Friday, 24 August 2012

Pricing Your Rental Villa

Finding the right price for your villa in Thailand can be a tricky business. There are a number of things to consider: your running costs, your competition, your expected occupancy rate; and, changes in the rental market. Only when you have made an assessment of all these factors can you begin to price your villa correctly. And then, of course, there are seasonal price fluctuations to consider.

If you follow the prices for a successful hotel in Thailand you will shocked to discover just how often they change their prices. You will also be surprised at the lack of transparency when it comes to prices. There are often hidden extras such as tax, transfers, movie channels that don’t appear in the initial price quoted. If you go to booking engines such as Agoda,, Trip Advisor etc. you will find a different price on each site. This is partly to do with commissions charged. If you are managing your own villa it can be a real headache dealing with all these prices.

I have found that it is worth trying booking sites but only keep up with 1 or 2 that perform for you. Most don’t produce much.

Running Costs

Here is a check list of running costs that you should consider:

1)    Electricity bill. This is the main bill due to air-con. Many hotels use keycards to stop people leaving the air-con on while they are out. Keep a close eye on your electricity bills when you have guests as this will help you estimate your electricity costs in renting your villa.
2)    Water. Big groups and families can often use a lot of water for showers. Hot water use will also impact on the electricity bill.
3)    Cleaning. If you offer a maid service, laundry service, rubbish removal etc. All these costs need to be factored into your price.
4)    Transfers / Agent fees. Many villas offer free pick up. It is a good idea as that way you don’t lose your customers at the last hurdle. It is also a chance for them to meet the villa agent, pay damage deposit, collect keys etc.
5)    Wear and tear. After a year you should spend money to repair your Thai villa. Chances are that it will need a lick of paint, this piece of wood replaced, filters cleaned and so on. Try to estimate a yearly cost for keeping the villa presentable. This should include such things as new sheets, a fee for use of fridge, TV and other expensive items. The more detailed you can be the better your estimate will be.
6) Legal fees.

Minimum you want to be making 50% more than all these costs put together. Of course the higher your occupancy rates the lower your profit margin needs to be per day rental. Some places make nearly all their money by making 200% profit at Christmas / New Year and over the year this works at a profit minus costs rate of about 50%. It varies. Keeping your eyes on thesew figures is key. Estimate what your minimum is to break even over the year. that will greatly help you to decide how much you can discount.

Your Competition

The received wisdom is that you try to slightly undercut your competition to attract more customers. There is a lot to be said for this approach. You need to study the villas that are the same size as yours, offer similar facilities and are in a similar location. It can be hard sometimes to find an exact match. This is good news as it means you have something unique to offer. I look at what hotels are charging to guide my pricing as well.

In Thailand there is often not much price undercutting going on. The market reaches a type of unspoken monopoly on prices, especially when there is no shortage of customers.

Much of the price changes go on with slightly altering the peak and low season prices. This is connected to expected occupancy levels.

Occupancy Levels

If you find you have high occupancy levels at Christmas and during the European summer holidays it is often not a bad idea to slightly raise your prices for these times. This will increase profit. By the same token if low season occupancy rates are low it is a good idea to drop the rates at these times of the year. Another idea is to offer monthly rates at these slow times. To make this possible you can offer different packages that perhaps don’t include maid service and other services. People keen for longer term lets often want a bare bones package. This suits you and the tenants. As long as you are making near your 50% profit margin there is no problem. Moreover, it is always good to have people staying – they help spread the word about the villa and can also be encouraged to leave positive comments on Trip Advisor. They can also form part of a repeat customer business.

If you have really low occupancy rates then you should consider drastically changing your marketing strategy, upgrading the villa and altering your prices. Pursue as many avenues and ideas as possible to get the bookings. Analyze what is putting people off.

Changes in the Rental Market

Holiday destinations in Thailand fall in and out of fashion. They go from being relatively unknown to being centres for mass tourism. They also fall out of favor. Places in Thailand have a habit of developing quickly and the market gets flooded. In Koh Samui hotels shot up in the 80s and 90s and now there are far too many rooms to fill. Everyone suffers, and no one can see the obvious that over-development is bad for business. In Koh Samui the hotel owners imagine all they need is more daily flights to the island. They don’t see that people are put off by the over-commercialism and high prices.

The 2008 global financial crisis has had an on-going impact on tourism to Thailand. It is a long recession and many North Americans and Europeans simply don’t have the same money to spend as before. Thus, offering cheap deals for the times when the Europeans are likely to visit is a good idea.

By contrast Russians, Chinese and other Asians are coming in droves to Thailand. Finding ways to get exposure in these markets is a good idea. One way is to offer other languages on your website. Also finding the online sites that these relatively new markets use to search for villa rental is a good idea. However, beware these customers often are far more astute with their spending and are looking for bargains that eat heavily into your profits. Also they often have very different expectations to European guests.

Pricing your villa correctly to balance being attractive to the consumer and making a healthy return for your money is not simple. The more factors you consider the more accurate you can be in assessing the mood of the market.

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