To succeed in the competitive and constantly changing short term rental industry, a property manager needs to have a well-designed, dynamic Airbnb pricing strategy that is consistently adjusted to fluctuations in the market. However, beginner investors - and sometimes even experienced hosts - struggle with setting up the right strategy for pricing their vacation rental.
This article will provide you with everything you need to develop a pricing plan for your Airbnb in a way that maximizes revenue and profit. We'll go through what a good Airbnb pricing strategy looks like and why it is important. We'll walk you step-by-step through the process of pricing your short term rental. Finally, we'll provide you with alternatives to DIY vacation rental pricing for hosts who don't have the time or the skills to take care of this or who aim for passive income from their investment.
How Airbnb Pricing Works
Airbnb pricing refers to the nightly rate that a host offers their short term rental property for booking. When listing a property on Airbnb or another similar platform, you can adjust rates on a daily basis to account for fluctuations in the market. What this means is that you can ask for a different price for every day for which your listing is available for rent. This is known as an Airbnb pricing strategy, and the best one is dynamic, meaning that it reflects changes in local supply of and demand for short term rentals to maximize revenue for the property owner.
To set up the right pricing plan for your vacation rental, the main thing is to have an in-depth understanding of seasonality in your area and the performance of short term rental comps, or other Airbnb listings that are similar to yours and located closeby. This requires constantly checking the daily rates of competitors to see when they go up due to increased demand (which means you can also push up the price of your rental) and when they go down due to slowdown in guest searches (so that you can lower rates too to remain competitive).
In other words, you need to conduct ongoing Airbnb market research and continuously collect and analyze pricing data from competitors to price your listing in a way that will strike the best balance between occupancy and revenue. Shortly, we'll go into more detail on how to develop your Airbnb pricing strategy step-by-step.
Meanwhile, the most important factors to take into consideration when setting up your Airbnb pricing strategy include:
- The area: Location is once again the main driver in any real estate decision, including how to price your Airbnb. Popular tourist destinations and higher standards of living markets like LA and New York City naturally have elevated Airbnb daily rates compared to smaller, less busy, and more affordable locations. That's why it's important to check the average daily rate (ADR) in your area at the start.
- Visitor trends: Seasonality in demand by visitors is another factor you need to account for. You need to understand what type of guests usually come to the city and when they come. For instance, cities that attract business travelers are busy during the week, so hosts can charge more during weekdays. At the same time, tourist spots often see more demand over the weekend. There are also likely to be major differences in visits across seasons depending on whether your property is located on the beach, in a ski resort, or anywhere else.
- Competitors: In addition, you need to take into consideration the pricing of your competition when figuring out the best daily rates for your own listing. You need to have prices that are similar to those of competitors and follow the same trends as them in order to be able to attract guests and keep your property booked.
- Your own property's specifications: Your pricing strategy should also reflect how your home is different from local competitors. Maybe your property is a bit smaller and has less outdoor space, so you need to list it for less than competitors. Alternatively, it might be that your rental has an extra room and offers a hot tub, while most local listings don't, so you can actually ask for a higher price.
- Experiences and additional services: Your Airbnb pricing plan needs to include the extra amenities, experiences, and services that you provide compared to the rest of the competition. This is an important way to make more money from your short term rental.
- Operating expenses: Finally, you need to ensure that the ADR of your property makes sense for the costs that you incur each and every month. These include but are not limited to things like utilities, cleaning fees, property management, marketing and advertising, maintenance, insurance, taxes, and others. The revenue that you generate needs to be more than enough to cover all expenses and still leave you with positive cash flow at the end of the month.
While working out a dynamic Airbnb pricing plan requires a lot of work and needs to consider multiple factors, it is an absolute must for a successful and profitable vacation rental business.
Why Developing an Airbnb Pricing Strategy Is Important
Having a carefully-designed Airbnb pricing plan can maximize your short term rental income and return on investment. The money that you make from your vacation rental is the result of two main factors: 1) The daily rates that you charge and 2) The Airbnb occupancy rate that you are able to get.
