In this post, we will discuss how you can set up your short term rental pricing strategy if you are hosting solo, self-managing your airbnb. Revenue management for vacation rentals probably sounds too scientific to handle…right? Well, it actually is both an art and a science, but more of an art. That means with a little self-education, you can do a great job setting your own nightly rates and earning more than a property management company could possibly earn you.
While property managers do have their place by providing revenue management services, most are all talk. A select few actually do a great job, but charge a hefty commission to do it – in many cases around 20%.
We are going to discuss 11 steps you can take to price your short term rental for success.
- Know and manage your costs
- Comparable analysis and competitive research
- Dynamic pricing for short term rentals 101
- Minimum number of nights and its impact on your short term rental pricing strategy
- Be ready for high season and peak season for vacation rentals
- Prepare for vacant periods
- Seasonal Pricing
- Last-minute deals and discounts
- Loyalty perks for repeat guests
- Know your audience, who is your ideal airbnb guest?
- Secret tip: blocking high demand seasons to take advantage of inventory and boost rental income
Know and manage your costs
How much did you invest in your vacation rental? Did you do meaningful renovation or purchase a luxury furniture package in hopes of winning more guests? First off, only you know your exact costs to operate your rental business. Ultimately, to break even or to profit you must have your revenues exceed your costs. That means, you need to stand in the truth of what those costs are whether they are hidden or obvious.
Knowing what you need to earn is the first step into pricing your home. To run this analysis, you may find out what your monthly breakeven costs are by adding your utilities, wifi, service providers, and mortgage (if applicable). After that, you see how much you will need to earn that month to cover expenses, operate at a 5% cushion, 20% profit, or wherever your income goal may be.
Comparable Analysis and Competitive Research
Compare, compare, and compare some more. Comparable analysis may seem like a fancy term – but it means this: look at your neighbors and compare your rental to theirs on all levels.
Ask yourself the following questions:
- How does the furnishing compare to mine?
- Do they have any ‘wow’ factor that makes them stand out? For example, if they have two nicely done theme rooms (think Harry Potter rooms for the kids) they may be a step ahead of you in the offering…
- Location – is the location truly similar? If you have amenities or if you are near a body of water – how does your location compare to theirs?
- Photos – what is your first ‘gut’ impression when you look at pictures of their property next to you photos
- Rates – do they compare to yours or are they higher or lower?
Look at your neighbors and compare your rental to theirs. No, you are not stalking and no, this is not ‘keeping up with the Joneses’ – this is a sound business practice that many Fortune 500 companies and hotel chains use to set their pricing.
How to perform comparable analysis for vacation rental pricing strategy
To get started with your very first comparable analysis, visit airbnb.com and perform the following actions:
- Find the search bar and enter your address or zip code
- Enter the nights you want to compare for (if you want to see Holiday season rates like Easter, search for Easter Week, etc)
- Click Search
- Filter by number of guests (if you host 14, choose 14)
- Select a listing that looks similar to yours and go through the questions on the previous page
Use the following table to organize your research and findings.
|[Dates of Stay]
|Median / Mean
How big should your sample be? It should be more than 7 and ideally around 20 rentals.
Are you going to be taking averages and then setting your rate as the average? No.
You are going to separate your findings in three main categories. Most similar, similar, and least similar.
Look at the pricing of others in terms of range to get a feel for your own
Look at your comparable set and see the range. High, median, low. See the averages. This gives you a glimpse of your market. However, when choosing pricing it is important to defer to the art, rather than trying to make your first attempt a science.
If your closest comp set has nightly rates on April 24 of $250, $255, $270, $300 – what makes the rental at $300 the highest priced? Jot down some notes. Likewise at the low end. If you feel, yes I said feel…if you feel your rental is not as luxurious as the $300 per night rental, but more like the $270 a night rental – your price for April 24 should be around $270. This is a subjective test.
