Airbnb pricing is one of the key components to ensuring that your short-term rental property is fulfilling its potential. However, when it comes to pricing optimization, the truth is that it requires a lot of forethought and consideration.
We received a significant amount of questions from our clients revolving around Airbnb pricing strategies. This is why we decided to organize a master class to shed some light on Airbnb pricing. We also invited a true expert in Airbnb pricing, Ian McHenry, the CEO of Beyond Pricing. The online event was held on June 29th. However, for those who didn’t get a chance to attend, we’ve prepared a detailed summary of our pricing master class.
Before we feature major takeaways, let us share with you the presentation and the recorded video below.
The stats were updated in January 2020.
Let’s start with some simple statistics. As of right now, Airbnb is active in more than 220 countries as well as in over 100,000 different cities throughout the entire world. Currently, there are more than 7 million listings worldwide available for travelers.
It is predicated on the methodology of the sharing economy and it is taking advantage of the decaying hotel model. There are over 500 million guests who have arrived in all of the properties on Airbnb throughout the time for which the company is working.
The company is currently valued at about $35 billion and has serious intentions to go public in 2020.
Let’s start with some simple statistics. As of right now, Airbnb is active in 191 countries as well as in over 65,000 different cities throughout the entire world. Only in the US alone, there are more than 200,000 listings available for travelers.
For the last few years, hotels are losing an approximation of $450 million every single year in direct revenues to Airbnb. This is significant when you come to think of it. Interestingly enough, the cities which have most Airbnb listings are actually scattered throughout the entire world. Airbnb reports that there are over 900 cities with more than 1,000 listings. Today, roughly 3% of all active listings are in New York City, London, and Paris. Five years ago, over 10% of all active listings were in those three markets.
Airbnb also said that through September 15, 2019 users who list their homes and rooms on the company’s marketplace have made more than $80 billion since the company’s launch.
It is quite obvious that Airbnb is growing at fast rates, so are the opportunities that it provides you with. However, you need to understand that the vacation rental business is no walk in the park.
And, when it comes to it, establishing a sound Airbnb pricing strategy is definitely important. In this article, you will find a few comprehensive options that you can take advantage of. We are going to take a look at all of them outlining their pros and cons so that you can decide which of them are applicable to your business.
But first, it is important to learn what key points you need to take into account to come up with your pricing. Below are some major points for you to note.
Your nightly rates will to a large extent depend on your property’s location. It is essential to do your research and check the rates of similar properties in your area. Although Airbnb will suggest a base price, the price tip is not always accurate. So, you’ll have to spend some time comparing competitive listings.
When deciding on the pricing, consider the amenities that you provide. If you are going beyond the basics then your property deserves a higher nightly rate. Great amenities such as a swimming pool, hot tub or breathtaking views can significantly bump up your pricing.
Approximately 86% of the hosts are actually applying this fee for their Airbnb cleaning. The cleaning fee is part of your Airbnb pricing optimization and it is important to implement it properly and conveniently. Make it clear in your listing to avoid negative reviews about hidden costs.
About 59% of Airbnb hosts require a security deposit. You shouldn’t be hesitant about charging a security deposit too. A lot of managers tend to believe that it can fend off potential guests, but the truth is that it’s better to be safe than sorry.
Here the numbers are a bit lower as 44% of the hosts charge a fee for extra guests. It might be a bit pressing to do so but then again, it will depend a lot on the type of property you are renting out. Again, keep in mind that transparency will help you to prevent any miscommunication with guests. If you charge extra fees, highlight it in your Airbnb listing.
As your short-term rental business may depend on seasonality, discounts can be a solution during the slow season. As for weekly discounts, hosts on average give 17% off the booking rate and 28% off for a monthly discount.
As promised, we are going to provide a few different Airbnb pricing strategies so that you can be on the right track with your pricing optimization.
This Airbnb pricing strategy entails that you do your best in order to be competitive when it comes to pricing. In order to do so, you have to provide at least the same value as your competitors. In other words, you want to squeeze out the absolute maximum in terms of filling your rentals.
Example: the situation when you have a gap period of a few nights. Your average price could be $100 per night but in order to get the gap period cleared and filled, you will lower the price to $15.
Who is this good for?
This is another known Airbnb pricing strategy that comes with its pros and cons. It is going to require you to set visibly higher nightly rates in order to increase the overall net profit from a single booking.
Example: you own an exquisite apartment at a very attractive location. You can afford to bump up the price a lot more than the average on the off-chance that you attract only high-paying guests.
Who is it good for?
This is usually something that a lot of Airbnb hosts refer to as lazy hosting. It predominantly relies on the premise that you would be able to host out your rental for a longer period of time. You will be renting out at monthly rates and deal with the same customer for a longer period. There are serious advantages and some cons as well.