Moreover, occupancy is directly affected by your nightly rates. If you ask for way more than competitors, guests will choose another listing over yours, you won't be able to get bookings, and your property will remain unoccupied, making zero income.
There is also another way in which the nightly price affects the occupancy rate. The Airbnb algorithm takes into account pricing - among other factors - when deciding how to rank listings in guest search results. The Airbnb platform aims to provide guests with the best possible experience, and this includes offering properties that have competitive rates and do not overcharge. So, your listing might not even show for target guests if you ask for an unreasonably high price. And even if it does, they will definitely choose a more affordably priced property.
If, on the other hand, you set up a price that's much lower than what comps are able to get, your occupancy rate will be strong, but you'll be leaving money on the table in the form of foregone income.
These are the risks of charging too much or too little as an Airbnb host. To optimize the performance of your short term rental property investment, you have to find the daily rate that allows you to increase occupancy without giving up potential revenue.
Importantly, an Airbnb pricing strategy should not be static. Unlike the traditional, long term rental market, the short term rental industry is very dynamic as it's affected by seasonal, weekly, and daily changes in demand from guests. For example, if you own an Airbnb property in Sarasota, FL or Myrtle Beach, SC, you will be seeing an influx of tourists in the summer, while winters will be rather slow. Similarly, if you invest in Park City, UT or Truckee, CA, demand from tourists will be strong in the winter and much weaker in the summer.
But simply setting up two rates based on season is not sufficient if you really want to generate the most revenue possible from your listing. Weekdays and weekends also see different interest from visitors, so they need to have different pricing. Special occasions like major holidays (Christmas, New Year, Easter, Thanksgiving, etc.) and local events (festivals, concerts, conferences, conventions, etc.) also need to be reflected in a smart Airbnb pricing strategy for your vacation rental.
Additionally, there are forces on the supply side that need to be factored into your strategy as well. After all, not all listings are available for renting all the time as hosts might block certain days for themselves or for maintenance work. A decline in the number of available listings might be a good opportunity to increase your daily rate and make a few extra dollars before competitors get back on track. Alternatively, if a couple of new short term rentals show up in the local market, you might need to lower your rates to remain competitive.
In other words, to address the continuous fluctuations in both supply and demand, you have to set up dynamic short term rental pricing. This means that each day the price of your property needs to be adjusted to correspond to the current state of the market. As a savvy Airbnb host, you cannot afford to have your prices too low or too high as this results in suboptimal results in terms of income and profit.
Airbnb Pricing Strategy: Best Practices
While developing a pricing strategy for Airbnb properties might seem like a daunting task considering the numerous factors that need to be taken into account, the process can become significantly easier if you follow a step-by-step approach.
Here's where to get started to put together your short term rental pricing plan.
1. Study the Competition in the Local Airbnb Market
The first step in launching a successful strategy for the pricing of your short term rental is to analyze your local rental market. Study the competition in detail to see how many listings are available in your area, how they compare to yours in terms of property type and size, what amenities and extras they offer, and - of course - what prices they charge.
When analyzing comps, it's important to look a few months in advance and catch any trends in rates. When are prices going up? When are prices going down?
The pricing strategy of your competitors should be the benchmark on which you build your own strategy. After all, whether guests will book your rental or your competitor's depends largely on the price, if your listings are otherwise comparable.
2. Evaluate How Your Property Is Different from Comps
The next step is to analyze your own short term rental and see how it compares to other listings available in the market. Take note of all significant differences, such as size, number of rooms, outdoor spaces, amenities, experiences, and everything else that guests find attractive.
This will help you determine whether you should charge more or less than the prevailing ADR in your area.
3. Calculate Your Rental Costs
The third step in figuring out your Airbnb pricing strategy is to calculate the operating expenses associated with running your short term rental business. It's important to consider all recurring costs that go into the owning and managing of your vacation rental.
