An Owners Perspective:
This is an example of a particular owners rental figures for 2005 and 2012, which we have compiled showing the change in their income and expenses over the years. The owners are considering every opportunity to reduce costs and increase bookings. They mentioned they have been approached to use a “Book Now” system and avoid paying a subscription. We took the opportunity to look at the numbers for them and from an agents perspective when using this booking solution!
Their property is a two bed mid range rental with a normal level of repayment on a fixed mortgage. They are now concerned as household income has gone down and costs are escalating in a tough market.
Prices for all manner of cost centers have risen, but to remain competitive they have had to maintain prices as enquiry conversions are now 1 in 7 not 1 in 3 and more people are bartering, requesting short breaks and requiring a higher level of property investment. Their prices could be raised but they are competing in a saturated market locally and bookings are needed. These are market changes and cannot be avoided of course. The couple are in their late 50′s and both still work full time.
The main issue is the competitive nature of the business now, the drive to reduce prices online and the increased cost base. Although there is a capital repayment on the property there is no margin for error and if any of these costs rise higher or bookings are lower, then they are in a loss position. Payments are made via cheque or PayPal and the cost passed onto the guest. Cleaning and linen changes are undertaken by a contractor as they live too far away.
The interesting element below is the “Book Now” commission rate if they took all bookings through another site based on commission and free listing. 3-5% is the comparative level for the same profit/loss margin, but this system also means no money until guest has left or is in-situ and possibly bank loans or credit cards to cover cash flow. It seems this is the break even point and well designed to attract business.
Imagine now that once this model was established the highest ranked properties were charged higher commissions (?10%). Some examples are shown at the bottom of the comparison sheet. Don’t forget to add in VAT on the 3 to 20% as well if you want more accurate numbers.
Some businesses charge the guest a commission as well so taking a slice at both ends!
An Agents Perspective!
If the owner above relied on an agent and was charged 15%, then they may have seen more bookings, but costs will rise for management and linen, but are reduced for advertising. The owners will also not have the continual stress of securing bookings. On the figures below choosing an agent seems a good option, if only to co-market and increase exposure.
There is a more sinister problem here however and this is affecting agents now. Many agents and owners have noticed “Book Now” rankings are seemingly presented first above subscription listings and many sites are now only “Book Now”. Think AirBnB, HouseTrip etc. The reason for this positioning is not one of ease and comfort for owners and guests, it is the public and funded companies that are expecting to see a healthy return and pulling the market strings. The extra revenue demanded can only come from owners or guests, or both (even if the larger companies show adverts for peripheral services as well).
The market is driving to “Book Now” and using all manner of reasons to convince a guest that this is the best and most secure way of booking, coincidentally of course, the most profitable for the advertising company, which is discussed below:-
If an agent has 100 properties and advertises 20% of their portfolio to draw in enquiries at an average of £500 per property the cost is £10,000. If he makes 19 bookings at £778 each on 100 properties the turnover is £1,478,200 and a commission of £221,730 which will see a business employ sufficient staff to maintain an operation of this size. Budgeting £10-20k on external advertising is reasonable in this situation and is 5-10% approx of agents margin.
NOW consider “Book Now” only without any real customer contact and paying 5% commission on all the bookings made via the “Book Now” company’s payment system. If a property is listed free then you can’t easily refer potential guests within the system, which means loading all properties! This gives the site more strength, more traction and more power to control the pricing and positioning within their system.
At 5% “Book Now” commission only, this is £73,910, considerably more than selected advertising and use of an agent’s website to refer guests. Up this commission to 10% and the agent is left with 70% less margin and will be out of business in days, not weeks. Cash flow is impossible, and also complaints and security deposits are a headache to manage in this environment.
So what is the answer for agents and owners?
1. Uplift the prices on the external “Book Now” sites if you use them (this is not popular with these companies and as some have been quoted as saying they want to be like booking.com, expect to see it in your terms and conditions soon!).
2. Make sure the name of your property is in the description. The title is often generic to avoid a Google search and the guest finding your property directly.
3. Be very positive with these companies and let them know that slicing more margin from the pot will in the long run ruin the business and as “necessity is the mother of invention” they are setting themselves up for a backlash.
4. Keep pushing for quality, cost effective subscription advertising. Pushing the price up continually means that the businesses and owners with the biggest margins will see the most bookings of course. But curiously a property that rents at £10,000 per week, that was paying £1000 in advertising, would see a substantial loss of margin comparatively and this will not sit well. From low priced properties to magnificent villas, owners and agents make less money and will seek alternative channels and opportunities.
5. Ensure you take payments on your own system but if you do decide on a “Book Now”, negotiate a low rate. They can and will do this!
6. If you do add properties on “Book Now”, make sure its the ones that don’t book so well!
7. Check the cancellation policies. If you want lots of bookings, go for cancel within 24 hours. If you want lots of cancellations, do the same thing!! Seriously, be firm, the industry doesn’t need to change overnight because some shareholders may get grumpy!
6. Follow all the usual rules about property presentation, reviews, etc.
The numbers below reflect their adoption of an agency and the increase in bookings due to extra exposure and addressing enquiries quickly and knowledgeably with online payment via the agents merchant account. It also reflects an agents position if “Book Now” is adopted by them.
Adopting an Agent!
|No. Bookings/Yr-Equiv. Weeks||19 (+5 bookings)|
|Rental Rates/Avg Per week||£778|
|Repairs & Renovations||£1,020|
|Cleaning and Linen||£1,748|
|Web spend/hosting etc||£200|
|Advertising – Holiday Lettings||£0|
|Home Away (Owners Direct)||£0|
|Council Tax etc||£1,448|
|Sundries (phone etc)||£50|
|%||Book-Online Commission||Agents Income|