Pricing your property correctly is the key to profitability.
However, it can be one of the most difficult aspects of running your Airbnb business.
This is because you must constantly adapt your nightly rate according to various factors.
Here, we’ll demystify pricing your Airbnb, so you know what you should be charging.
In lesson 3:
- How Airbnb’s pricing works
- Seasonality and market trends
- Using data to set prices
- Dynamic pricing tools
How Airbnb pricing works
First, you need to understand how your Airbnb earnings are calculated.
The total price that guests pay is the nightly base price you set, plus fees or costs that you, the host, or Airbnb can add. In some locations, taxes may also be added.
Your nightly earnings will be your nightly rate, plus your optional extra charges (such as cleaning fee or extra guest fee), minus the host service fee, typically 14–16% of your base rate.
Here’s an example:
Your base rate is $100 per night, you charge a $30 cleaning fee, and your host service fee is 14%.
If guests book a 5-day stay, they’ll pay $100 per night, totalling $530 for the 5-night stay with cleaning fee.
From this, you will subtract 14%, meaning in total you will earn $455.80.
You can use Airbnb’s price breakdown feature to see what guests will pay and what you’ll earn per night or stay.
To use Airbnb’s nightly price breakdown:
- Open Airbnb, go to your Calendar and select a listing
- Select Settings at the top of the Calendar
- Got to the Base price section under Pricing
- Click on the dropdown below your set price to view the nightly price breakdown
To view price breakdown for a trip:
- Open Airbnb, go to Calendar and select a listing.
- Select one night or continuous nights in the Calendar.
- Click on Guest total to access a price breakdown for the nights selected.
Seasonality and market trends
Over the course of a year, you’ll see some peak seasons of high demand and other times where you get fewer bookings.
With a good pricing strategy, you’ll maximize profits during the peak season and boost occupancy during the quieter months.
Your busiest season will vary depending on the type of property and destination. For example, beachside villas will likely see high demand during spring and summer months. However, a cozy cottage or ski resort will get more interest throughout the winter.
Most hosts will see one overall high season – such as summer – plus several smaller peaks throughout the year.
Follow these steps to adjust your prices according to seasonality and trends:
1. Create a calendar
Create your own calendar for the year that includes local public holidays, sporting championships, and upcoming events like concerts, festivals, and conferences.
This process will help you get familiar with what’s going on in your area and prepare for how your bookings will be impacted throughout the seasons.
2. Increase rates during busy seasons
Increase your Airbnb base rates for periods during the year when you expect higher demand.
Doing this will ensure that you don’t miss out on more profitable bookings. If you’re not sure how much to increase your rates, look at what competitors with similar properties in your area are charging for the same dates.
You can schedule these rate increases in advance. Don’t forget that you can also set a higher rate for weekend nights vs weekdays.
3. Use discounts and promotions
Apply discounts or promotions during quiet times where you expect demand to be low.
This can help you maintain steady occupancy levels throughout the year.
For example:
- Weekly and monthly discounts encourage guests to book longer stays, which results in lower operational costs.
- Off-peak promotions can attract winter bookings if this is your quietest time.
- Early bird discounts attract guests who want to book in advance for quieter periods.
Remember to keep your operating costs in mind when creating promotions, as you don’t want to set your rates too cheap to be profitable.
4. Evaluate throughout the year
Though you can set your rates and discounts in advance, you’ll still need to evaluate your pricing often.
For example, let’s say you set higher rates to coincide with a particular event. If you haven’t received any bookings as the dates approach, you may need to reduce rates slightly to avoid losing out on bookings.
Similarly, if you receive a high volume of bookings during a normally quiet time, this could be a sign that you’ve set your rates too low and you need to increase them.
Using data to set prices
Pricing is too important to rely on guesswork to set your rates.
Instead, use historical and current data to decide when to increase or reduce your rates.
There are several things you can do:
- Research your competitors — Looking at competitors’ rates can be the easiest way to benchmark your own pricing. You can use Airbnb’s Similar Listings feature to browse properties similar to yours, according to location, size, features, amenities, ratings, and reviews.
- Look at your past bookings — Examine your Airbnb booking history to see what times of year you received the most bookings and when you were booked at higher rates. You may be able to see booking data through your PMS or channel manager such as Rentals United.
- Plan for the year ahead — Be aware of upcoming events and schedule your Airbnb prices and discounts in advance to accommodate for expected rise and fall in demand.
Dynamic pricing tools
Dynamic pricing simply means adjusting your prices according to fluctuations in the market and seasonal demand.
You can adjust prices manually or use dynamic pricing tools to automatically set prices according to market data.
In fact, Airbnb even has its own dynamic pricing feature, Smart Pricing.
When you turn Smart Pricing on, your nightly prices will automatically adjust based on many different factors such as:
- Local demand
- Amenities and listing quality
- Average number of listing views
- Review scores
- Searches for listings like yours
You can set a minimum and maximum rate, as well as customize prices for any specific nights, then let Airbnb do the rest
To turn Smart Pricing on:
- Go to Calendar and select a listing
- Select Tools at the top of Calendar
- Navigate to the Base price section under Pricing
- Switch the Smart Pricing toggle
- Once toggle is on, enter a minimum and maximum price
- Click Save
You can also override Smart Pricing anytime without disabling the feature, just by selecting the dates in your Calendar and entering a custom price in the price field.
While Airbnb’s built-in feature will certainly save you time, Smart Pricing isn’t perfect. Some hosts may find recommended prices too low, and the tool is not as sensitive to the time of year or upcoming events.
You might find that specialist pricing tools, such as Beyond, Wheelhouse, PriceLabs or Turbosuite are more capable of setting accurate rates that maximize your profits. These tools come with an upfront cost, so they may be something you’ll invest in as your business grows.
Top Tip: To learn more about how dynamic pricing is key to increasing your revenue, check out our Short Term Rental Growth Course, packed with industry experts’ tips and tricks! With a section dedicated to growing your earnings, we’ll deep-dive into revenue management, RevPar, adapting to market changes, dynamic pricing techniques and more.
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