AirBnB's 11% owner fee increase - are you prepared?
The leaders of the #BookDirect movement have been warning you for years that the guests "service fee" will in future be charged to Owners. It brings me no pleasure to say "I told you so", and even less to learn that so many owners seem complacent, simply responding "I'll raise my prices".
From June 4th 2019, according to Skift, AirBnB now charge 14% to owners who sign-up anywhere in the world except America and Japan, combining the previous (ironically named) guest "service fee" and 3% owner's charge.
With a high degree of confidence we predict that America and Japan will also adopt that, probably later this year. We also predict that all other big listing sites will follow suit. Our confidence is found in the history books - it's what they have done repeatedly - first impose the new rule of law on new owners, then force the rest to adopt it in new contract terms on renewal.
I'll wait and see.
Said no Entrepreneur. Ever.
Business models evolve or the business faces extinction. You can not blame AirBnB for forcing this change, they are evolving to better compete with Booking.com's market gains, as Leslie Cafferty says for Booking.com “Booking has never charged fees for consumers”.
For the consumer it will now become shockingly obvious when any other listing site adds such a huge booking fee on top of their holiday compared with those sites that apparently don't. The brand damage will in turn force the remaining guest-chargers to follow, lemming-like, in their wake.
Don't be fooled into thinking your next guest will compare your property on Booking, VRBO and AirBnB side-by-side. A few may compare different but similar properties, but most will just drink the multi-million cool-aid (advertising) that just says "no booking fees".
Vacation / Short Term rentals owners have made huge strides improving our services, communication and pricing to compete directly with hotels. For years Simon Lehman has been eulogising our movement's drive to not only match, but overtake the hotel's brand offerings in terms of quality of service, value and style in ways that we are so uniquely positioned to do so.
It should therefore be no surprise that our industry is finally falling in line with that billing model. So evolve we must, and quickly.
Let's take an example of a $2,500/week property, rented for 50% year. Taxes have been left out, even though they have also increased significantly.
Until the unstoppable rise of AirBnB, Short Term Rentals / VR had a simpler fee split, with the likes of the original VRBO and Owners Direct.
A fair price for a good service, which varied from less than $300 at Owners Direct, $699 appears to be the average charged at the time by the biggest sites.
As the AirBnB guest-fee model became acceptable, VRBO (et al) bought up most of the independent transaction-charge-free sites, and added guest fees.
You lost about 2% net revenue, which most can absorb. At the time Owner's fell broadly into 2 camps. Many of us complained bitterly (there is not an appropriate adjective for a 1,500% increase in charges). The second camp simply said "It's not us paying, it's the guest, they can afford it, it's between them (guests) and them (listing sites), not my problem."
Now they have reverted to charging the owners again. This example assumes that you only increase your price by 11%, absorbing some of the change (which they recommend) .
So now you look a lot more expensive than before (the listing sites will, without doubt, just say the Owner has increased the prices), and you are getting even less! ...and still no more bookings than before.
The point of this comparison is that the big listing sites have, in only 4 years, raised the cost of listing your property from $699 to $12,265 a year. This is on the same listing site. With less bookings than before.
If, when HomeAway was acquired in 2016, you were told you would have to increase your prices by 15% (inc ppb), and pay that all to HomeAway, even the most mild-mannered of you would have taken action.
I will just raise my price.
Good luck with that. Successful evolution is rarely that simple. Your spreadsheet shows that you will get the same net revenue as before - great! The buyer thinks they are getting it cheaper now there is no guest "service charge" - also great! AirBnB (et al) will undoubtedly tell you guests will come flooding through your doors as a result - I hope my sarcasm shows through here.
As long as you are dependent on the listing sites to bring you guests, they run your business. They will decide how much of your revenue to take, and will (as they have previously) increase their slice when needed, such as when the stock markets take their cyclical slide, in order to keep the investors happy. They have to justify overpaying for the likes of VRBO after all. Your profit will be eroded to prop-up their stock price.
I said I will just raise my price!
Your spreadsheet will still tell you the net revenue is the same, but we all know marketing by spreadsheet does not work. As the average slice taken creeps over 20%, you are right - you could increase your fees.
This has in fact been happening for a long time. My friends’ first foray into trading on the internet a decade ago was an aggregates business, selling shingle, gravel and sand online. They were very successful. They set the price they were willing to pay per lead, increase it and leads flooded in, reduce it and they dried up. Over time competition forced an increasing cost-per-click for each Google lead until it reached the level where there was no margin in it, and they closed.
The internet is the great leveller. Your margins will be reduced to the level that your competition is willing to accept.
It will not surprise you, as one of the leading publishers on the #BookDirect scene, that the best success stories - in fact the only success stories in the last year, are from owners that evolved their own direct offering. They have a website of course, but most importantly it is the marketing that supports that website that has moved forwards.
We know so many owners that have broken completely free from the margin-grabbers, they have 100% direct bookings. They don't pay 10%-20% to anyone. Imagine how much you could invest in marketing your property directly with 10% of your annual income - and still charge more than your existing (depleted) net revenue to make a much higher margin.
This is sounds much closer to evolution.
What makes a 100% #BookDirect site?
Let's start with a budget. In the above example the owner is paying over $12,000 in listing fees, year after year after year. This would appear to be the maximum annual budget they should allocate to all the marketing costs of their property (once they have achieved 100% #BookDirect), in order to achieve the same margins.
Few will spend anything like that, even the 100 percenters. Most will pocket a lot of that saving and invest a significant amount of time as well, and it is a personal balance you will need to find - whether to spend the time creating and curating content or whether to pay for this service from an agency or publisher.
But let us get one thing clear - If you just spend $1,000 (in money or time) on a website and don't nurture it, expect to keep paying over $12,000 a year for the big listing sites to run your business. To create a site driving 100% listing independence, an up-front investment of over $5,000 (time equivalent and money) is a reasonable target.
It is so much more than just the website. While it is an important cornerstone, having a great site is less than half of what makes up a 100% #BookDirect rental property. This is true even for the best, mobile-first site built to answer the questions your potential audience asks.
My next articles on this subject will investigate the key common strategies used by the most successful #BookDirect owners, and how to implement them for you. I will leave you with 3 areas to think about your website.
Did your website have any editorial changes (new posts or pages) last month? Google's AI looks at sites as well as pages and posts, and sites that are actively expanding rank higher for all the posts because the site is living.
You also can answer more potential questions with more individual posts. Conversely on a quiet site Google will (very rapidly) assume it is stale and keep all your posts off the front page of search.
Is your website about your property? It is what you are selling after all, isn't it? The thing about micro-brands and boutique offerings is that potential customers are not searching Google for the brand - or even the product - who searches for "Sleeps 10 with 5 baths and parking"?
Unless you turn your website into a traveller's destination guide, you are unlikely to be found, and if you are not frequently adding useful travel tips and events you will linger on search page 5.
What does your website look like on a small smartphone? Not just what does it look like, but what does it feel like to use it?
Have you tried using your site as though you were a traveller, with distractions, like waiting in line in Starbucks having Googled 'what to do when it rains in Seattle'.
All the best designers are replacing the old responsive model with mobile-first designs. These take ideas into consideration like the "Thumb Effect" (which parts of the screen can be easily accessed by the thumb, left or right handed) and much more. The design must be simple and very high speed, it's not just teenagers that have short attention spans on mobile, adults are also often in the middle of doing something else.
I'll wait and seeSaid no entrepreneur. Ever.
In order to find out what actually drives success, please take part in our How to get to 100% #BookDirect survey. It is anonymous, takes only 10 minutes to complete, and will get you the detailed report.