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Why Base Price Is Important. How to Set Your Base Pricing Transcript
Hey everyone. Thanks for joining me on another episode of Vacation Rentals with John. Today I just want to discuss why base price is super important to get right. Your base price is what we call baseline pricing. It’s the optimal amount you’re going to charge for your listing under normal market conditions, with average levels of demand, and any adjustments you make here from your pricing, you want to start at this baseline level, right? So your base price is what people will see when they’re searching for your property. When there’s no dates put into the field, that’s going to be your base because it’s going to show all available properties at the baseline price that you put when you set up your availability settings and your pricing settings in Airbnb. So your base price is under normal conditions. What would you charge for your rental? And on this episode, I’m going to go over how you can find your base price, set your base price, some strategies you can consider in terms of base pricing and some outdated strategies that no longer work that you should steer clear from.
So to find our baseline, we want to come up with some comps, get comparable market data. This is going to be a dozen or more if you can, comparable listings. We want to collect the average weekday rates. The weekday rates in terms of weekday, I mean Sunday through Thursday. And then we want the average of this. So let’s look for four weeks out, eight weeks out, and 12 weeks out into the future. That’s what I personally use, but you could use different types of weeks out. You could use six weeks out, 10 weeks out, 14 weeks out if the logic supports doing that, but I’ve always used four weeks, eight weeks in 12 weeks. It gives me the best feel for what baseline should be. Then you want to do the same for weekend rates. So the weekend is Friday and Saturday for this exercise, and we want the average, so we want to take the average of a two day weekend.
This is Friday and Saturday, and we want to get data points for the average weekend rates. We want six reference points. We want three main reference points for the weekdays and three main reference points for the weekends. We want to take the average of those three weekday rates and the average of the three weekend rates, and that’s how we’re gonna come up with what baseline is for us. Now that we have the data, we have a couple of strategies that we can actually use, but to organize this data, I’m going to put together a spreadsheet that you can use so that you can actually organize this data very clearly and have something to look at as you’re coming up with your strategy for your home. So on your spreadsheet, the data you should have is all of your comparable listings. So assuming you have 12, a dozen to 16 comparables, that’ll be in the first column.
The second column is going to have the number of bedrooms, bathrooms, rooms, and then the third column is going to actually have the first weekday price, second weekday price, third weekday price at three columns, and then the next column, we’ll have the first weekend price, second weekend price, and third weekend price. Then in the last columns, we want the average for weekdays and the average for weekends. And then across all of the comp set, we can get an overall average of the weekday price and an overall average of the weekend price. So this is gonna get us our base price. Now the fun part, let’s strategize a little bit. So the first strategy that you may be thinking about that I think about is we can meet the market and offer a bit less money if we’re more affordable and we have cheaper base rates, we’re gonna get favored by Airbnb, booking.com, vrbo, their algorithms, and it’s going to increase our likelihood of getting booked.
It’s just the way it is. It might not be fair, but they love to favor affordability. That’s how the free market is. So we can meet the market and offer a little bit less, and that way we undercut our competition, and that would be one strategy. The next strategy is we can beat the product on the market. So we could beat all the vacation rentals that are on the market and charge the same amount of money. So we can add amenities that are clearly better and add photos that are clearly better. Beat the competition by just having a better product and charge the same. So when someone’s looking, a future potential guest is looking at what options they have, they’ll see that we have clearly a better offering, but the price is the same. We have something the competitor doesn’t like. We would have a hot tub, a pool table.
Well, they don’t, and that would get them to book us because our amenities are clearly better. That’s one strategy. We could meet their price and then have better amenities, a better product, okay? Then another strategy is we can have a totally unique experience and we can charge a premium for that. So in practice, this is super highly challenging, but this is what separates the outliers who are raking in the cash from the rest of the herd. Think of those who show up first. These unique experiences that are in the categories, that new Airbnb categories, they introduce into summer update that they have things like out of this world castles, tree houses, nature, all these categories, those have unique offerings and people are actually seeking out experiences just like that, and they’re willing to pay a premium for it. So if we fit into one of those categories and we have this super unique offering that no one else can offer, we can charge a premium.
