How do minimum stays affect the cost structure?

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In the market, we always talk about income and expenses, which means they are two key factors for any business. Therefore, a business cannot move forward if it doesn’t know its own expenses and how much it costs to offer its service. 

If you are a property manager for vacation rentals, you’ll know. You should be aware of how much it costs you for a property payment, the fixed expenses you incur at the level of utilities and taxes, as well as the services that are required to rent that property, such as cleaning, check-in, etc.

If you’re aware of this as a property manager, you’ll also know the impact that certain decisions can have. In this article, we’ll explore the impact of minimum stays on the cost structure.

But before we get to that, we need to understand what minimum stays are and how they work in vacation rentals.

Minimum stays are the minimum number of nights that property managers set for a guest to be able to book accommodation. How is this number determined? It depends on various factors, for example, the cost structure.

It will become clearer with an example: let’s suppose the price per night is 100 euros, the cleaning cost is 30 euros per booking, and the additional maintenance cost for check-in and check-out is 10 euros.

  • Without minimum stay (3 guests, 3 nights):
    • Total income: 3 guests x 1 night x 100 euros/night = 300 euros.
    • Cleaning: 3 guests x 30 euros/booking = -90 euros.
    • Maintenance: 3 guests x 10 euros/check-in-out = -30 euros.
    • Net profit: 300 euros – 90 euros – 30 euros = 180 euros.
  • With minimum stay (1 guest, 3 nights):
    • Total income: 1 guest x 3 nights x 100 euros/night = 300 euros.
    • Cleaning: 1 guest x 30 euros/booking = -30 euros.
    • Maintenance: 1 guest x 10 euros/check-in-out = -10 euros.
    • Net profit: 300 euros – 30 euros – 10 euros = 260 euros.

With three guests booking one night each without a minimum stay, the net profit is 180 euros. On the other hand, by having a three-night minimum stay with just one guest, the net profit is 260 euros. In this case, by using minimum stay restrictions, costs are reduced, leaving you with a higher net profit than the scenario without a minimum stay.

 

You might be wondering what to do with the days that aren’t booked due to minimum stays; this is what we call in the industry “orphan days”. If you’d like to learn how to manage them, you’ll be interested in our ebook: “How to tackle and minimize the impact of orphan days in vacation rentals”, download it here.

*Turbotip: If you understand your cost structure and what minimum stays mean for it, you can manage your income more optimally and effectively.

Want to learn how to minimize your costs and increase your income? Read our ebook “Dynamic Minimum Stays: Your Best Ally in a Large Rate Structure”. You can download it here.