Be realistic with your pricing strategy
Do not fool yourself and do not lie to yourself because of ego. Just because it is your rental and you are proud of it does not mean it isn’t an ugly duckling. If I had to count on my fingers how many owners thought they had an awesome rental I wouldn’t let my worst enemy sleep in, I would run out of fingers! Not that your rental is this bad, but the point is honesty.
Self-reflection is important with revenue management. If you want a premium nightly rate, you will need to change your strategy if you are not there yet. That may include furnishing your place with nicer furniture or designing some theme rooms, adding a pool, or another significant home improvement to get to the nightly rate you seek.
Nightly rates are important because you will attract the clientele your nightly rate suggests. Budget rates attract budget people. Premium rates will attract luxury guests. However, if you put premium rates and your rental is an ugly duckling – you will sit empty and be punished with a low occupancy rate.
Dynamic pricing for short term rentals 101
Dynamic pricing. Where do we begin? Dynamic pricing is the aim of vacation rental tech firms who are attempting to solve the problem of pricing. Dynamic pricing will dynamically adjust rates based on an algorithm, data set, and supply and demand.
Here are my main concerns about using dynamic pricing:
- How are you paying for the service? If the company charges a small percent of bookings there is a conflict of interest – they make money if you book at no matter what rate so rates may skew lower so they can capture bookings easier
- Airbnb Smart Pricing – same as above, but they are so aggressive with their pricing suggestions they basically give your home away for rock bottom prices
- How are they capturing data about supply and demand for every market? If you think about the real estate industry, you go with a local expert because they know the area – but how does a software company know every location better than a local?
Dynamic pricing tools are not all bad though. There are many pricing tools that work. I will not name anyone here, but if you do a quick Google search query on ‘Dynamic Pricing Vacation Rentals’ you will be able to compare the largest players in that space.
I highly recommend using the comparable analysis method. The better you get at it, the higher your return will be.
Advantages of Dynamic Pricing
Dynamic pricing has an advantage. Some dynamic pricing vendors update their data quickly for local events like concerts, festivals, parades, weather, and new attractions. If you are using the comparable analysis method, I recommend doing a monthly review to make sure your rates are still accurate. A monthly review will help make sure that you do not leave any money on the table because you missed the memo that a huge festival was going to be in town.
Considerations for Hosts Using Dynamic Pricing Tools
Some considerations to think about if you are using dynamic pricing as a solution. You need to make sure your tech is integrated. For example, if you are using Airbnb and VRBO, please follow the dynamic pricing providers instructions very carefully so you can properly integrate. You do not want duplicate bookings, pricing that varies from platform to platform, or to be under the impression that your dynamic pricing tool is working when it actually isn’t. Most reputable dynamic pricing vendors have extremely well written frequently asked questions section and customer support so you can make sure you are following the correct setup protocol.
Minimum number of nights and its impact on your short term rental pricing strategy
Nightly minimums are near and dear to my heart. For good reason, operating in Florida is no cake walk! Have you ever heard the saying ‘Florida Man’ there are so many crazy things happening in my Sunshine State! Most of the crazy happenings are during what I like to call ‘short stays’ – stays with 3 nights or less.
If you have a condo and host a lot of couples, it is quite common to have 1 and 2 night bookings. However, if you own and rent a large home with 8 bedrooms, who actually rents a home for 1 night? That’s right. Parties! This will impact your pricing strategy as you may want to avoid partiers by setting your price higher as a deterrent.
When you set your nightly rates on Airbnb or VRBO, please do not forget to set your nightly minimums. I recommend 4 nights and up, but this really depends on who your target guests are. Here is a quick guide:
Be ready for high season and peak season for vacation rentals
In this section, high season and peak season readiness will be addressed. Importantly, you must know if your cleaning and operating costs will increase during times of high demand like Christmas and New Years season. Also, you need to know if you can operate a turnover on a major holiday. Airbnb Cleaning Services often charge different clean fees during holidays, as cleaners need to take off from being with their families and charge a premium rate. Ultimately, you need to know if your cleaners will even operate on the holiday. You may have to block dates or increase rates.
