I have heard a lot of hosts talking about the new fee structure, asking who it applies to, why they charge so much and when does it come into effect.
I decided to write this short blog post to help hosts understand the new fee structure and how it is actually better for them to adopt it even if they're not forced to do so.
The Old Fee Structure
If you're currently not utilising the new fee structure, your guests are paying a service fee on top of your prices, including cleaning fees of 12-20% depending on your location.
When a guest goes to book your property, they will see something like this:
As you can see in the screenshot above, the service fee on this property is currently set to ~15.53% 9 ($53.42) which has slowly been creeping up throughout the year. In January it was 14.47%, in March it was 15.19% and we're not notified of these increases.
To illustrate this with an example, lets say you have a 1 night booking for $100 with a $50 cleaning fee. So your total fees will be $150.
When the guest actually pays for the booking they will pay a total of $173.30. Of that total Guest payment, you will receive a total of $145.05 which means Airbnb is paid a total of $28.25 for the booking. While that doesn't sound like that much, it adds up to be 16.3% of the total guest payment.
Some of you may be thinking to yourselves, that's great though. The guests pay the service fee, not me. If you think that, take a moment and put yourself in the customers shoes. As a guest, would you ignore the 15% service fee simply because it goes to Airbnb and not to the host? Of course not. You still have to pay it, so you factor that into your final decision.
The New Fee Structure
Under the new fee structure, hosts will simply be charged a flat 15% on what they charge. There was a 14% incentive for early adopters, but for the rest of us, we will simply have to pay 15% to Airbnb. Which is much more like the booking.com model, in fact it is identical to that.
So, utilising the same example booking as above with a 1 night stay and your total rates are $150. The guest would pay a grand total of $150 and you would end up with a pay out from Airbnb of $127.50.
On the surface that sounds terrible for hosts, but it's actually not and I'll explain why.
We need to consider the total guest payment as the only metric that matters. A customer paying for a product or service does not care what portion of the total price THEY pay is going where, they only care about the total price they pay.
So let's compare the two situations above where we make the total guest payment the same in both scenarios as that is the only price that really matters.
The Old Structure
We already know that the guest pays $173.3, and you get paid $145.05.
The New Structure
To compare apples with apples, lets assume that for a booking, you raised your prices by 15.53% so the total fees are $173.30 (Accommodation and cleaning only) so that the guest is paying the exact same amount as if they booked under the old structure.
Of that total $173.30 you as the host would retain $147.31 which is $2.26 more than under the old structure or 1.56% more money in your pocket for each and every booking.
It still doesn't sound like a lot, but if you extrapolate that out over a year of earnings, that could be hundreds or thousands of dollars more depending on your property revenue simply by changing this one simple thing.
When is this coming into effect?
After November 1st, the old fee structure will no longer be available to hosts who qualify (see below). This means you really need to know what this means for you and how to make the changes to your pricing so you don't lose money!
What is the downside
From my perspective there is absolutely no downside to doing this. You may be wondering how it affects the ranking on Airbnb, or if your prices will be displayed as more under the new fee structure but the answer is no.
On the search results page, you can only see the total price for each property which includes the accommodation, cleaning fees and service fees. So in reality, you have an advantage as you can price yourselves 1.56% lower than your competition and still come out with the same pay out.
In addition to that, you also get a little note on your booking page that tells guests that you as the host are taking care of the service fee on their behalf. If they read that, it might just be the thing that helps get them across the line because they feel like you're giving them something for free.
It is the same exact reason that people selling products online will sometimes use a 'free shipping' promotion to encourage more people to buy. The end price is most likely the same but as a consumer you feel as though you are getting something 'extra'. At the end of the day is what being an Airbnb host is all about, giving something a little bit 'Extra'.
When I first discovered the option for this a few months ago, I was highly sceptical of it. I wasn't sure if raising my nightly rate would make me look worse in search results and give my listings a negative aspect that would deter guests from booking. However, after researching it more deeply, I can't see any downside to doing this and I wish I did it months ago!
Who is eligible?
At the moment this fee structure is only open to what they call professional hosts. When I asked Airbnb exactly what they meant by that they responded with the message below:
So, what this means that if you have any kind of channel manager connected to your account such as Hostaway, Guesty, Yourporter, IGMS etc. your listing will qualify for this and you will be forced to make the changes.
In addition to this, if you have something connected to your account such as Pricelabs, Wheelhouse, or any other app or website that is connected via an API integration you will qualify for this.
Finally, in Australia, if you have added an ABN to your listing you should be included in this new fee structure.
If any of the above information is incorrect, please send me an email so I can make any updates to make it more accurate.
What is the easy way to update your rates?
If you have any number of listings, the thought of going through each and every available date and increasing the rates by 15.53% sounds daunting, you're right.
Thankfully, there is a very simple way to achieve this. If you are already using a channel manager, get in contact with them to see if they have the ability to add a price increase automatically for your Airbnb. If they're a half decent channel manager, then this will be a feature that means you simply need to update the prices there.
If you're not using a channel manager, get one!
They aren't free, but they will save you hours each and every month and improve your business operations significantly helping you focus on the important things like ensuring the guest experience is exceptional each and every time.
Is it mandatory?
Yes. If you have been identified by Airbnb as being eligible for this system, as of November 1st 2020, you will be forced into this new fee structure. So make sure that you know if this is you or not and what to do if you are.
So in summary, the new pricing structure is actually good for hosts provided that you have the ability to raise your prices to factor in the new changes and ensure that you're still competitive without leaving money on the table.
P.S. If you're looking to take your Airbnb earnings to the next level and implement the same strategies the big hotels have been using for years to dominate the market...