As a short-term rental (STR) owner, selecting the right cancellation policy is essential for balancing guest flexibility with revenue protection. A well-considered policy can significantly impact your occupancy rates and bottom line. Here’s a breakdown of the most common cancellation options, and guidance on how to choose the best one for your business.

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Understanding the Different Cancellation Policies

Before diving into what works best, it's essential to understand the common types of cancellation policies used in short-term rentals. Platforms like Airbnb and Vrbo typically offer the following options:

Flexible: Guests can cancel up to 24 hours before check-in for a full refund.

Moderate: Guests can cancel up to 5 days before check-in for a full refund.

Strict: Guests can cancel up to 14 days before check-in for a 50% refund, or up to 7 days before for no refund.

Super Strict: Guests only receive a refund if they cancel at least 30 days in advance.

Now, let’s look at how each of these policies affects your bottom line and how to choose the one that fits your needs. Remember to take into account, as you go, whether your property is more often booked for 1-2 nights, 1-2 weeks, or long stays, as it will affect which is more suitable for you. 

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Flexible Policy: Great for Maximizing Bookings

A flexible cancellation policy is the most guest-friendly option, allowing cancellations up to 24 hours before check-in. This flexibility attracts guests, particularly in high-demand areas or during peak seasons when last-minute bookings are easier to secure. Offering a flexible policy can help ensure more bookings, as guests appreciate the peace of mind it provides. However, the downside is that frequent cancellations might leave you scrambling to fill vacancies, particularly in off-peak periods. A flexible policy is best suited for properties in high-demand locations or those with consistent booking volumes.

Moderate Policy: A Balanced Approach

The moderate cancellation policy strikes a good balance between guest flexibility and protecting your revenue. Guests have up to 5 days before check-in to cancel, which gives you a fair chance to find a replacement booking if someone cancels. In this instance, we suggest running an ad on your social media or with a popular account, such as @TheCabinLand, to boost awareness of this new availability and help you secure a new booking. This policy is popular because it’s lenient enough to attract guests while offering a cushion for owners to rebook.

For many hosts, this middle-ground approach helps reduce the risk of last-minute cancellations and protects their revenue without deterring too many guests. This middle-of-the-road approach is best for properties in moderately competitive markets and hosts with the security to manage the balance between guest flexibility and booking security. 

Strict Policy: Ideal for Revenue Protection

If your main concern is ensuring cancellations don’t impact your income, a strict cancellation policy might be your best option. It allows guests to cancel up to 14 days before check-in with a partial refund, but any cancellations within that window result in no refund.

This policy is great if your rental experiences unpredictable demand or if rebooking a property on short notice is difficult. However, it may deter some guests, especially those who value flexibility. Hosts who rely on stable cash flow and need more booking security will prefer this policy because it offers stronger protection. So, if your rental is seasonal or in a less popular market and you’re a host who prioritizes revenue stability over booking volume, then strict is that policy for you!

Super Strict Policy: Maximum Protection, Minimum Flexibility

The super strict policy offers maximum protection for your bottom line but can limit your bookings. It typically requires a 30-day notice for any refund and often only appeals to guests who are 100% certain about their travel plans. 

While this policy minimizes the chance of last-minute cancellations, it can reduce the number of bookings, as travelers may hesitate to commit under such rigid conditions. Super Strict is recommended for hosts with high operating costs and stays considered luxury or highly unique properties where guests plan well in advance to go. Additionally, super strict is something to consider for stays prone to long-term bookings rather than 1-3 nights. 

Factors to Consider When Choosing a Cancellation Policy

There are 5 major factors to consider when choosing your policy, the first that we’ve already mentioned is that your STR tends to book for short, mid, or long-term stays. The second is occupancy rates. If your rental is in a high-demand area, a more flexible policy might make sense because you can get a rebooking quickly. However, if you rely on securing bookings made in advance, a strict policy protects your earnings. Next, take into account the market demand by understanding your market's demand cycles. If you’re in a tourist-heavy area with a steady flow of travelers, a moderate or flexible policy may help you secure more bookings. By contrast, if your market is seasonal or prone to fluctuations, a stricter policy could be a safer bet. Following that up will be the guest experience. Travelers today often prioritize flexibility, especially with unforeseen circumstances like flight cancellations or personal emergencies. A cancellation policy that feels fair to guests will enhance their experience and improve your reviews, which can contribute to more bookings in the future! Lastly, revenue protection. If consistent cash flow is crucial to your business model, stricter cancellation policies help protect your income. As we mentioned, this is especially important for high-end rentals or properties where rebooking on short notice can and will be challenging.

So, What’s Best for Your Bottom Line?

The best cancellation policy for your bottom line depends on the specific dynamics of your property, location, and target audience. Ultimately, the goal is to find a policy that offers enough flexibility to attract guests without sacrificing your ability to maintain a healthy cash flow. By aligning your policy with your market and property characteristics, you can maximize your bookings and safeguard your revenue. Don’t be afraid to test it out, start flexible or strict and adjust as needed!