Example: you are the proud owner of a great apartment in NYC but you need to move out for the next 2 years due to business engagements. You don’t want to sell your property but you want to make some profit. Long-term renting is the most obvious and convenient option in this regard.
Who is it good for?
This particular approach targets the earning of maximum revenue by using all of the aforementioned strategies. This is going to provide you with a maximized profit as well as a high fill rate.
Example: let’s say you are a property owner and you want to enhance your earnings. There are certain seasons which are not as in-demand. This is where you want to focus on signing long-term deals in advance to make sure that you have no gaps. However, as soon as the hit period starts, you can switch to a maximum rate or the maximum fill-in strategy to increase your earnings.
Who is it good for?
As you can see, there are quite a few things that you should take into account when it comes to vacation rentals pricing optimization. By failing to do so and acting randomly, you are unlikely to generate a serious profit from your rentals.
We’ve covered some of the most important and commonly used Airbnb pricing strategies, now let’s move on to the ways of managing vacation rental pricing.
There are a few different approaches that you can undertake, so let’s have a look.
This entails that the host is changing the prices based on their own gut feeling and expertise. There are certain advantages here, especially if you are an experienced host.
On the one hand, you can stay in control of your pricing, but, on the other, it will be time-consuming and not too accurate. This is something that you need to take into serious consideration.
Smart Pricing a feature offered by Airbnb and it allows hosts to set up min & max pricing. Combining these and information on the supply and demand, it will come up with a recommended price for your property. According to Airbnb, this feature takes into account the type and location of your listing, the season, demand, and other factors.
However, a lot of Airbnb hosts are not satisfied with it as it lacks the necessary accuracy.
There are specialized software products that are used to control the prices of your listings. The process is entirely automated and it is incredibly accurate.
Each of the different pricing tools for Airbnb uses a specific algorithm to analyze loads of data. Usually, such tools take into account many factors that can influence your pricing such as seasonality, day of the week, special events, etc.
Airbnb pricing automation tools not only will help you to improve your pricing strategy but also adjust your prices every 24 hours to keep them competitive.
As mentioned at the beginning of this article we have invited a guest speaker to our webinar – Ian McHenry, the CEO of Beyond Pricing. He shared some of his expertise and recommendations on pricing management and the usage of automation tools.
People are about to become a lot more sophisticated when it comes to their pricing. Tools such as Airbnb pricing are actually depressing the prices. When this is combined with the enhanced supply, we are able to see a certain dive in the prices. This is about to change as people will start using more comprehensive technology to formulate their prices.
The tendency is that people are starting to skew away from Airbnb smart pricing. This is due to the fact that it fails to provide the necessary level of customization capabilities.
At the same time, it is not nearly as accurate as other automation tools which are third-party and independent. Though more hosts have yet to make the transition, we can clearly see that the majority are moving towards automated Airbnb pricing tools.
This is a tool that is a third-party price management software. You have to link your Airbnb or HomeAway account and the tool will analyze the data to provide you with the most effective price suggestions.
The product takes into account seasonality, holidays, and increasing and decreasing market trends. In other words, it considers everything which has even the slightest impact on price formation. The tool then proceeds to provide you with the average price you can take advantage of. It also gives suggestions on the maximum nightly rate you can set for your listing.
A lot of it is machine learning. At a higher level, the tool measures the demand in order to understand how much your property is wanted. And, the second thing is to take this demand into account when you decide on how much to increase or, accordingly, decrease your prices.
The tool adapts to different Airbnb pricing strategies in order to maximize the rates that you are getting per night. This is achieved by enabling the client to set comprehensive and enhanced minimums and maximums based on the analysis carried out by the software.
In general, you need to leverage a tool in order to at least understand your market. Using tools such as Beyond Pricing is going to enable you to take a look at the market. You will learn about major events, high and low seasons.
Make sure that you are making informed decisions. There are counter-intuitive events that you need to take into account.
It’s quite obvious that professional Airbnb management will require constant monitoring of the movement of the market. What is more, professional tools are also needed to assist you and help you be successful in the vacation rental business.
Apart from Airbnb pricing automation tools, there are also vacation rental software solutions designed for ambitious hosts.
One of them is iGMS, a professional vacation rental software that helps hosts and managers to put their business on autopilot. iGMS is one of the leading short-term rental software services available on the market helping thousands of vacation rental managers from 133 countries across the globe.
iGMS will provide you with a chance to focus on growing your business instead of having to handle routine operations. The tool saves a tremendous amount of time which you can dedicate to scaling your short-term rental business.
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