Once you have the annual and monthly costs, you need to find out the expenses for each day that your property is rented out by considering your typical occupancy rate. Your nightly price should not go below the level of your daily costs so that you make money - rather than lose money - from your investment.
4. Set Up a Base, Minimum, and Maximum Price
As soon as you have all the information listed above, it's time to work out the base price for your listing as well as the minimum and the maximum rates that you can afford to have. The base price should be close to the average daily rate in your market for comparable properties. If you're listing your property on Airbnb for the first time, lower your rate just below the average to get your first few bookings so you can build guest reviews. As soon as your listing starts picking up, you can start increasing your price little by little.
Meanwhile, the minimum daily rate should be at least as much as the operating daily expenses so that you end up with positive cash flow. The maximum price that you ask for should not exceed the highest rate that your competitors charge unless your property is significantly better than theirs.
Once you have the minimum and the maximum nightly rates, that's the range within which your daily prices should be.
5. Adjust Pricing Based on Seasonality
Next, you need to factor fluctuations in seasonal demand in your pricing plan. This depends entirely on the peculiarities of your market, so it's crucial to look at reliable tourism and visitor data to identify the high season and low season and to understand trends in overnight visits based on season and other determinants.
Using this data, you can adjust rates for each season to capture some additional income.
6. Provide Weekday and Weekend Rates
In addition to how seasons impact demand from guests, you also have to learn what an effect different days of the week have on visits. In most cases, business destinations enjoy stronger demand during the week, while top tourist locations bring more traffic on the weekend. But you cannot take this simple rule for granted; you need to look at trends in your specific market to set up your weekday and weekend prices.
7. Plan for Holidays and Special Occasions
Another step is to identify the most important holidays, events, and other occasions that attract additional visitors to your market. These can be different public holidays but might also include local events like festivals and concerts. Mark all dates that are likely to enjoy more searches from guests in your calendar so that you can increase your daily rates around them.
8. Consider Different Discounts and Promotions
An integral part of the best Airbnb pricing strategy is incorporating special discounts and promotions to boost your bookings when needed. A popular move by experienced hosts is to offer length of stay (LOS) discounts. For instance, you can lower prices for weekly and monthly stays as well as for stays of a few days. Longer Airbnb rentals come with less cleaning fees, marketing costs, and other turnover expenses, so you can offer them at lower rates to attract vacationers or remote workers.
Another trick is to offer orphan day discounts, which refers to decreasing your prices for single nights left unbooked between reservations. Related to this, you can also have last-minute reservation discounts to try to capture a few extra bookings.
Just remember that when it comes to discounts and promotions, it's key to not bring prices below the minimum rate that you have already set. It makes more sense to leave your property unoccupied than to rent it for less than it costs to welcome a guest.
9. Continue Observing Comps
Finally, developing and implementing a pricing strategy once is not the end of it. Supply and demand in vacation rental markets change all the time, and it is your duty as a host to continue tracking competitors and trends in guest searches and bookings to keep adjusting your rates accordingly.
Pros and Cons of DIY Airbnb Pricing
Those were the steps that hosts need to take to have an effective and dynamic Airbnb pricing strategy. Designing your own plan for pricing your short term rental as a host brings some important advantages and disadvantages, though.
The most significant benefits of developing your own Airbnb pricing strategy include:
- Full control over the pricing of your property
- Ability to incorporate all your rental's advantages over competitors
- Gaining comprehensive knowledge of the local market via research
Meanwhile, the main cons of this approach are:
- Tons of personal time devoted to research, data collection, and analysis
- Need to get access to third-party data and analytics for comprehensive market and competitor analysis
- Chances of mispricing due to lack of professional knowledge of the industry
Each host needs to decide if DIY Airbnb pricing is the best option for them by weighing the specific benefits and drawbacks as well as their expertise and time availability. Thankfully, you have options with dynamic Airbnb pricing software.
