A complete revenue management strategy considers and optimises all sources of income. As the holiday let industry has grown in the UK, so has the variety of different revenue sources - one of the largest being additional fees. Cleaning and administrative or processing fees can now play a central, and sometimes controversial, role in the profitability of a listing. However, different parts of the world have different expectations, rules and norms around fees. Taking a look at UK and US professional Property Managers (PMs) and individual hosts, the contrast is quite startling as to how each group approaches fees.
In our industry, fees walk the fine line between needing to cover operational costs and being a mini-pocket of revenue that helps increase margins. The dual-purpose of fees means they can get quite confusing, especially when trying to match what the competition is doing, or managing guests' perceptions.
In order to get a better, unbiased understanding of how fees are being used in the short-term rental market, we took a look at what the data is telling us.
Before we dive in however, let’s clarify a couple of points. To ensure we’re measuring fees proportionally across different types of listings, the main metric we’re going to use is “% of total guest cost that comes from fees.”
As we’re comparing millions of reservations across different markets and property management systems, this was the most standard metric that could be applied. Therefore, for this study, we don’t break down fees by type.
Variation of Percentage Fees by Market
It’s no surprise that different property managers and the regions they reside in all have different approaches towards fees. When we examine the approximately 68 largest markets in the UK, the average percent of the total cost of reservations made up by fees is 13.2%, as opposed to 19.6% in the US. However, there is strong variance between markets, with some down in the single digits while others are approaching the low 20%.
The chart below shows the average stay value in the US and UK:
For the curious among us, below are the top 20 markets that have the highest percentage fees. As always, feel free to reach out to Beyond to learn more about your specific market!
The Seasonality of Percentage Fees
A normal practice for our industry is to maintain a fixed fee throughout the year, even when dynamic pricing adjusts rental rates due to variables like seasonality, events, and/or days of the week. In other words, charging a £50 cleaning fee regardless of what the base price happens to be.
This can be seen in the example of Cornwall below. The percentage that fees make up of the total cost fluctuates between 13 and 16 percent because the rental rates in June and July are higher than at other times of the year. Higher rates in December from Christmas holidays also act to decrease the fee percentage.
Pro Tip: If you’re trying to gain occupancy in the low season, reassess your fees (consider moving to a percentage fee model), as well as your normal rates.
Percentage Fees by Length of Stay
While time of year is important, the most defining relationship of percentage fees are with length of stay (LoS). Given the nature of fixed fees—as opposed to variable—additional nights booked usually means the total percentage fees make up goes down.
This is one of the main reasons last-minute short stays can still be profitable to property managers as they receive an abnormal amount of revenue from fees from shorter bookings.
Percentage Fees by Bedroom
While length of stay is the most self-evident variable that affects fees, the fee compared to the size of the listing is probably the second most obvious correlation.
The ADR and £ amount of the associated fee typically grow together, but surprisingly it peaks at 1 bedrooms, with larger bedrooms seeing a lower percentage fee.
Professional Property Managers vs. Individual Hosts
Up until now, we’ve looked at data from all available reservations. The business models and desired comp sets between professional property managers (PMs) and individual hosts, however, can vary quite drastically.
Over the last six years, fees of professional PMs are on average 14% of fees of individual hosts. Before the pandemic, the percentage had been growing just 0.3% per year, while the percentage fees of individual hosts grew a touch higher at 0.4%. This is primarily due to PMs bringing fee management into their revenue management discussion and trying to use fees to not only cover expenses but to actually generate a profit.
Regardless of how you “feel” about using fees, they’re a crucial part of any revenue management strategy. Increasing them might be a good way to pad additional revenue, but could come back to bite you if guests think they’re too high and not justifiable.
A good rule of thumb is to be aware of what others in your market are charging and staying within the waterline of your competitors. If they’re charging 25%, for example, you’re probably safe charging that as well. And with our complete view of the market, Beyond is always here to help you find the right amount to charge for fees.
Curious to know how your listings are faring in your market? Book a free Insights demo today!
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