The Most Important Indicator for Short-term Rental Property Managers
The Market Penetration Index (MPI), used to be referred to as Occupancy Penetration Index, is one of the most important metrics for anyone in the short-term rental business. And, as important as it is, it’s also one that very few have heard of or use on a regular basis.
At Angel Host, the MPI is one of the most important indicators we use to measure how well a property is performing. It also helps us determine if we need to increase or decrease prices for future stays. How do we do this?
Your MPI is a unit of measurement that shows how your rental property’s occupancy compares to your competition. This is usually based on a preselected set of criteria. This metric is particularly helpful in seeing how your business is doing in relation to your local market competition and the market in general. Given the current market conditions, if you’re not calculating MPI, now’s the time to start.
Calculating your MPI
MPI = Your occupancy rate ÷ your competitor set’s (or market) occupancy rate
This calculation should yield a figure that tells you your position relative to the market. An index of 1 means your occupancy rate is at the same level as the market. Lower than 1, it means you are underperforming in the market. There is probably something wrong with your pricing or property that needs to be immediately addressed. If your index is higher than one, that’s where you want to be! This would mean that you’re attracting more reservations that any of your peers. Over 2, beware! A higher number doesn’t always mean better. Use this chart below as a good reference.
Always revisit your MPI
It’s important to note however that the MPI is not a fixed number. You can have a good MPI in June but a bad one in July. Which is why you should repeat this calculation during different times of the year. Calculate it during your high season and busy times of the year when occupancy rates should be high. Calculate it again during quieter times when occupancy is lower. The index will signal if you need to look closer at your listing, your amenities, or other elements that could be compromising your performance! Furthermore, you should regularly compare it against your baseline MPI to see if your implemented improvements are resulting in a higher number.
Use MPI for price modifications
Angel Host employs dynamic pricing and we believe the most useful aspect of calculating your MPI is to see whether you need to modify your pricing. A very low MPI could likely indicate that your property is priced too high, whereas a very high MPI could indicate that your rates should be higher. From there, you can make competitor-based pricing decisions and adjust as needed based on seasonality and other factors.
Like a good wine, the MPI is better paired with other indicators
Your MPI will give you an idea of your dominance in the marketplace – although this measurement does little when it comes to tracking performance as a whole. And here’s why:
While MPI is a very important measurement, it really cannot stand alone. For example, let’s say you fill your rental properties every single day for free which would mean you’re always exceeding your competitor’s occupancy. However, if you’re filling them for free, then you’re clearly not going to be performing very well financially are you? The MPI is a critical metric, but it has to be taken into account with the Average Daily Rate (ADR). Most people focus on ADR and they don’t closely monitor their MPI. But having a good MPI is pointless unless you also have the right ADR. They go hand-in-hand!