Airbnb Pricing Strategy Software
Airbnb investors who would like to apply dynamic pricing to their listings but don't want to go through the tedious process of manually implementing this strategy can use one of the best Airbnb pricing tools for hosts. There are dozens of tools that can help streamline and automate the process of setting daily rates for your rentals.
These software tools are often on subscription-based models, usually with monthly and annual options, with the latter benefitting from discounts. Most platforms allow users to choose between a commission-based pricing model with average fees of 1% of booking revenue and a flat fee in the range of $16-$20/month. While these tools can help hosts save a lot of time and effort, using them might be tricky. Some software solutions tend to prioritize maximizing occupancy rates over maximizing revenue, leading to poor results for hosts. Thus, it's a good idea to keep an eye on the rates suggested by your selected software if you decide to get this extra help in designing your Airbnb pricing strategy. Here are some of the best options to explore.
Forecast by Summer
Forecast by Summer is your go-to platform for building a high-performing Airbnb portfolio, designed by property managers for property managers. Our institutional-quality Airbnb data and forecasting tools are designed to help property managers and investors like you make smarter pricing and investment decisions. With intuitive insights on revenue, occupancy rates, market trends, and comps, Forecast enables you to evaluate new investments, optimize your pricing strategies, and stay ahead in the competitive short-term rental market.
Whether you're managing a few properties or a large portfolio, Forecast simplifies the process and puts all of your essential Airbnb data in one place.
Wheelhouse
Wheelhouse is a leading Airbnb dynamic pricing software tool that allows hosts with both small and large portfolios to automate their pricing strategy for optimal results. Unlike competitors, this platform permits users to choose between a data-driven, a rule-based, or a hybrid approach to come up with a highly customized pricing plan that accounts for all market and property specifications and host knowledge as well as Wheelhouse's billions of data points.
Our Wheelhouse review found that this tool can be successfully and efficiently used by some types of vacation rental owners and works with different property types.
PriceLabs
PriceLabs is another popular software choice among vacation rental property owners who want to put their Airbnb pricing strategy on autopilot. The tool benefits from its proprietary algorithm - Hyper Local Pulse (HLP) - to collect data from local comparable properties and recommend daily rates for listings, while taking into consideration multiple factors such as seasonality, days of the week, holidays, special occasions, lead time, and others.
Hosts can set up their own base price, minimum rate, maximum rate, minimum stay, orphan day price, and other filters to customize their pricing strategy.
Beyond
Beyond, formerly Beyond Pricing, is a vacation rental pricing software that stands out with its simplicity that makes it a good choice for beginner Airbnb hosts.
With Beyond, owners can choose their own minimum and maximum prices, additional guest fees, minimum stay length, and other options to personalize their strategy. Then, the software suggests nightly rates based on seasonality, days of the week, guest searches, local demand, and other factors.
AirDNA Smart Rates
AirDNA Smart Rates is yet another data-powered software that allows hosts to automate their short term rental pricing strategy. The tool takes into consideration days of the week, seasonal trends, market demand, and lead time to recommend daily rates that can be more or less aggressive, depending on the preferences and the priorities of the owner.
AirDNA Smart Rates can be particularly helpful for hosts who need access to third-party data to conduct their own analysis when setting up their pricing strategy.
Airbnb Pricing Strategy Services
In addition to pricing your short term rental yourself or using a software tool, Airbnb hosts also have access to a few more alternatives to meet their dynamic pricing needs.
Airbnb Smart Pricing
The Airbnb platform offers its own tool for applying dynamic pricing to listings on the website: Smart Pricing. Airbnb Smart Pricing looks at the property details, the market, local guest search activity, and bookings in order to recommend optimal rates. Hosts can choose whether to turn it on or off, depending on their preferences.
