A few CEOs got together last week in the Vacation Rentals Professionals Group in Linkedin and had a very engaging discussion about pricing models that vacation rentals websites use and which might be superior. Note that you’ll need Linkedin membership to read the discussion.
It’s quite long thread so I’m going to attempt to summarize the salient points here. So here goes:
Most agents these days work with one of 2 payment models: Pay per booking or pay per listing. Pay per booking is a percentage of the booking value whilst pay per listing is usually a yearly price for a property lisitng on a website like vrbo.com. Both these models have flaws:
At first it seemed odd to me. Acting in the capacity as a property owner I preferred to pay only for a booking because I knew exactly what I would pay and I could calculate if each booking would be profitable. However at the time I had not considered the following points:
The main arguments against pay per lead:
My personal opinion is that most of these flaws can be dealt with by education of owners and providing good tracking tools to provide comfort that nothing untoward is happening.
In the long run active owners in competitive locations who need to work hard to fill their properties will prefer pay per lead to pay per booking because pay per booking treats all owners equally and does not give the owner an edge on his competitors. Passive owners, especially those in uncompetitive locations will prefer pay per booking.
Note that in the case of instant booking if a property is not suitable for online booking it will not generate revenues. This is the case for villas and unusual properties requiring explanation and clarification.
Pay per listing will fall by the wayside as it is really just a very unsophisticated version of pay per lead. Pay per listing doesn’t provide guaranteed leads, nor does it provide good tracking to the owners, nor does it incentivise them to keep their listing accurate, meaning consumers will become frustrated and opt for a website where they get better service.
My own conclusion is that whilst it may be uncomfortable for owners, pay per lead will create the right incentives for owners to create superior listings and will eventually result in better conversion for the portals who use it, and that is good both for them and their active owners. Pay per booking will work in certain situations and may be superior to pay per lead in the case the customer is happy to book in real time without asking questions (for apartments and hotels). Pay per booking will be inferior to pay per lead in the case questions need to be asked because response time will be poor. Therefore a combination of pay per booking (for instant booking) and pay per lead (for more complex or larger sales) may be the optimal combination.
The interesting thing about this conclusion is that it means that market leader #Airbnb got it wrong….