouch for that, discounts cost our business more than $15,000 in lost revenue in 2009 just on one house.  BUT, it’s not why you think. 

In our case, the average nightly revenue of this particular house climbed $29 from ’07 to ’08, then another $26 from ’08 to ’09. A fifty-five dollar per night increase over a two-year period?  Great results…right? 


Although our average nightly revenue had gone up by $55 per night in 24 months, our total revenue was down $15,659 because we booked 29 fewer nights in ’09 than in ‘08.  Increasing our nightly revenue earned us a $15,000 per year pay cut.  Arriving at that realization stung a little. 

In January, 2010 with our 2009 results in front of us, Angela (my wife) and I had a business meeting (time we have set aside each month to improve our business).  By then we were several years into our ongoing debate about our nightly rates.  I usually think the rates could be higher, she usually doesn’t. 

The revenue decrease caused us to agree that we ought to begin “discounting” this house.  However, we also agreed not to lower our top-of-market advertised rates.  Maintaining our rates would still allow us the opportunity to get full price when possible for the value we provide.

We had already begun returning all inquiries via phone, the new idea we implemented for those inquirers still hesitant to “book now” was to simply ask what type of discount they were seeking.  Some have a firm budget they are working with.  Others simply want to feel like they are getting a deal. 

Here are the questions we ask ourselves when considering discounts:

  • Based on our history, will we for sure book these nights if we pass on this “discounted” inquiry?
  • Does it seem likely this inquiry won’t book if we do not offer something? 
  • What is the minimum we can offer to get this inquiry to book with us right now?

For those looking for a deal, we decided we would be more than willing to make them one now!  We established some “deals” we could offer.  Some that continue to be most popular with our deal-seeking guests are:

  • 25-50% off the black holes (nights that will not book)this new reservation leaves before or after. (LOVE this one!)
  • Complimentary rental of our gaming system package or complimentary pool heating.
  • Early check-in or late check-out when available at no additional fee to the guest.

These “deals” cost us zero out of pocket and give our guests a reason to book with us right now, filling vacancies on our calendar.  Plus, they give our guests the satisfaction of getting that deal they are seeking. 

For inquirers with a firm budget, we are usually facing a take it or leave it scenario because they either have the money or they don’t.  With these, also consider the size of the group (your costs), nature of their visit (can they be repeat guests,) and whether the booking butts up to another or creates black holes.

The Bottom Line:  Offering discounts and being more flexible with our rates increased our occupancy and our annual revenue.  With the new “discounting” practices in place for this home we booked 40 additional nights in 2010 with great results.  Although our average nightly revenue dropped $47, our revenue for the year increased $16,817.


About the Author:

Michael Smith: Michael and his wife Angela happened into vacation home ownership in April 2007 when a relocation nudged them toward the idea of short-term renting.  Within months of establishing Ultimate SoCal Vacation Homes, they began making plans to expand their business.  Having combined backgrounds in sales, marketing, business development and hospitality helps them to create guest experiences that exceed expectations.  Today, more than 3,500 guests later, Michael and Angela are operating three profitable vacation homes in Anaheim.