Airbnb Pricing Strategy: Getting Started

airbnb pricing strategy

By The PerfectPrice Team

Congratulations – you’ve now got your Airbnb listed, and you’re ready to start making money, whether it’s a side hustle, to pay the mortgage or both. Now you’re in the Airbnb interface, and you have to decide on an Airbnb pricing strategy. In the back of your mind, you realize this could have a huge impact on how much money you make. But where do you start?

Start right here!  This blog post will lay out how to set up a great pricing strategy that will make you the most money you can and give you peace of mind that you’re doing perfectly.

What metric is the most important for your Airbnb pricing strategy?

There are lots of metrics to think about when you’re managing your Airbnb. The one to focus on most is Revenue per Available Room (RevPAR, sometimes RevPAN for “Night”).

RevPAR is how much revenue you made divided by how many nights were available for each unit, usually calculated monthly. For example, if in February (28 days) you booked for 14 days, and received $2,000 total, and the entire month was available, your RevPAR would be $2000 / 28 nights = $71. If in the same month, the owner occupied the unit for 10 nights, RevPAR would be 2000 / 18 nights = 111.

Unlike occupancy, RevPAR takes into consideration your availability. It doesn’t penalize you if an owner or maintenance issue took the unit off the market. And, it doesn’t benefit you if you rent really cheap but for the entire month.

While you want to maximize your RevPAR, it is a composite number. To get the highest RevPAR, you’ll be optimizing occupancy and nightly rate. We’ll discuss this below, and your strategy will evolve as you get more reviews and repeat customers.

Overall, to maximize your profit, you need to boost your revenue and optimize costs. This article will guide you on growing your revenue via intelligent pricing decisions. We recommend you download our free guide on designing your place for STR business to save you from unnecessary operations costs.

Now, back to your pricing strategy. Let’s split it into smaller comprehensive steps.

Step 1: Forget Airbnb Smart Pricing

Airbnb’s smart pricing is for Suckers. It has one and only one purpose: to get more transactions on Airbnb. It is almost always a far too low price, because hosts think they want occupancy (now you know we really care about RevPAR). Airbnb benefits from hosts underpricing and more travelers getting a good deal – they come back to Airbnb and rent from the next host using smart pricing and charging too little. The algorithms for “smart pricing” optimize the number of bookings and occupancy (and Airbnb’s market share in the broader travel market). They will not optimize your RevPAR.  So politely decline that option, and let’s get you set up for success.

Step 2: The early days

Your early Airbnb pricing strategy will set you up for success later. Reviews are critical to conversion on Airbnb. Great reviews also influence how high you appear in search results, which influences how many people see your listing in order to convert. Early on, when you don’t have reviews, offering a 15-20% lower price than what the market will bear will help you get those first few positive reviews. People will think they got a great deal (because they did) and happily write a glowing review. Don’t be shy about asking your first guests for reviews! And it’s great if you can get these people in before the big events. That way you’ll have good reviews to back up high rates at peak times.

We'll take care of reminding your guests about leaving a review.

We'll take care of a huge chunk of your guest communication.

Once three or four reviews are in, you can start doing proper revenue management. Read on for how.

A note on instant book: Instant booking dramatically increases the number of people who will book with you, and thus gets you those early happy guests faster. The only reason not to do instant book (in our opinion) is that you didn't think through price and availability well enough out of the gates. If you do everything outlined here – you can confidently turn on instant book!

Step 3: Set up your pricing for peak times

You’ll make the most money at peak times – summer for vacation markets, big ski weekends for ski resort destinations, festivals for festival destinations. Frequently you can get much, much more than you think: don’t let your own bias influence your rates. You’re anchored to a lot of prices – especially your monthly mortgage or lease. It may seem ridiculous to rent a place that costs you $2000 a month for $1500 a night – but you might be able to! 

Similarly, bias about “normal” pricing can also be a hindrance. Five hundred dollars a night for a dumpy 2 bedroom that usually rents for $125 seems ridiculous until everything else is booked for a festival, and 6 friends split it for $250 each for a weekend ($500 a night!) instead of staying in a tent. It happens all the time. 

The best way to get the pricing right is to use software like Perfect Price, which will recommend a price based on demand, show you how and why it recommended that price, and also show you where the market is – specific comparable properties. Perfect Price will show you what events are going on in your market for each unit and let you tweak them to be more aggressive if you want to be (or more conservative, too – especially in those early days!)

If you are not using Perfect Price, look at a sample of similar properties (10 or more) that are moving their prices, so you’re sure they’re actively managed, and see what they charge for peak times. This is called your “comp set” (Perfect Price AI automatically finds and curates a comp set for you). Then, decide whether or not your place deserves a premium to the comp set, and what your risk tolerance is for it not being rented, and set your price. If your place is more superior, be at the high end of the comp set – or above it. If your place is less nice, be at the bottom of it. Again if your listing is new, we advise being in line with or below the market so you can get those early reviews and potential repeat customers. 

Step 4: Set minimum stays

A key aspect of revenue per available night is getting bookings that are longer at peak times. If you let that Festival Saturday get booked as a 1-night stay, you might have missed out on Thursday, Friday, and Sunday nights around it – or even the entire week. For drive-to vacation markets, this can be crucial to overall returns. 

If you are competing with hotels in a more business-oriented market, you’ll probably want to keep your minimum stay short – 1 or 2 nights. (Many vacation rental operators avoid 1-night bookings because of the risk of parties, so 2 is a safe starting point.) 

