The Complete Airbnb Pricing Strategy Guide

Management
Posted on
December 14, 2022

How much should you charge for a night at your Airbnb rental? This is a question that you should be asking yourself at the beginning of your short-term rental journey and then ask again as you continue to navigate through the process of soliciting, booking, and managing short-term tenants. 

Pricing is a huge deal! If you charge too much, you’ll never get people in the door, and then you won’t make any money. No good. On the other hand, if you set your value too low, you may be leaving money on the table that you could otherwise be investing into your business and your future financial freedom. Also not ideal. 

Ultimately, if you manage to find the secret recipe for setting the perfect rate for your Airbnb, it will all but rent itself. Continue reading this blog post to learn more about how to set the appropriate price for your Airbnb.

Understanding the basics of vacation rental pricing

At the end of the day, renting out your property should be an incredible source of additional income. Before you start your vacation rental business, though, you need to take inventory of all of the factors involved in pricing out your rental correctly, to ensure that it’s high enough to make you a profit but not so high that potential guests feel incentivized to work with your competition. 

To do this well, it’s important to begin developing at least a cursory understanding of what is driving demand in the area in which your property is located. There are a variety of factors that can increase or decrease the demand for your listing, which we’ll address below.

Why learn all of these? Well, there are some major aspects that can negatively impact your financial outcomes in the short-term rental world. The first mistake Airbnb owners often make is not using dynamic pricing, or not adjusting their prices for seasonality. Later on, we’ll dig deeper into this important tool, so hang tight.

Entrepreneurs also lower the profitability of their businesses when they set prices incorrectly. While you may need to price your Airbnb competitively in the initial stages, as you work to build your competitive edge, you’ll want to raise your prices over time to ensure that you maintain a high occupancy rate and profitability simultaneously. 

Short-term rental owners also need to adjust their strategy for the time of year they are renting. Know the high and low seasons for your area, and adjust the rent accordingly. Likewise, consider the demand posed by weekends, holidays, and local special events. Is there a big event in your area? Boost the cost of your rental to take into account the influx of guests to the area.

Factors to consider when pricing your vacation rentals

There are a few major factors that you’ll want to consider when determining the best path forward for pricing your rental property. First, think through the location, amenities, and size of your rental. What are comparable properties renting for in the area?

Be sure to put yourself in the guests’ shoes. What would they want if they were staying in your home? What amenities would make them not just more likely to choose your home, but also be willing to pay a premium to be able to rent it? Balancing these interests is key to maximizing your return on investment. Sure a swimming pool might attract more renters, but that large of an expense might not be the way to go right off the bat. Start with smaller options–do modern homes do best in your area? What sort of small aesthetic changes can you make to your home in order to make it look more modern?

Expenses

First, you’ll want to calculate your nightly costs. How do you get this? Take every expense that goes into your house. Think of your mortgage, taxes, utilities, and any other bills that you pay to maintain your property. Subtract the amount that the platform charges you per booking. Don’t forget to consider the price of your time, as it pertains to all of the management work that you put in. Divide that number by the number of days in a month. That is how much your Airbnb property costs to maintain on a regular basis. 

Once you’ve determined that number, you need to know how much you need to charge in order to pay back your expenses, and then you need to determine how much you want to profit after you account for expenses. Take this number, and put it against the market prices you find in your area. You’ll want to determine how you can adjust the prices over time to ensure that all of your expenses are hit without inadvertently overcharging your renters. Once you find a compromise between these two interests, you’ve worked out one of the most important steps in determining prices. And don’t forget, it’s unlikely that your house will be rented our every night of the month, so you’ll need to adjust your bottom line to include that as well!

Location

Before you do anything else, you need to learn about the market in which your Airbnb is located. This is, more than likely, the best way for you to increase the chance of success for your investment. Market research is the closest thing you can get to a crystal ball telling you whether or not a specific property is capable of offering you a healthy return on investment. 

To do a market analysis well, you will need to compile a tremendous amount of comparative data. Luckily for you, much of this is already available on Airbnb’s website, since the vast majority of their data is available for public consumption. 

First, you need to think about the location you are in. What reasons do people have to come to the town in which the property exists? Consider the economy, whether or not there is shopping, infrastructure for public transportation, attractive tourist sites, and anything else that might draw out-of-town guests. 