Think of Barbie Dreamhouse. That is something that no one else will have. You can charge a premium. They had a hocus pocus house in Salem that was going for rent. That’s an example of a property that can charge a premium because there’s no experience that’s going to be like that one, and they could charge much more per night than their competition can because they pretty much don’t have much competition. Someone who’s seeking that experience is not going to find anything like it and being different. It really pays off when you’re doing Airbnb and short-term rentals. Now remember I’m talking about base pricing. You can always adjust your price higher and lower based on demand and seasonality, but base price is really important because it has to be attractive If you’re searching for property to book your base. Price is what will show if dates are not entered in the search field.
A high base price will shuffle you way to the back, and an affordable base price will keep you closer to the front. With the winners in the past, there were a lot of different that hosts would deploy to get themselves seen. Base prices could be manipulated lower for days that you couldn’t even book. For example, a base price would be $180 for one night, but the host would manually price the only bookable nights on the calendar much higher than this. So it would show the property on search results at this lower base price that wasn’t actually bookable, but luckily Airbnb got rid of this practice. So this tactic that was a little bit shady doesn’t even work anymore. We don’t want to be fooling our guests. We want to be honest and transparent. So base price is supposed to be what our average prices are.
Midseason prices. It’s important to get this baseline pricing right, so we can be attractively priced so more people can find us, so we can earn more bookings. Okay, so now what if your listing is brand new or it’s another rental you just set up? Well, if your listing’s new, there’s a period where you have to gain that momentum and you need to gain it very quickly. This will be the build up period where you work your way up to regular pricing. My suggestion is you could start at 20% lower than what your baseline normally would be to drive traffic and increase interest. This under prices, your listing relative to the competitors, and it definitely gets you seen. Yeah, you’re gonna lose some money, but this generates buzz, it generates interest and it gets you booked so you’re not sitting empty and having vacancies. You want to be booked about a month out, even today with shorter lead times than in the past.
And if you’re mostly booked a month out, say two weeks a month out, you’re okay. But if you’re not booked, try to drop another 10% every week until you are, and you may want to be aggressive the first time you do this, even 15%, because if you’re not, pricing is different today, everyone’s pricing really low, and you don’t want to be the most expensive house on the block unless you have something super unique or competitive about your listing amenities that no one else has. You really need to be competitively priced, especially with your base price. Now, seasonality, I discussed it on a previous episode. I won’t get into it today, but I will revisit the topic of seasonality several times with updates so you get the best information possible on setting your rates according to season. So to recap, our base price is a starting point for any price fluctuations.
This is the average price for your listing for the year. Then we go above it in periods of high demand. We lower it in periods of low demand. So we want to set the correct base price because that’s one of the keys to maximizing your rental revenue potential. The spreadsheet that I talked about, the beginning of the episode, that will help you actually put this into practice. I’m going to have a link to it in the show notes so you can use it anytime you’re trying to do this exercise or set your own baseline pricing. It’s completely free. You just go down to the show notes and I’ll include a link to it there. It’s going to be an Excel file. You could download it, you could change it, you could alter it, you could use it for what you need it for. This will serve as your starting point. So I hope today’s episode is helpful. If you want to support the podcast, it’ll just take 20 seconds. Doing this will help me create more content for you. If you could just leave a rating or review on Apple Podcast or Spotify, let me know how the show is doing.
That would help. More than you know, the next episode will be on why I believe VRBO is on the move again, and why you should seriously consider optimizing for it or adding it to your existing marketing mix. Until next time, friends, thanks a million and y’all take care.
Vacation Rentals With John is one of the fastest growing short term rental podcasts. The show has been growing in popularity because of its no BS, to the point lessons on how to grow and operate a vacation rental. Join the facebook group. To listen to any of the past episodes, check out this page.