The Airbnb Pricing Strategy "Big Hotels" Don't Want You To Know About
Updated: Apr 20, 2021
What if I told you, this year was going to be the most lucrative year you’ve ever had in your Airbnb business?
That five times more guests would be viewing your listing online every single month…
That you could be achieving 80% to 100% occupancy all year round, even during low-season…
That your booking conversions will sky-rocket...
This is what your calendar should look like all year round…
Even if you achieved one of the three statements above, how would this look for your earnings forecast?
To put it in perspective, let's say that just by reading this book, you managed to implement our pricing strategy to increase your occupancy.
You got just ONE additional one-night midweek booking at the low price of $192.
That would equate to an additional $10,000 per year in earnings.
Ideally, I’ll inspire you to implement all three parts of the framework, and your results will be far greater than this.
So what is the “Airbnb Earnings Optimization Framework”?
It’s broken down into three pillars;
Occupancy
Exposure
Conversions
While implementing just one pillar will yield substantial results in isolation, I like to think of each part as just one piece of the puzzle. Once the puzzle is completed, you’ll have turned your “Airbnb Listing” into a “Thriving Short-Term Rental Business”.
Keep in mind that there are no “quick-fixes” in this book. Each part will need to be set up correctly and constantly refined over the course of 90 days.
But I can promise you this… it’s worth it!
Although each pillar is important… If I had to choose just one aspect to action, that would have the greatest impact on my earnings, it would be “Occupancy”.
“Occupancy” has both the largest impact on earnings AND has the fastest most noticeable change.
Considering this will yield the quickest results for you, let’s start here so you can see first hand, just how powerful these strategies can be.
I want to help you create your very own unique pricing strategy...
Each night will be priced differently, based on 4 key factors;
Seasonality
Special Events
Historic Trends
Supply And Demand
The goal here is to set your pricing for the next 365 days based on the factors above, then keep refining them daily. As we know, market supply and demand fluctuates and thus, so should our prices.
We want to achieve a minimum of 80% occupancy, even during low-season.
Any night that’s not booked is potentially costing you hundreds, if not thousands when extrapolated over the entire year. So we’re going to aim at getting every night booked.
Don’t worry, I’m not going to ask you to go through each of your 365 nights and price them all manually (then do it again every day)!
There’s a much easier way to achieve the same results.
In fact, I’m about to show you how you can set this up so your prices will update every 24 hours, based on the 4 key factors above.
Keep in mind, this is not a set-and-forget strategy. It will require some time and dedication on your end to achieve the desired results.
At BeyondBNB.io we tell clients that it will take us 90 days to find the pricing “sweet-spot” for their unique property.
But once you’ve found this “sweet-spot”, you’ll only need to check in every couple of weeks to make sure everything is on track for maximum occupancy at great rates.
Within these 90 days, you’ll find the right “baseline” price for your properties, along with specific price ranges for;
Low-season weekdays
Low-season weekends
Peak-season weekdays
Peak-season weekends
Peak dates (Christmas, Easter, etc.)
Once your baseline is established, your prices will (near) automatically refine this baseline to maximize both your occupancy and nightly rates.
And the best part? After the 90 days, your listing will keep raising its prices to reach the maximum rate guests will pay to stay at your home.
Think of it this way… if you booked out every Friday and Saturday night, why not raise the price until it stops getting booked every weekend, then bring the price back down to the point where it’s still booked 100% of the time.
Without attempting this… how do you know if you’re charging enough?
This is how the strategy works… If your weekends are always booked, we’ll slowly increase the prices until we find what works best, and if the weekdays aren’t getting booked at all, we’ll start to slowly drop the price to increase occupancy. Then once the weekdays are booked, slowly start increasing the prices to maximize occupancy.
“With great power, comes great responsibility!”
We all know this cliché quote from Spider Man's uncle Ben.
And you’re probably wondering how the hell it relates to your Airbnb’s pricing strategy…
Reality is, once you’ve implemented this in your Airbnb business, there’s an inevitable problem that will arise.
When we first encountered it, I couldn’t believe that by out-pricing out-occupying the competition, it would result in ANY kind of negative outcome.