You’ll also want to research both the laws and the trends for short-term rentals in the area. Are there a lot of short-term rentals in the area, or has local law isolated them to a specific area? Is there an off-season? What will you need to price at in the high season in order to compensate for the lower season? 

Some key metrics can help you learn the answers to all of these questions, and then some. Begin by looking up the occupancy rate for the area, so that you know how much of the time you can expect renters to occupy your property. From there, look up the average rental income. No matter how nice your property is, it’s unlikely that you’ll be able to achieve a high occupancy rate if you are substantially higher than the competition. Compare this information against the costs of doing business in the area, in order to achieve the average cash returns and cap rates. 

Once you’ve done your homework on the city in which your Airbnb property is located, you’ll want to zoom in a little closer and conduct a neighborhood analysis. Different neighborhoods, even if they are located within the same market, can have different investment potentials. While one neighborhood may be popular with tourists, another may be too far away from the amenities for out-of-town visitors to feel interested. Look throughout the neighborhood to know what is renting, and for how much, and use this as the basis for your comparative market analysis.

Competition

How do you stack up your competition? This is a question that any savvy entrepreneur needs to answer. To do this, create a search that you think most aligns with what people might search for when happening upon your property. How does the demand for rentals stack up against availability in your area? What can you learn from the rentals around you? Consider the following questions:

  • How is their property marketed? Is their feature image compelling? How about their title? Do they have pictures of every last thing or just a few to cover the basics? What content did they utilize to caption their images, or to write out a story about their property?
  • How many reviews do they have? What do those reviews say? Do guests talk about any particular amenities that stand out to them? Does the host respond to these reviews? If so, how? 
  • What customer service bars are these folks hitting? What is their response rate? Do they have Super Host status? How many people have viewed or saved their listing recently? What price are people willing to pay to stay in this home?

When you were browsing and answering these questions, did you notice a property that was doing substantially better than yours? Perhaps they were able to price higher or boasted a better occupancy rate. If you did, dial in on their profile especially. What are they doing that is different from what you are doing? How can you adjust your strategy to mimic theirs, in order to capitalize on the same strategies? Try to implement one or two changes at a time, so that you can truly monitor your progress and determine which action items are having the highest level of impact for your potential guests and your bottom line. 

As you test and iterate, we would also recommend being mindful of your prices. If you randomly adjust the price at one property to be substantially different than another, that could negatively impact your brand identity, by making it less consistent. We recommend gradual, incremental change, that won’t send your already loyal customers into a panic. 

How to calculate your required rental income

Airbnb calculates your required rental income by taking into account the size of your property, the number of nights you plan to rent it out each month, and any extra services that you might offer to your guests while they stay with you. 

You’ll want to be sure to subtract all of your fees, like the total expenses of the home, the cleaning fees, any taxes that your area charges, or the platform fees that Airbnb might charge. 

Looking for a simpler way to get things taken care of? You can also multiply the year-round occupancy rate against your average daily rate. Let’s say you charge $100 a night and operate at an eighty percent occupancy rate. To calculate your income, you’ll multiply $100 (your nightly rate) against .80 (your occupancy rate) against 365 (the days of the year). 

Now that you have your yearly number, you’ll subtract your yearly expenses. Consider the same expenses we discussed above: mortgage, taxes, fees, maintenance, etc. The number you’re left with is a good idea of what you could stand to profit in a year’s worth of rentals.

Airbnb pricing strategies to increase your occupancy

To get the most out of your Airbnb property, you have to have a strong pricing strategy in place. The most competitively priced properties will book much further in advance than those that leave people debating whether or not it is worth it to click “Reserve.” That’s why it’s important to consider variable pricing strategies that can allow you to adjust your rate appropriately to get as many people as possible through your doors.

Variable Pricing

Variable pricing is the best way to increase more customers, and subsequently, raise your occupancy rates. Set different prices for different times of the day or week, and experiment away to see which price points get you closer to a fuller occupancy rate.

