Why you should be thinking about Average Customer Value with every single booking
What would you say if I could guarantee you an entirely booked calendar for a year? 365 days all booked up and paid for? You’d say this was too good to be true, surely? Now, what if I said that these days were all booked by different customers? 365 customers, each staying for just one night each. It doesn’t sound like such a great offer any more does it? The work involved, and the cost of managing so many different guests is going to bring with it such high costs, levels of involvement and potential problems that even having a fully booked calendar is probably not worth it.
This is all to do with ACV. Your average customer value is too low to make this option viable. To run a successful vacation rental business, you need to make sure that every single one of your customers brings with them a higher value than it costs to operate your business.
Every guest brings with them a certain cost for your business, this is unavoidable. These costs are more than just the costs associated with your property; cleanings, maintaining your website, your staff and running your marketing all need to be factored into your business model. The acquisition of a new customer is always going incur costs. To offset these costs you need to increase the ACV for every customer.
In the same way, it will cost a cafe money in rent, utilities and staff for every customer that comes in regardless of what they order. To use an example, Customer A has an ACV of $1 per visit to the cafe and their visit costs the cafe $0.75 in costs and stock. Customer B has an ACV of $5 and costs the cafe just $1.90. Once you start increasing the ACV, the margin between the cost to the business and the net profit starts to grow exponentially. The higher the ACV is, the lower the percentage cost each customer has to your business and the greater the percentage profit is.
What this demonstrates is the need to maximise the revenue from every single guest. The first way to do this is to encourage longer stays. We’ve spoken before about the benefits of offering incentives for longer stays. If you consider the cost to your business that cleanings between guests, the handover of keys and staff costs involved in confirming a booking incur, then longer stays make clear sense. The cost of business is weighted towards the acquisition of new customers and there will be more profit for property managers if they can encourage guests to have a higher ACV by staying for longer in their properties.
The next, and more profitable way to increase ACV is to add optional extras. Services, tours and customizable extras give your guests a chance to personalise their stay and increase your margins as a property manager. The profit from these extras is separate from the standard costs associated with running your business. You can add to every guest’s ACV without building more costs into your business model. As these additionals are optional, you will only experience outlay once they are selected by your guests. Providing you are making a profit on each optional extra then this the perfect way to increase your ACV and maximise your profit without great risk to your business.
This practice is done everywhere because it works. From optional extras with a new car to an extended warranty on a computer, the incentive for businesses to increase customer spend rather than increasing the number of customers is an established practice. It is a key strategy in the quest to stay profitable and needs to be treated as carefully as your bottom line. In Kigo, you can see the exact statistics of how much revenue you are making for every available night, across all of your properties, meaning your ACV can always be at the forefront of your mind.
What strategies do you use to increase your ACV?