How to Get Your Airbnb Pricing Right: 7 Steps to a Killer Strategy
How much should you charge for your Airbnb? It’s a question that could make or break your short-term rental business.
If you fail to get your pricing right, you’ll be forever frustrated and never make a profit. But, if you manage to concoct the perfect rates, your property will sell itself. All you need is a killer Airbnb pricing strategy.
In this blog post, we’ll walk you through the basics of setting rates for your Airbnb. We’ll also give you some tips on how to automate your Airbnb pricing.
1. Calculate your nightly costs
No matter how you choose to price your Airbnb, you should always factor in your nightly costs. Otherwise, you may be overcharging (you'll lose bookings and revenue), or undercharging (you'll only break even or maybe even lose money).
Your nightly costs can include everything from utilities to taxes, even your mortgage. To calculate them, just add up your monthly expenses and divide them by 30.
Remember, on Airbnb, it’s fairly common to add a cleaning fee on top of the rates you set. So if you choose to charge extra for cleaning, don’t include it in your nightly costs.
2. Airbnb pricing strategy: Figure out your minimum nightly rate
Once you’ve calculated how much you need to spend per day to maintain your Airbnb, you’ll know how much you need to charge to break even. Now, it’s time to decide how much you want to make on top of that.
Your minimum nightly rate should always be higher than your nightly costs. It should compensate you for the time you spend on managing your Airbnb, and, ideally, earn you some profit.
However, you can’t just come up with an arbitrary number. You need to do a bit of market research to make sure that your pricing is competitive. Otherwise, you could end up pricing too high or too low, and miss out on bookings.
3. Do market research on similar Airbnb prices
A simple way to do market research is by searching for properties in your area that offer the same value as your property does.
Pretend that you’re a guest and do a search on Airbnb. Apply the filters that are relevant to your property. This will help you find Airbnb rentals that have the same property type, number of beds and bedrooms, amenities, facilities, and location as yours.
The average nightly rate of the properties your search turns up is a good benchmark for pricing your own Airbnb property competitively. However, there are a few things to keep in mind.
Airbnb recommends a slightly lower price for new listings until they start getting some reviews and climbing up in rankings. 30% is considered a good strategic discount. So, if you’re new to Airbnb, don’t be afraid to underprice your rental at first. It’ll be worth it once you’ve positioned yourself on the platform and start getting more high-value bookings.
As you’re doing your research, make sure you don’t just look at prices for the following week. If you want to get an accurate picture of how other Airbnb hosts price their properties, look further into the future and select dates 2-3 months out. This way, you won’t accidentally benchmark yourself against last-minute offers.
If you want to be even more precise, don’t forget to take seasonality into account. Check the prices of Airbnb listings similar to yours in both low season and high season. Take the average price per night in both periods and price your rental accordingly.
4. Adjust your rates to match market demand
Your market research should help you arrive at a nightly base rate. But, if you apply the exact same rate to your rental 365 days a year, you would be leaving money on the table. Airbnb prices ebb and flow based on market demand. Without adjusting them daily, you'll either sell out really fast or struggle to find bookings.
The solution is dynamic pricing, or adjusting your prices according to market demand. There are several ways to do this.
Airbnb gives you the option to set custom pricing for special dates, so you can make adjustments directly in your Airbnb calendar. There are also external Airbnb automation tools that can speed this process up by a factor of 10, which we’ll get into later.
But how can you predict when demand will climb in your market?
Here’s what to look out for:
- Seasonality. Most destinations have high seasons (when demand is soaring) and low seasons (when demand is scarce). It’s a good idea to set higher rates for high season to maximize profits and lower rates for low season to maximize occupancy.
- Holidays and events. Is there a festival in town? Is your town a popular destination for the winter holidays? Don’t hesitate to kick your prices up a notch when a holiday or local event creates more demand than usual.
- Weekends. Short-term rental managers often set higher rates for weekends than weekdays. Airbnb allows you to add an extra fee for weekends - which should be around
10-15% of your normal rate. This is a simple tweak that can help you earn a bit more, and it’s super easy to set up in Airbnb.
5. Apply LOS discounts
Airbnb lets you give discounts on a weekly or monthly basis by setting up LOS or Length of Stay pricing.
LOS discounts should be a part of every short-term rental host’s pricing strategy. They’re a great way to incentivize guests to consider extended stays and attract guests who are already looking to book longer stays.
It may seem counterintuitive but setting up weekly (7-27 nights) or monthly (28+ nights) discounts pays off in the long run. It makes your place stand out, boosts your occupancy rate, and helps you cut down on operational costs (your property only needs to be cleaned once after a 1-week stay, as opposed to several times if you have 1-2-night bookings).
Not sure how much discount you should give? Airbnb gives you a price tip for both weekly and monthly discounts, but it’s good to do some extra research and see what other property managers in your area are doing. 10% weekly discounts and 20% monthly discounts are common, but it varies by location.
6. Experiment with the Airbnb Smart Pricing tool
In Airbnb, you have the option to turn Smart Pricing on or off. Smart Pricing is a tool that lets you automatically price your listings based on shifts in market demand. The Airbnb pricing algorithm looks at demand for listings similar to yours to find the right price for each night.
It takes into account over 70 different factors, like the booking window, the popularity of your market and your listing, the number of positive reviews you get, and more.
You don’t have to worry about losing control of your pricing. You can set a minimum nightly rate and your pricing will never go below that threshold. The algorithm won’t override any of your other pricing settings either, and you can jump in and manually adjust your nightly rates whenever you want.
The Airbnb Smart Pricing tool is useful, but if you’re serious about getting the best possible rates for your vacation rental, we suggest you take things a step further.
7. Automate your Airbnb pricing
If you want to become a truly efficient Airbnb host, you need to stop doing everything manually.
Adjusting your prices day-by-day on the Airbnb platform is possible. But it takes a crazy amount of man-hours, especially if you have multiple listings.
Automation is the key to streamlining your Airbnb business. To save time and get the best possible custom prices for your rental, consider using an Airbnb pricing automation tool like Host Tools.
Host Tools lets you set up pricing rules specific to each of your listings. You can use Airbnb’s Smart Pricing recommendations as a basis, and apply multiple pricing rules on top of one another.
This allows you to get more granular than you ever could adjusting your prices on Airbnb, without having to spend hours tinkering with rates.
On Host Tools, you can select several different rule types. For example, you can set up rules that only apply to gaps between bookings. You can also pick a date range or specific months of the year to apply your rules to. This comes in handy when you’re pricing to account for special events or seasonality, respectively.
Another great feature is that you can save pricing templates and apply them to any of your other listings. You can fine-tune the settings as much as you want. For example, you can set minimum nights for each pricing rule.
If you want to find out more about the Host Tools pricing automation tool, sign up for a free trial!