We started to notice that our “Value” rating was starting to go down! People were wondering why they had booked an apartment for up to DOUBLE the price of near identical places, and reflecting their concern in their reviews.
Wow… what a problem to have!
Even though we were getting booked flat, at unbelievable rates, there was a downside.
This was an indication that we’d reached our pricing ceiling and it was time to stop raising the prices.
But don’t worry, with some trial and error you can successfully find your absolute peak prices that will yield you the best returns and reviews simultaneously.
A WARNING to all Airbnb Hosts
So by now, you’re probably thinking to yourself… “Are you just talking about Airbnb’s smart-pricing?”
NO!
Airbnb Smart-Pricing is by far the best way to lose thousands of dollars.
Trust me… I know from personal experience.
When I first tried Airbnb’s Smart-Pricing, it dropped my Christmas and New Years Eve rates so low that they instantly got booked by bargain hunters.
Night’s that usually would yield us $1,000, were getting booked for around $300…
That’s the biggest problem with Smart-Pricing, it might increase your peak-season rates by 20% above your baseline, when in fact, you should be tripling your prices for that period.
So from my personal experience, all this did was price my property so competitively that it made the Airbnb platform more appealing to guests…
Your Occupancy Rate Doesn’t Matter...
Isn’t this whole blog about “occupancy”? How can you say occupancy doesn’t matter if that’s the ONE thing we’re talking about!?
The reality is…
It doesn’t…
At least not nearly as much what I’m about to share with you.
Before delving into the strategy, it’s important to know how to measure success.
Contrary to popular belief, neither occupancy nor nightly rates are a true indicator of monthly success.
There are generally two kinds of hosts when it comes to so called “success stories”.
The first host likes to showcase just how amazing her occupancy is by saying something like “I’ve got 100% occupancy for the past 2 years!”
The next talks about how high their rates are… “We charge over $1,000 on the weekends because our home isn’t worth a penny less.”
In reality, the market determines the price for your property…
As with any business decision, it’s best to steer clear of your emotional attachment for the property, and look at your pricing objectively.
Let's say Host #1 (High-occupancy) achieves 100% occupancy, charging $120 per night…
That equates to $3,600 in a month. Keep that number in mind.
Now, Host #2, who charges $450, but is only booked out on the weekends (26.67% occupancy)...
They’ll make the exact same income for the month, $3,600…
So if occupancy and nightly rates doesn’t determine success, what does?
The answer lies in an old term used by hotels…
“RevPAR”
It stands for “Revenue Per Available Room”.
But as we don’t run hotels, that can seem confusing.
It’s best to think of it essentially as your average nightly rate, during the month. This encompasses all un-booked nights as well.
Before I get into how to calculate this for your property, here’s WHY it’s important…
Introducing Host #3 who focuses primarily on “RevPAR”.
For simplicity sake, she charges $350/ night and achieves 60% occupancy.
Yielding her $6,300 for the same 30 day period.
Can you see how a balance of both “occupancy” and “high-rates” can lead to a far superior outcome.
So how do you calculate RevPAR for your property?
To calculate your monthly RevPAR, you would divide your total revenue, by the number of nights in that period.
To use Host #3 as an example, her RevPAR would be $6,300 / 30 = $210
Whereas the first two hosts who focused primarily on either high occupancy or nightly rates, had RevPAR of $3,600 / 30 = $120
Now let’s compare the 3 approaches in their respective measurements of success…
Can you see how measuring success on either occupancy or rates alone will be misleading?
How To Price Your Property
As I mentioned above, there are four key factors to consider when pricing your property;
Seasonality
Special Events
Historic Trends
Supply And Demand
1. Seasonality
Seasonality is essentially peak-season vs low-season. This is a macroscopic view of your entire pricing strategy. You want to have entirely different rates for your Christmas season, than your lowest month.
Everyone’s seasons will be different depending on your location. A good first step is to write down the specific date range for each, so you can refer to it within your pricing strategy.
2. Special Events
You know your suburb better than anyone. Create a list of ALL local events that attract a crowd. This could be anything from sporting events to music festivals or concerts.
