With the rise of online booking platforms like Airbnb, Vrbo, and Booking.com, many property owners and managers are left wondering who exactly gets to keep the booking fees charged to guests. This is an important question, as booking fees can make up a significant portion of revenue for vacation rental owners and managers. In this article, we’ll break down exactly how booking fees work, who gets to keep them, and strategies both owners and property managers can use to maximize their earnings from booking fees.
What are booking fees?
Booking fees, sometimes called service fees or transaction fees, are charges added on top of the base rental rate for a vacation rental property. Platforms like Airbnb, Vrbo, and Booking.com all charge booking fees to guests in order to cover the costs of running their platforms and facilitating transactions between guests and property owners/managers.
These fees are generally a percentage of the total reservation cost. For example, Airbnb charges guests a service fee of between 5-15% of the base rental rate. Vrbo’s service fee is generally around 10% of the total rental cost. Booking.com’s fees range from 10-20% of the rental rate.
The exact percentage charged can vary based on factors like the length of stay, total cost of the booking, and specific market. But in most cases guests are paying somewhere between 10-15% on top of the base rental rate in booking fees.
Breakdown of booking fee components
The booking fee charged to guests actually consists of a few different components:
- The platform service fee – This covers the platform’s costs for hosting listings, processing payments, marketing fees, customer support, etc.
- Payment processing fees – This covers transaction costs for processing guest payments.
- Occupancy taxes – In many locations, occupancy taxes levied on vacation rentals are collected by platforms along with booking fees.
- Damage protection fees – Some platforms also bundle damage protection plans into the booking fee.
So the total booking fee paid by the guest contains both fees retained by the platform and fees passed through to property owners and local regulatory agencies.
Who keeps the booking fees?
When it comes to the booking fee charged to guests, there are three main entities that can receive a portion:
- The booking platform (Airbnb, Vrbo, etc.)
- The property owner or manager
- State and local regulatory agencies
Let’s look at each one in more detail:
1. Booking platforms
Booking platforms like Airbnb and Vrbo keep a portion of the booking fee to cover their own platform service charges. This service fee generally ranges from around 3-5% of the total booking cost.
Platforms may also retain a portion of the booking fee to cover payment processing charges, which are usually around 3-5% as well, depending on the payment method used.
In addition, if the platform provides an optional damage protection plan as part of the booking fee, they would retain the portion charged for that plan.
In sum, booking platforms usually retain somewhere between 6-15% of the total booking fee amount.
2. Property owners and managers
Property owners or management companies also receive a portion of the booking fees, generally the remaining 85-95% after the platform’s cut.
This portion helps cover costs the owner/manager incurs for things like:
- Cleaning fees
- Utilities
- Maintenance
- Toiletries and supplies
- Linens
- Insurance
- Property management services
This portion of the booking fee helps supplement the base rental rate in covering all the costs of making the property available to rent.
3. Regulatory agencies
A portion of booking fees also often goes towards paying state and local taxes on vacation rentals. In popular tourism destinations, special occupancy taxes are usually levied on short-term rentals.
These occupancy tax rates vary widely by jurisdiction, but often fall anywhere from 5-15% of the rental rate. Platforms like Airbnb and Vrbo collect these taxes as part of the booking fee and remit them to state and local tax authorities.
So while property owners/managers don’t get to keep the portion of the booking fee allocated for taxes, it does fulfill their legal obligations in jurisdictions requiring tax payments.
Strategies to maximize booking fee revenue
As we’ve seen, booking platforms, property owners/managers, and regulatory agencies all get a cut of the booking fees charged to guests. Here are some tips both owners and managers can follow to maximize their portion of the booking fee revenue:
For property owners
- Calculate your true break-even rental rate based on costs, then add a markup percentage.
- Factor the average booking fee into your base rate so you reach your target income per booking.
- Set minimum stay requirements to increase the booking fee per reservation.
- Use dynamic pricing to increase rates and booking fees during peak seasons.
- List on multiple platforms so you aren’t totally reliant on one channel.
For property managers
- Clearly explain your pricing model and fees upfront to owners.
- Educate owners on maximizing rates and occupancy to increase management fee revenue.
- Provide detailed occupancy and financial reports to owners.
- Use channel manager software to syndicate listings across multiple platforms.
- Use dynamic pricing algorithms to optimize booking fees.
By following best practices around pricing, channel management, reporting, and education, both property owners and managers can ensure they are effectively capturing revenue from booking fees.
The booking fee breakdown
To summarize the full breakdown:
Booking Fee Recipient | Portion of Fee |
---|---|
Booking Platform | 6-15% |
Property Owner/Manager | 85-95% |
Regulatory Agencies | 5-15% |
Booking platforms take 6-15% to cover platform service fees and payment processing.
Property owners and managers receive 85-95% to cover property costs and markups.
And 5-15% goes towards occupancy taxes in jurisdictions where required.
The future of booking fees
Looking ahead, booking fees in the vacation rental industry will likely only continue to increase. Platforms like Airbnb are focused on shifting more business from hotels to short-term rentals. To incentivize owners to list properties, booking fees need to remain highly competitive with hotels and other booking business models.
At the same time, owners and managers will aim to capture a higher percentage of booking fees to remain profitable in the face of rising operating expenses. Managing channels, pricing dynamically, and optimizing occupancy will become even more important.
And jurisdictions will continue assessing occupancy taxes on short-term rentals as their prevalence increases. Though not always popular with owners, these taxes do serve to legitimize vacation rentals and put them on firmer legal footing.
While the exact percentages retained by platforms, owners, and agencies may fluctuate, booking fees will likely still factor prominently in the vacation rental industry for years to come.
Conclusion
Booking platforms, property owners, and regulatory agencies all receive portions of the booking fees charged to guests on vacation rental platforms. By pricing strategically, diversifying channels, and optimizing occupancy, owners and managers can maximize their share of booking fee revenue. And increased competition in the market will likely keep booking fee rates high in the future as more business shifts from hotels to short-term rentals.