Strategies and tips to maintain profits when a holidaymaker cancels their stay
Last-minute (and not-so-last-minute) cancellations are an annoyance that all holiday let landlords suffer from time to time. Instead of panicking and rushing to offer your holiday let at a knock-down, cheaper-than-chips, bargain basement price, by having a plan to deal with cancellations you will preserve your profitability and ensure that your property remains a legal holiday let.
These tips will help you to take cancellations in your stride, and maximise your income in peak and off-peak periods.
Why cancellations hurt holiday let investors
The obvious reason you will loath cancellations is the damage they could do to your profitability. Let’s say that your property’s diary is full during the peak period. Then, a guest cancels the two weeks they booked just a few weeks before their booking is due.
You could be down on income by £1,000 or more. You must still meet your costs (the mortgage and utility bills still have to be paid, for example), while the income you had banked upon will no longer add to your bank balance.
Perhaps even worse, if the cancellation means that the number of days your property is let in the year falls below 105 (a possibility, though doubtful if you have included strategies to boost year-round income in your investment planning), it could lose its beneficial tax status if you undershoot the minimum let days two years running.
Here are four positive things you can do to overcome the potential downsides caused by cancellations.
Tip #1: Have a cancellation policy
Never take a booking without a deposit, and never accept a booking without a cancellation policy agreed. The best strategy for payment from guests is to:
- Take a reservation deposit. This guarantees the period booked for the use of the guests making the booking.
- Stage payments. For example, a 25% deposit, followed by three more payments of 25% with the last payment due two weeks before the booking is due to commence.
- Make a cancellation policy that reduces the repayment down to zero if the booking is cancelled within two weeks of the booked period. For example: the deposit is forfeited if the booking is cancelled within 12 weeks of booked dates; 50% forfeited if cancelled within eight weeks of the booked dates; 75% if within four weeks, and the full payment is forfeited if the guest cancels after the full amount has been paid.
In this way, you increase early-stage cash flow and protect yourself against those who book to guarantee accommodation only to cancel in favour of different accommodation when it is too late for you to find new paying guests.
Tip #2: Don’t ‘panic discount’
The first thing that inexperienced holiday let landlords do when hit with a cancellation is panic. They re-advertise their property at a reduced rate, hoping to entice another booking from guests looking for bargain basement offers. If the cancellation is made only a short time before the booked dates, this may be a good strategy. However, the longer you have to get your holiday let re-booked, the less you should be tempted to discount.
In general, discounting harm your profits and cheapens your holiday let. If it has been fully booked, this means there has been good demand for it. It could be that other holidaymakers are still looking for similar properties in the same area. Capitalise on this demand by advertising at the original price. Only if this doesn’t work should you then consider discounting.
Tip #3: Use Facebook wisely
Love it or loathe it, you should use Facebook to help promote your holiday let. Create a Facebook page for your holiday let business (it only takes a few minutes to do so), and encourage people (friends, family, guests, etc.) to like and share it. As the number of followers of your page increases, you’ll have more people to market to.
Post any cancellation you suffer as a recently-made-available slot for your holiday let, and ask people to share with their Facebook friends. It costs nothing except a few moments of your time and can be the most effective way to market cancellations.
If you fancy spending a little bit on advertising through Facebook, you can post a business advert. You choose a range of factors that dictate who your advert is seen by – for example, people in the UK, parents of children, age ranges, etc. – and pay per click. You set the maximum amount of advertising spend, to ensure that you don’t blow your budget.
Tip #4: Be an effective email marketer
As you mature as a holiday let owner, your list of email contacts should grow. Whenever someone books time in your property, you should collect their email address. Build a database of contacts, noting their email address alongside their name. Other details that you might consider including would be the length of stay, how many people booked (e.g. family, friends, or a couple), and how many times they have stayed.
With this information to hand, you will be able to market to your list more effectively. For example, if the cancellation is in mid-August, then try email marketing families first – those who have stayed in your holiday let before, during the same period. Be creative, let your email list know this is a ‘never to be repeated’ offer, and that you are contacting them because they enjoyed their previous stay.
While we’re on the subject of email marketing, a great tip is to send regular, consistent and constant emails. One email per month, highlighting things to do in the area where your holiday let is located, and not ‘salesy’ will keep your property at the front of thoughts when people come to book their accommodation.
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