Fully refundable vacation rentals get 4.2X more bookings, higher revenue

As owners and managers of vacation rentals vie to capture bookings from those willing or needing to travel despite the pandemic, data from Sweden-based Your.rentals – a provider of software for bookings, payment, channel management and listings – reveals a winning strategy: Properties that offer a full refund for cancellations get both a higher volume of bookings and higher average revenue per booking.

Your.rentals offers its software to more than 30,000 individual hosts and small vacation rental management companies, primarily in Europe but also in Latin America and Southeast Asia, and provides inventory to Booking.com, Vrbo, Airbnb, Tripadvisor and others.

In June the company introduced fully refundable booking options – meaning a guest can get all of their money back if they cancel within a given time frame, generally seven, 14 or 30 days before check-in.

Your.rentals co-founder and CEO Andrew Martyn says the data since then has been “striking” and shows that a liberal cancellation policy is critical for booking conversion.

“January is normally a peak booking month here in Europe ... and when I looked at the data earlier this week, I saw that those with a free cancellation policy have almost the same demand as they had last January, pre-COVID, but those without a free cancellation policy have about 23% of the normal demand. That’s a really big difference, four or five times better booking conversion, just by having that policy,” Martyn says.

In fact, listings with free cancellation policies comprise just 25% of Your.rentals overall portfolio, but they account for more than half of all bookings currently made for 2021.

Martyn says fully refundable properties are not only capturing a greater share of bookings, they are also bringing in about 18% more revenue per booking.

“Guests are often willing to pay a higher price for the security these policies offer. If hosts can’t offer this, they’ll likely have to compete on price and thus accept a lower revenue per booking,” he says.

And there are more data points to bolster the argument for refundable listings. 

Your.rentals has found giving guests this freedom does not lead to a dramatic uptick in such cancellations. Analyzing its data from 2019 until now, the cancellation rate for fully refundable bookings is only 1.3 to 1.5X higher than the rate for partially refundable bookings. In addition, 35% of bookings that do get cancelled under these options are cancelled within a week of being made, so hosts could reopen those dates on their calendars. 

The impact of this type of pricing strategy can also ripple through to marketing tactics, since properties that receive more bookings will appear higher in search results in online travel agencies and other sales channels that use performance-based ranking for listings.

“It will be increasingly difficult for those with partially refundable policies to stand a chance of competing against fully refundable listings in terms of both guest appeal and visibility,” Martyn says.

Host hesitation

But how do hosts and property managers feel about guaranteeing a full refund for cancellations? 

“There is definitely quite a lot of push back,” Martyn says.

It will be increasingly difficult for those with partially refundable policies to stand a chance of competing against fully refundable listings in terms of both guest appeal and visibility.

Andrew Martyn - Your.rentals

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“The message I am getting back from customers is, ‘I don’t know if I can afford to take the risk.’ I understand what they are saying – the guest has an insurance if they book with free cancellation, but I have no insurance against that happening and they don’t feel that is a fair balance. That is the key issue to overcome here.”

Some of Your.rentals customers have opted to remove their listings rather than offer full refunds. But others, like Nordic Housing Peter Sarvari, say refundable options are here to stay.

“The benefits outweigh the risks,” Sarvari says.

“We offer partly refundable and non-refundable rates. The non-refundable rate is the cheapest and before COVID that was working really well. But right now there are not many people choosing that option.”

Sarvari and Martyn both expect this concept of dual offers, enabling guests to choose a non-refundable booking at a lower rate or a partially or fully refundable booking at a higher rate, will quickly become more common in the vacation rental sector as it is with traditional hotels. 

“You actually force the decision on the guest and then the property manager does have some insurance – they either have a higher price which will help cover the cancellations of fully refundable [listings] or they have the normal price with guarantee. This is something I believe very strongly is going to be here for the long term,” Martyn says.

“It was going this way anyway, and COVID has just made it happen very quickly. There will be more forward-thinking property managers who go all in on this and figure out how to set their pricing so actually they are profiting from having dual offers and also providing the guest with more choice. Those that learn this and adopt it will have a more competitive offer for the guests.”