Some people opt to implement variable pricing in the form of discounts. There are a variety of discounts that can help you get clients in the door. One of the most promising ones, to begin with, is an extended stay discount, in which you can offer a discount for occupants who opt for a weekly or monthly stay discount. Nobody likes to pay peak vacation prices for an entire month of business travel–continue adjusting to entice people to choose your property for the long haul. 

New Booking Discounts

Likewise, if you are new to Airbnb, consider sweetening the deal by offering a new listing promotion. People like to see a long history of reviews and bookings when trusting a host with whom they will stay on their vacations. Get over this hurdle by offering 20% off to the first few guests who book with you. Once it’s all over, don’t forget to solicit their five-star reviews! These will make a world of difference as you build your business and your pricing structure.

Length of Stay

As we discussed above, length of stay is going to be critical when considering adjustments to your occupancy. Beyond mere discounts for guests who book for weeks or months, consider a loyalty program that incentivizes guests to book with you over and over again. This will help you reacquire guests who you are already familiar with and trust in your property. Longer stays mean fewer bookings, which means lower maintenance fees while still upping your occupancy rates. You can’t go wrong! 

Competitive Pricing

Finally, don’t forget to analyze your competition. Knowing what the properties around you are renting for can only help you to set your price point more and more competitively. 

If you price your property significantly higher than the competition, you risk limiting the number of renters that can afford your place. Obviously, that’s not what you want. You need to ensure that the final price you land on reflects the quality of your property compared to the competition in your neighborhood. 

Airbnb pricing strategies to increase your revenue

There are some tips and tricks that you can use to increase the revenue of your property. Keep reading for more.

Maximizing nightly rate

First, we’ll just tell you like it is. The quality of your property needs to justify the price you are putting behind it. Are you renting a bedroom out of your house in an unpopular area? You’re probably not going to get the same rates as someone renting an entire property, a luxury home, or renting in a coveted area.

Despite this, the more positive reviews you can amass, the more likely you are to be able to get renters to meet you at the price you are asking for. Ultimately though, you will have to experiment to learn what numbers work well for you and what numbers don’t drive the results you are looking for. 

Combining a high occupancy rate with the maximum nightly rate

Everything in life is about compromise, and a strong Airbnb pricing strategy is no different. The too-long, didn’t-read version of everything we said above is that you’ll need to find the sweet spot that allows both your nightly rate and your occupancy rate to be at their highest possible numbers. 

The simplest way to implement an Airbnb pricing strategy

We’ve told you like it is throughout this article, and we aren’t going to stop now. There are three key ways that you can work to ensure that your Airbnb pricing needs are met. 

Airbnb smart pricing

With dynamic pricing tools, you can let the software guide your decision, to constantly tweak and adjust your pricing based on local demand, occupancy rates, and the dollar amount needed to get people in the door and keep them there. Because software is able to base recommendations on the most accurate market data out there, you’ll be able to rest easy, knowing that you’re utilizing the best possible numbers for your property type and area.

Airbnb management experts

Airbnb offers management experts who would love nothing more than to help your property achieve its highest potential. With this arrangement, you share your home and set the rules that guide your property. However, on the flip side of this, your local partner takes care of your home and guests. How do they do this? They maintain the home in your absence, check in with your guests, and often ensure that your home is cleaned in between each rental. 

Better yet, these talented folks can support you in optimizing your listing. They can help you in the creation of your listing, with gorgeous photos and staging, and because they are familiar with trends in your region, they can offer you tailored guidance on pricing that few other experts can. 

Third-party Airbnb property managers

Airbnb property managers offer many of the same services that Airbnb management experts offer. However, while Airbnb management experts are just that, Airbnb experts, third-party managers have likely taken the time to spread out their knowledge over a variety of platforms. 

If you’re looking for more of a hands-off approach, a property manager can help you optimize your listings to increase visibility, create systems for booking and payment, and serve as the point person for all of your guests’ needs.

Automate these processes by using a channel manager

The visibility that you gain by listing your property on multiple channels is critical for maximizing revenue and occupancy. In other words, the more places you list your property, the more likely you are to receive a booking.

Futurestay can have your back through all of this, and then some

Futurestay is a company run by short-term rental entrepreneurs, for short-term rental entrepreneurs. With our software, you can receive expert pricing advice, optimized listings, and even more.

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