Peak times like holidays and major events may warrant a much longer minimum stay. You can always lower it later, but if you take that 2-night booking on New Year’s Eve in July, you might have missed out on a 1-week booking during the five remaining months. Or a 2-week booking – you’ll never know. What’s worse, Airbnb penalizes low availability. A few 2-night bookings can lower your search ranking dramatically.

Larger homes can usually require a longer stay. Travelers are used to paying a substantial cleaning fee for a large property and usually are traveling with a large group for a specific event (spring training, bachelor/bachelorette, family reunion, etc.) and those logistics mean longer is preferable for everyone. 

As the time approaches, you may want to lower your minimum stay requirements. How far out you do this depends: those “sleeps 20” properties aren’t going to be booked last minute! (If someone tries to, watch out for parties!). But a studio might be booked the night before–or even the same day!

Did you know that almost half of Expedia's hotel bookings are for the same night? (This was pre-COVID)

Software like Perfect Price will automate all of this. You can set up your policy so that you require longer stays well in advance and allow shorter stays if a unit hasn’t been booked. You can set this up so that some units (your big ones) lower the minimum at a different time than others (your small ones). You can also fine-tune this to owner or HOA requirements.

Gap nights

Sophisticated and longer stay requirements come with a big downside: Gaps. Sometimes called “orphan nights,” these gaps are unbookable periods between two long, very desirable bookings. For example, you have a minimum of 7 nights required for bookings in July. Someone checks out on the 7th, and the next guest checks in on the 11th. If someone looks for a 3-night stay on the 7th, your unit will not show up anywhere. This is because you’re “not available” – that’s a 3-night booking, but you require 7. 

The Gap Nights feature of Perfect Price will automatically find these gaps and lower the minimum stay requirement for each night so you can maximize your booked nights, and through that RevPAR (after all, those 4 nights were available… that nobody booked them was your fault!). 

You can also do this manually by checking once per week or whenever a new booking comes in and adjusting the calendar manually. Stay vigilant! At $200 a night, that 4-night gap is worth $800–13% of your potential revenue that month! And it’s even worse if it’s a peak time. Making the right decisions in STR business might take some time and effort from your side.

Invest your time in growing your business.

Let us handle the routine for you. Our AI will handle guests communication and reviews and will send timely reminders to your team.
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Off-peak pricing

Pricing when something big isn’t happening is pretty simple: you’ll want to look at your comp set and price towards the lower end of it. Again, Perfect Price will do the math for you and automatically recommend good, day-specific off-peak pricing. If you are in a market that is highly seasonal (say, the Hamptons in New York, or Miami, or a ski resort – most markets are at least somewhat if not extremely seasonal), picking up a few stays off-peak will increase your overall returns, but is not something you want to spend a lot of time on. 

That’s a major advantage of software like Perfect Price – it’ll set reasonable off-peak prices and allow you to control them (down to weekday/weekend variances) but not require you to spend much if any time on it. A key tenet of any pricing strategy is that if people don’t want what you’re selling – that beach vacation in New York in February, for example – price doesn’t matter! So yes, pick up some bookings if you can, but if there’s no demand, there’s nothing price can do to fix that. 

Targeted Discounts and Promotions

At this point, if you’ve followed our instructions above, you’re in great shape and could probably sit back and watch the bookings come in, filling your calendar and setting RevPAR records. But you can do slightly more – you can improve around the edges. Literally.

People who have booked a 1 or 2 night weekend stay are highly likely to take advantage of a deal to add an extra night. If in your market – like many markets – Thursdays and Sundays are hard to book, offering an emailed promotion after booking can be a great way of increasing your RevPAR by getting a night booked that would otherwise have sat empty. Smartbnb will handle the whole process. Check out our step-by-step guide on upselling extra nights.

Additional Sales

RevPAR is the key metric – but you can generate more revenue than just from nights. We highly recommend keeping your cleaning fees and other fees in line with what is normal in your market. These are easy to compare across different units, especially in a channel like Airbnb, and if you have a high price for this, any browsing customers will think that all of your prices are too high – so best to avoid. 

Selling add-ons, on the other hand, is a great way to meet the needs of your clients while also generating additional revenue. These add ons can range from simple things like cribs and toys for babies to tours and other amenities for everyone. Some hosts even rent cars to guests. These are all ways to generate more income from a single booking, even beyond the nightly stay. 

Repeat Customers

Many clients who enjoy their stay will come back and rent from you again. Some vacation rental businesses have as much as 80% of their bookings from repeat customers. The highest risk is usually on the guest’s side: they have just a few vacations per year, and accommodations are almost always the largest expense of that vacation. Getting something they know and are familiar with – be it your management or the exact same place they stayed before – reduces the risk. People will pay a premium for this safety! 

There’s also less risk to you, which means, among other things, you can more safely take a direct booking off of Airbnb, and avoid Airbnb’s fees and Airbnb’s cancellation policies (and any changes Airbnb feels like making to those policies). 

A popular strategy combines an offer with repeat customers – for example, offering to rebook the next vacation while they’re still on vacation. For major holidays with big groups–like a family reunion on the 4th of July – you can see a very high take rate. Be sure to price the next year’s holiday high enough!

Summary

If you’ve read this far, you know more than most people ever will about managing pricing and availability at your rental or rentals. Nothing can have a bigger impact on your success as a host – for less work or cost – than being vigilant and intelligent with pricing.

Your other revenue-making objective is to avoid unnecessary costs. Don’t forget to download our free guide on preparing your place for the STR business.

If this feels a bit overwhelming, or you already have a checklist that’s longer than hours in the day, check out PerfectPrice.com. With seamless integration, you can see price recommendations 2 minutes after you sign up, have access to AI-generated comp sets, and really take control of your revenue management. 

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