I wanted to take a moment to update vacation rental owners on some recent changes in the vacation rental market and how they’re impacting properties, especially those with additional fees like utility charges.
In the past, incorporating a utility fee was a smart strategy. It allowed owners to separate fee income from rental income, helping to reduce the commission paid to management companies. It also minimized tax liabilities since municipal tax (TOT) was often only charged on rental income—not on fees. This approach provided a clear advantage.
However, as time goes on, so do the strategies and algorithms that platforms like Airbnb and VRBO use to ensure they stay competitive. I recently met with representatives from both companies, and it’s clear that the game has changed. The newest updates in their algorithms are designed to optimize guest satisfaction, and as a result, listings with extra fees, especially utility charges, are being deprioritized. This shift has placed properties using the utility fee technique at a significant disadvantage, even risking invisibility as their metrics drop over time.
Why This Matters Now
Our goal is always to stay ahead of these changes and be proactive rather than reactive. As the landscape evolves, adapting is critical to positioning your property for success. Listings that continue to use utility fees are experiencing lower visibility, fewer bookings, and ultimately, less revenue. While this strategy was once beneficial, it is now working against properties that rely on it.
The Numbers Tell the Story
We conducted a case study comparing properties with and without utility fees. Here’s what we found:
Case Study: Property A (Charging $80 Utility Fee):
Listed at an ADR of $800 per night, this property consistently underperformed. With an oversupply of similar homes and a demand level far below that supply for most of the calendar year, any minor deterrent, like a utility fee, caused potential guests to skip over this listing. This meant that the limited demand available in the market chose other properties without such fees. As the demand dwindled, so did the chances of securing a booking. In the end, the listing was either forced to discount heavily (down to $400 per night) or went unbooked entirely because the window of demand closed before any reservation was made.
Case Study: Property B (Utility Fee Removed):
A similar property also listed at $800 per night removed the utility fee and saw a 20-25% increase in occupancy. Booking lead times improved, allowing the property to secure reservations earlier, at or near the target rate. This visibility boost and proactive pricing meant higher overall revenue, without the need for last-minute discounts.
Proven Results by Vacanza Stays
The data provided in these case studies comes directly from our management experiences at Vacanza Stays. We’ve worked closely with our homeowners to adapt to market changes and ensure their properties perform at their best. You can learn more about our vacation rental management services by visiting vacanzastaysvrm.com.
The Real Cost of Holding On to the Utility Fee
I understand that collecting this fee has been part of your revenue model for years. However, in today’s saturated market, every small deterrent has a large impact. By trying to capture an extra $80 per night, you may be missing out on bookings altogether or only filling dates at deeply discounted rates when the remaining demand has already been exhausted.
Why a Strategic Adjustment is Necessary
Removing the utility fee isn’t about losing income; it’s about capturing more of it by positioning your property for success in today’s environment:
- Increased Visibility: Aligning with platform algorithms means more eyes on your property.
- Higher Occupancy at Premium Rates: Better visibility translates to more bookings at your target rate of $800 per night.
- Maximized Revenue: Consistent bookings, without the need for last-minute discounts, result in higher profitability.
Next Steps
I’m more than happy to go over your property’s performance metrics and discuss how this strategy can benefit your specific listing. Our data clearly shows that adapting to market trends and platform algorithms is key to staying competitive and profitable.
