Unpacking Online Reservations: From Misconceptions to Strategy

This article was written in response to a Letter to the Editor of Parking Today.

The letter that prompted this article:

Dear Editor, Parking Today

I keep reading articles about how selling pre-paid parking using third-party online reservation companies is generating revenue for parking lots.  The one thing I don’t hear anyone talk about is how the parking lot owner will recover the cost charged by the reservation company.

The online company that has the highest amount of users in Phoenix is ______.  They recently told account holders that rates were increasing October 1st.  Now we will pay 15% + 0.99 per transaction on each sale $10 and up.  This property owner pays 25% per $10 transaction.  Since this expense cannot be shifted to the customer using the service.  How are we to recoup this expense?

______ and similar companies recover their expenses plus a profit.  It’s just how business works.  Yet they expect the owners of the parking lot to eat the expense to use their service or to shift the expense to drive-up or daily customers?

It would be really nice to see the numbers of how online reservation companies think they increase profits for parking owners.  It shocks me for parking lot owners to eat several thousands of dollars in expenses each year without proof.

For the city-owned properties [that] use parking management companies, the city may not realize the ______ expense incurred by the management company is billed back to the city.  Again, I doubt the management company is eating that expense.

Every expense a business does not recoup means lower wages for employees, [fewer] benefits, and fewer raises.  [Are] ______ and others aware they are profiting off the backs of employees?

Name withheld by request

When John Van Horn forwarded this email letter, I jumped at the opportunity to respond. Its author is not alone in the sentiment that online reservations result in higher costs. However, many of these ideas are based on misconceptions about where online reservations fit in a parking operator’s business model. The secret to not only justifying, but entirely offsetting these costs, lies in strategically leveraging online reservations as a supplement to drive-up parkers.

Planning an online reservation strategy sets you up for success in two major ways:

  1. You can maximize potential impact on your business by thoughtfully setting rates and inventory.
  2. You can properly measure the impact of your partner compared with your goals and truly understand your success.

It’s my aim here to cut through the noise about online reservations, and make this powerful tool more widely understood. Let’s start with this basic premise:

 

Online Sales Bring Incremental Revenue

… and as such, online sales should not incur any net costs to the facility or operator. In fact, they should pay for themselves from the start! To illustrate how this works, consider the following common parking facility scenarios:

 

SCENARIO 1: You have empty parking stalls.

Online sales can fill them with a new audience of online customers to avoid losing money.

Why and How?

Here’s a simple truth: Parking is a perishable good, which means that any stall you don’t sell at a given time is revenue left on the table.

If you have empty stalls in your facility — as even the most successful operators occasionally do — you’re better off selling them online and recouping much of the potential revenue (85%, assuming your online reservation partner will take 15%), than not selling them at all.

Say your drive-up and online rates are both $10 in this scenario. For every stall that remains empty, you don’t generate a penny. But by promoting your inventory to an expanded audience of interested drivers online, you can easily earn $8.50.

$8.50 > $0. It’s a no-brainer!

 

SCENARIO 2: Your facility is full.

Online sales can continuously generate more revenue from your “maxed-out” inventory.

Why and How?

Even less known is that online reservations can also drive additional revenue for a facility at capacity. An operator may think that once their facility is full, they have more or less reached the maximum potential revenue for it, that they’ve capped out. Once again, this is an (exciting!) misconception.

And this is where things get really interesting, because online reservations can become a secret weapon for your business.

Online reservations can help raise the revenue ceiling. Let’s say you’ve tried raising your drive-up rate (from $10 to $12) to bring in more revenue that way, but you have reached the maximum you can charge while still maintaining capacity. At the new $12 rate, drivers are dropping off. Your facility is no longer full.

Enter the strategic use of online sales, and unleash a world of opportunity by experimenting with key variables — rates and inventory– both online and offline.