The main benefit of this strategy is that the algorithm relies on Airbnb's own data which should be the most accurate and comprehensive source of vacation rental data. Moreover, there is no need for integration with a third-party tool.
On the flip side, Smart Pricing cannot be used for Vrbo and Booking.com listings, and even more importantly, hosts report absurdly low rates that seem to aim to get bookings even when this doesn't make sense from a cash flow point of view.
Nevertheless, Airbnb Smart Pricing can help beginner and part-time hosts who are just getting started and are not familiar with the local market or the intricacies of the vacation rental industry. As long as they set a reasonable minimum nightly price, using this tool should be safe though it's not guaranteed to boost revenue.
Half-Service Airbnb Managers
Another option to implement a dynamic Airbnb pricing strategy is to use a half-service Airbnb manager. These help hosts automate some of the most time-consuming processes of managing a short term rental, including pricing. Meanwhile, they keep other important aspects in the hands of owners.
The most considerable benefit of using this approach is that you can streamline dynamic pricing and rely on automated data collection and analysis from multiple comps in your area. At the same time, you still retain control over your Airbnb business and manage most tasks as you wish.
In terms of challenges, using a half-service Airbnb manager for pricing runs the same risks as using specialized software. Namely, rates might be suggested in a way that optimizes occupancy rather than revenue.
Still, this option can be a good choice for part-time hosts who don't have enough time to manage their vacation rental on their own but want to remain involved in the main business decisions and operations.
Full-Service Airbnb Management Companies
Short term rental investors can also hand over the design and implementation of their pricing strategy to full-service Airbnb property management companies. These are professional managers who take care of all aspects of managing a vacation rental, including setting daily rates dynamically. Popular names include Summer, Vacasa, Casago, and Air Concierge.
The chief benefit of working with a vacation rental management company is that you can earn passive income from your investment property and you can invest anywhere in the U.S. market. Furthermore, your revenue will be optimized not only through a dynamic pricing strategy but also via access to professional quality services that guests will appreciate and keep them coming back to your rental. In addition, as property managers are typically paid a percentage of the booking revenue, they have incentives to earn as much income for you as possible to boost their own commission.
The main drawback is that you give up control over your Airbnb business as well as having to share revenue with the company.
This is usually the best option for remote investors, hosts with multiple listings, and owners who have another full-time job and are looking for a passive investment.
If you're searching for the top-ranked vacation rental management company across the U.S., definitely check out Summer. Find superior Airbnb management services that consistently exceed host and guest expectations. Summer-managed properties are able to outperform at least 95% of comps in all markets, and the company maintains a 4.96 rating as an Airbnb host quarter after quarter. Meanwhile, Summer charges fees of only 15-25% of revenue (excluding cleaning fees), the lowest rate in the industry.
Airbnb Revenue Managers
Finally, hosts can resort to working with a pricing and revenue management consultant who specializes in short term rental properties. Airbnb revenue managers are experts who have access to software tools as well as deep understanding of the industry and select markets to develop pricing strategies that aim to optimize the revenue performance of vacation rentals.
The advantages of this strategy include the combination of a data-driven and hands-on approach to pricing Airbnb properties. Moreover, experts specialize in markets instead of relying on general trends. The disadvantages are that once again hosts somewhat lose control over their pricing strategy and that hiring a consultant might incur prohibitively high fees.
This option might work out for large-scale investors who own multiple properties in a certain market so they can benefit from discounts.
All in all, when choosing the best way to set up your Airbnb pricing strategy, consider your own situation and needs, time availability and familiarity with the market, and the pros and cons of each approach.
Bottom Line
Having a dynamic Airbnb pricing strategy is at the core of boosting not only occupancy but also income and ROI as a host. While it requires a number of steps and regular updates, building a plan on your own is absolutely feasible. But in case you are looking for a more hands-off approach to pricing your short term rental, you can use a software tool like Forecast by Summer, work with an Airbnb manager, or hire a specialized consultant.
