Using Booking Fees to Make Your Vacation Rental More Profitable
Copyright 2017 VacationRentalDesk.com
Should you as a vacation owner charge a booking fee for your rental property? If so, how much should it be? Is $20 too low and $75 too high? In this article we'll take a look at the benefits of charging a booking fee and help you determine the best amount to charge.
Why a Booking Fee?
Although the booking fees of the past that hotels used to charge for reservations have become extinct, most people will agree that booking a vacation rental is quite a different experience. Handling reservations for a vacation home is a much more difficult process and comes with its own plethora of expenses.
In my opinion, booking fees are a great way for vacation owners to recoup many of the out-of-pocket expenses associated with the reservation process. These include:
- Postage and mailing expenses
- Checking account and bank related fees (although most banks offer free checking accounts to attract business, most of the good features are extra and don't come with the standard checking account. Plus, with many free checking accounts, there are restrictions of monthly dollar and transaction volumes)
- Credit card transaction fees and discount rates
- PayPal commission fees – Did you know PayPal charges 4% per transaction? If a customer pays you via PayPal American Express, add on another 3.8%.
- Stationary and printing expenses for sending letters, thank-you cards, and faxes
Your Time is Money
Time is money and most vacation rental owners have a tendency to take numerous trips to the bank to make deposits and spend a great deal of time handling guest correspondence: mailing or emailing booking confirmations, payment receipts, payment reminders, welcome and thank you letters, and so on.
Booking fees help you recoup these expenses by charging a small flat fee to guests for each confirmed reservation.
Although some reservations cost more than others – for example, those guests who call from the other side of the country and ask you dozens of questions and run up your phone bill, or who pay by PayPal and you're out 4% – booking fees serve to average them out over time if set properly.
Determining a Booking Fee
So how do you determine the amount to charge? The key is to make you booking fee high enough to cover all or most of your per-reservation expenses, but not enough to deter guests from booking with you.
To determine how much you should charge, add up all the expenses relating to the booking, reservation, and guest correspondence process in one month and divide it by the number of guests you received during that month.
- 3 long distance calls to guest totaling 45 minutes. At 10 cents per minute that's $4.50
- Welcome Package: $0.37 cents postage, $0.50 for envelope, instructions, and welcome material
- Thank you letter. $0.37 cents postage, $0.25 for thank-you card
- $10 checking account fee divided by four guests in one month: $2.50
- $6.50 credit card discount rate on a $250 reservation, plus a $0.25 transaction fee
That comes to $15.24 per guest – quite a bit more than you probably expected! This is just a typical example so don't forget to add any other expenses you might have. Even if you're not accepting credit cards, remember that you're probably wasting a lot of time (and gas) taking extra trips to the bank to deposit checks.
Now you can see why vacation rental owners on average charge between $10 and $25 for their booking fees.
If you own an expensive vacation home or have a lengthy minimum stay (such as one week) you'll be able to charge a slightly higher booking fee. This is because your booking fee will look small in comparison to the average reservation total.
For example, a $40 booking fee doesn't seem to be extraordinary for a $2,000 reservation, but it would for a $200 reservation.
If you want to lower your average booking cost per guest and make the time-consuming reservation process easier, take a look at our Online Reservation System. You can customize your own booking fee, and it automates nearly all of the steps involved in the reservation process. Learn about our Online Reservation System. If you're new to reservation systems, here's a great introductory article to learn all about them.
I hope I've shed some light on vacation rental booking fees and convinced you to use them to make your rental property more profitable.
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