Raise your drive-up price above what it would take to keep your facility full. Let’s say you’re now at 90% occupancy, but at a higher ($12) rate per stall. List the remaining 10% of your inventory online, either at your original $10 rate or somewhere in between $10 and $12. Suddenly, you’re back to capacity, and leveraging both drive-up and online sales to maximize your return.
Using those same numbers with a 100-stall sample facility, here’s how the incremental revenue would break down:

Original: $1,000/day — $365,000 annually

Drive-Up ($10): 100% [100 x $10 = $1,000]

Online: 0%

New: $1,165/day — $425,225 annually

Drive-Up ($12): 90% [90 x $12 = $1,080]

Online ($10): 10% [10 x $10 x 0.85 = $85]

In this case, using a strategic mix of online and drive-up sales would bring in an additional $165 for the facility in a single day. Imagine this outcome for an entire year across multiple rates and facilities. For just that rate, you would bring in $60,225 more a year.

Online reservations add levers you can pull — and learn from — to get more out of the same inventory.

 

Build a strategy that’s right for you

In reality, most parking operators see a mix of both scenarios as outlined above. There are times when you have excess inventory, and other periods when you’re full to capacity. Strategically leveraging online reservations by adjusting price and inventory can unlock potential revenue in both situations.

If you’re not sure where to start, just ask your reservation partner. (SpotHero, for example, specializes in creating custom strategies that work.) Communicate your goals and work together to create plans to meet them. Then you can measure your success against your plan, and understand the true impact of your online sales.

 

Misconceptions, Fact, and Fiction about Online Reservations

To summarize, let’s revisit the letter that inspired this article:

Letter writer: I keep reading articles about how selling pre-paid parking using third-party online reservation companies is generating revenue for parking lots.  The one thing I don’t hear anyone talk about is how the parking lot owner will recover the cost charged by the reservation company.

Suzannah Rubinstein: Online reservations should be bringing you only additional revenue. If you don’t have empty stalls to fill, list inventory online as part of a strategic pricing plan to increase yield per stall.

LW: The online company that has the highest amount of users in Phoenix is ______.  They recently told account holders that rates were increasing October 1st.  Now we will pay 15% + 0.99 per transaction on each sale $10 and up. This property owner pays 25% per $10 transaction. Since this expense cannot be shifted to the customer using the service, How are we to recoup this expense?

SR: Do the math ahead of time. If you are listing unsold inventory online, you will always be bringing in more money than you would had you not sold it.  If you’re looking to drive more revenue at a full facility, run the numbers to see how much more you could be making by increasing your drive-up rate and filling excess stalls with online customers.

LW: ______ and similar companies recover their expenses plus a profit.  It’s just how business works.  Yet they expect the owners of the parking lot to eat the expense to use their service or to shift the expense to drive-up or daily customers?

SR: When used correctly, online sales should be only adding revenue to a parking operation. If you do raise your drive-up rate, there is opportunity to offset any decrease in occupancy with online reservations. In fact, because many online customers book in advance, you’ll know you’re bringing in a certain amount of revenue ahead of time, which could make you feel more comfortable charging a higher drive-up rate.

LW: It would be really nice to see the numbers of how online reservation companies think they increase profits for parking owners.  It shocks me for parking lot owners to eat several thousands of dollars in expenses each year without proof.

SR: As with most things, the proof is in the pudding, and if you aren’t seeing results that make sense to your bottom line, you need a better plan, better communication — or a better partner! Nothing should be abstract. Reach out to your reservations partner to explain your goals and develop a strategic approach That way, you can understand how your online partner is performing.

As for ‘eating several thousands of dollars,’ when you increase top-line revenue by remitting more than your fees, not only are you increasing net operating income, you are also ultimately increasing property value for your client.

LW: For the city-owned properties [that] use parking management companies, the city may not realize the ______ expense incurred by the management company is billed back to the city.  Again, I doubt the management company is eating that expense. Every expense a business does not recoup means lower wages for employees, [fewer] benefits, and fewer raises.  [Are] ______ and others aware they are profiting off the backs of employees?

SR: Transportation behaviors are rapidly evolving and becoming less traditional. By creating an offering that is accessible to today’s drivers wherever they are — online and off — parking operators can create a more sustainable, healthier business. Ultimately, the benefits should trickle down to everyone involved.

 

This article originally appeared in Parking Today.

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