Once you’ve created a list, write down the dates for each event.
3. Historic Trends
Assuming you’ve been operating for over a year, the best way to achieve this is to first look at all peak-season dates and spot any trends.
If you were booked out every weekend over the Christmas period for example, note down the price you were charging, then do the same for non-peak seasons. This price is now the MINIMUM you should expect moving forward.
Once established, start increasing your prices by small increments until (in this case), you start to notice a drop in occupancy for those specific dates.
At this point, you’ll know to slowly start decreasing the price back to where the dates were still getting booked.
This is an iterative process that should be done over the course of at least 90 days in order to find the “sweet-point” in your pricing strategy.
If you HAVEN’T been operating for over a year. It’s best to look at the prices being charged by your most comparable local competitors.
To do this, simply go on Airbnb and search for homes in the same suburb, with the same number of beds and maximum guests.
4. Supply And Demand
Last but not least, supply and demand is by FAR the most important aspect to take into account when creating your unique pricing strategy.
As in any market, real estate or otherwise, the supply and demand of that market always dictates the price.
It doesn’t matter if you think your property is worth $1,000 or $100 per night. That’s up for the market to decide.
I’ll give you all the tools and information you need to help dictate this for your specific market, in the final section of this pillar.
The “Pricing Curve”
This is where things get interesting…
I mentioned earlier that we want to update pricing daily depending on market supply and demand…
Again, don’t worry, you don’t need to do this manually every day. I’ll share the toolkit you need to help you with this shortly.
Essentially, the idea is to drop prices if your occupancy is low and the date is near, to fill up those additional nights that wouldn’t have been booked otherwise.
Then increase prices far in advance when your occupancy is higher, to achieve a greater nightly rate and therefore return.
Imagine it’s the start of January, and for the month of February, you’re already booked out 24 nights (~80% occupancy).
Should you drop your rates to fill up the remaining nights? Absolutely not!
In fact you should be INCREASING your nightly rates by about 10% in an attempt to get more lucrative bookings.
Now let’s look at the flip side…
It’s Monday and over the next week, you’ve only got 2 nights booked. Lets use Friday and Saturday night for this example.
The majority of people going on holidays during this week have booked about a month and a half ago.
That means, we’ll have to drop our prices to incentivize last-minute bookings and fill up those nights.
We may even drop the rates by as much as 35% to get heads in beds.
Remember, it's better to have those remaining nights booked at low rates, than not at all.
Doing this to achieve an additional $192 booking each week yields you $10,000 over the year.
See the image below for an example of how you might structure your pricing curve discounts.
Your Pricing Toolkit
There are tools you can use to help you with implementing everything I’ve spoken about.
But keep in mind that this is not a “Plug-And-Play” approach.
You can’t just sign up to one of these websites and expect your pricing to be on point.
Instead, use the information outlined above to help you customize your own unique pricing strategy.
And remember, the first 90 days will be VERY hands-on, as this is an iterative process.
It takes time and effort to find the “sweet-spot” in your pricing.
But it’s well worth the effort! Here are some tools you can use to help you along your journey:
PriceLabs
AirDNA
Wheelhouse
BeyondPricing
Measure Your Progress
Calculate your RevPAR for each month of the previous year, then set a goal to increase RevPAR for the same month this year by a certain percentage.
For example, if your RevPAR for October last year was $200… set a goal to increase your RevPAR by 20% for the coming year, with the goal of hitting $240.
Do this for every month as a way to consistently monitor your progress.
Ready To Commit To Turning Your "Airbnb Listing" Into A "Thriving Short-Term Rental Business?
This is only the tip of the iceberg...
Remember how I mentioned that there were 3 Pillars to the "Airbnb Earnings Optimization Framework"?
If you're looking to learn more about how to maximize your Airbnb's earnings, click the link below to join me for my next free training event, where I'll go into detail on how we've helped hosts increase their earnings by up to 112%:
https://event.webinarjam.com/channel/free-airbnb-training
Best regards, Jordan Hrovat
Co-Founder BeyondBNB.io