Prepare for vacant periods
There are many periods of vacancy during the slow season. In September, many children are returning to school. In addition, your short term rental may be located in Orlando, FL by amusement parks that kids cannot attend when they are back in school. For this reason, you can prepare for vacant or slow periods by offering enticing discounts of 5-15% off the base rate to lure travelers.
Also, you can research local events, concerts, and sporting events to add more detail to your listing or headline to appeal to guests looking for a getaway during low season. Meanwhile, you can focus on restoring your home to like new condition by taking advantage of the down time to do much needed maintenance, deep cleaning, inventory, and improvements.
Many smart hosts choose to price their properties seasonally. If you have knowledge of the local tourist busy and slow times and perform additional research, you may benefit from the simplicity by setting date bands (for example January to Early March) and setting Low, Mid, High, and Peak season prices.
Here is an example of date bands a property manager in Orlando, Florida uses, with each season 20-25% pricer than the lower season.
April 24,2022 – June 9,2022
August 21,2022 – September 30,2022
November 1,2022 – November 17,2022
November 27,2022 – December 15,2022
January 8,2023 – February 9,2022
October 1,2022 – October 31,2022
February 10,2023 – March 9,2023
June 10,2022 – August 20,2022
November 18,2022 – November 26,2022
March 10,2023 – March 30,2023
December 16,2022 – January 7,2023
March 31,2023 – April 15,2023
Last-minute Deals and Discounts
Incentivize your guests by offering last-minute deals and discounts. For example, if your home is empty in September, but you are in August offer a last-minute deal of 10-15% off to interested guests. Update your headline to “Last–minute deal by Disney 10%” to entice guests to take advantage of your deal.
Discounts can be offered to AARP, Military, First Responders or birthday guests.
Loyalty Perks for Repeat Guests
Hopefully, you have guests that love your place so much that they want to come back again. Offer a loyalty program, they are not just for big hotel chains! A common loyalty perk is to offer a night free if they stay with you again. The more they stay, the more nights they can earn!
Alternatively, you can offer referral gifts if they refer their friends. They can get a free night off their next stay or you can treat them to Dinner with a gift card!
Know your audience, who is your ideal airbnb guest?
This headline deserves its own post. However, for the sake of simplicity ask yourself is your guest in any of these categories?
- Average Accommodation
- A little better than average
- Oh Wow!
How you serve guests at each price point matters. Although each guest is equally as important, a guest paying luxury prices you charge with your pricing strategy will want more amenities, perks, nicer furniture, and possibly concierge. Your pricing strategy always has to follow trends and news that are impacting your target traveler demographic. For example, if inflation is hardest hurting economy travelers you may need to adjust. If the economy is tight and your ‘a little better than average’ accommodation is slow, you may need to reduce prices due to lower demand.
Secret tip: blocking high demand seasons to take advantage of inventory and boost rental income
Smart hosts block holidays because prices change drastically when inventory runs low. This is the phenomenon experienced when the Superbowl is in town and there are not a lot of hotels left. If you are a more active pricer, you may benefit from blocking your holiday, New Years, and Spring Break holiday season. In high demand locations like Orlando, FL there is a lack of good inventory in peak seasons. Hosts hold off by blocking their calendar until the 30-45 days prior and then enjoying a 20-35% price premium.
About the Author
Back in 2010 when I began cleaning vacation rentals to pay my tuition, the landscape was extremely different. Airbnb just came onto the scene and HomeAway still was the big guy in town. Fast forward to 2022, Airbnb has become the behemoth, followed by VRBO (formally part of HomeAway) and the market for short term rentals has pivoted towards saturation. This free, short guide is to help you set your rates for success in a crowded market. Hope you enjoy it.
About Vacation Home Help
Vacation Home Help is the fastest growing cleaning platform for vacation rentals. We pair talented cleaners with hosts. The service pros on our platform prepare safe and clean spaces for guests to enjoy. Do you need a management company? No. You can self-manage and save thousands by using Vacation Home Help.
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