Four Levers to Optimize Your Cancellation Policies
Cancellation policies have long been a property manager's first line of defense to protect rental revenue - for them and homeowners. Over the last few months, the Covid-19 pandemic has devastated travel demand and fulfillment - and as a result, cancellation policies are in the spotlight.
As you analyze your own policies and procedures, here are four (4) key levers to consider in ensuring your cancellation policy is fair, competitive, and is able to attract the sprouting guest demand for vacation rentals.
What it is: The initial down payment required at the time of booking to confirm a reservation. It could be a percentage of the total, a flat dollar amount, or a certain number of nights to be paid.
How to leverage:
Reducing the amount of deposit required when booking can help entice new bookings. Limited time promotions that offer the opportunity to book now with little or no money down can boost future bookings without necessarily having to lower rates.
Potential risks:
A lower down payment means less money you keep should guests cancel outside of the cancellation window.
CANCELLATION WINDOWS
What it is:
This is the period of time a guest has to cancel a reservation with little or no penalty. Vacation rental managers, especially in leisure travel markets, often do not offer cancellation windows. While this practice is great for protecting your homeowners, it may be prohibitive in attracting new guests.
How to leverage:
Consider a risk-free cancellation period for guests. For example, would you refund a guest who cancels more than 6 months in advance of arrival? What about any reservation made in the last 24 hours? Even a small cancellation window can help potential guests overcome fear of loss when making a reservation.
Potential risks: Avoid cancellation windows that are close to the arrival date for reservations booked well in advance, or for larger properties that are more difficult to rebook in a short time.
PAYMENT SCHEDULES
What it is:
This is the schedule of payment(s) to be made after an initial deposit has been made. Final payments are often required 30 or more days before arrival. New reservations booked within a certain number of days are required to be paid in full at the time of booking.
How to leverage:
Finding ways to be flexible with payment schedules can help potential guests feel more at ease making a reservation during these uncertain times. Consider a property's average booking lead times and make sure the final payment schedule is compatible with this. For example, if most guests are booking your property within 14 days of arrival but your policy requires all payments in full within 30 days, you could see more bookings happen by adjusting your final payment due date to 14 days. Modifying payment schedules by season, property, or length of stay can better match your policies to specific vacation rental demand and increase overall bookings.
Potential risks:
Anytime a scheduled payment is declined, it takes additional time to collect the balance from the guest. Scheduling payments closer to arrival means the timeline for collection is shorter. Guest service agents must be vigilant to ensure payment has been made before check-in.
CANCELLATION FEES
What it is: This is a fee (percent or flat dollar amount) charged to a guest in the event of a cancellation. It allows vacation rental managers to recoup some administrative costs when it comes to a reservationist's time.
How to leverage: Aligning your cancellation fees with your cancellation window is the best means to accomplish this. For example, if they can cancel without losing their deposit, ensure your cancellation fees are covered, conversely waive the cancellation fee, if you are keeping the deposit or rent.
Potential risks:
If a cancellation fee is payable entirely to the property manager, homeowners could feel like they lost revenue if the stay dates do not get rebooked. If the cancellation fee is too high it can be a booking deterrent. If it is too low, guests may not try hard to avoid cancellations.
Having a competitive cancellation policy helps you stand out when it comes to direct bookings. Ultimately, no cancellation policy is one size fits all. Get creative with the four cancellation policy levers and use the data provided to you in your Beyond Pricing Insights or property Stats tab. Understanding what works best for you as a business owner and your homeowners, will allow you to take the necessary steps to optimizing your cancellation policy or policies to help you attract new guests post-pandemic.
