Dynamic Pricing: The Number One Way to Maximize Rental Revenue
Getting ready to list your home or second property as a vacation rental takes planning. In addition to the logistics of prepping your space physically, there are all the little details to figure out, including the most important one: how much to charge per night.
When it comes to pricing your Airbnb rental, what should you calculate? There are fixed costs to keep in mind — mortgage payments, property taxes, cable fees — and monthly variables like electricity and gas to budget for as well.
If you’re looking to break even, you can set yourself a flat, static rate based on those factors, list your property on the big vacation rental sites, and hope for the best. By calculating a low nightly rate, you could easily have 100% occupancy if your listing is cheaper than others in your area. But you won’t be making extra cash and will miss out on possible revenue during high demand travel times.
When it comes to pricing your rental, consider how the two biggest players in the travel industry — airlines and hotels — manage their pricing. By dynamically changing their prices every day, they capture more bookings. And not just any booking, profitable bookings. This is a great strategy for a company, but since you’re just one person, how can you keep up with the ever-changing market? Unless you love math and have the free time to crunch numbers, you probably need a bit of help.
Option 1: Airbnb’s Smart Pricing Tool
Airbnb’s pricing algorithm has one goal: to get as many guests booking on Airbnb as possible. They’re competing with platforms like Expedia, Booking.com, and others, so what’s the best way to compete? Offer the lowest prices to get the client! That’s great for the client, but not for you!
Airbnb’s smart pricing tool does take away the stress of crunching numbers yourself. It changes your listing price based on factors that it calculates behind the scenes, which is great. A company of that size is happy keeping properties full — even if it means pricing your $250 per night property at $90. But what is important to you? Would you rather have your condo booked half of the year at $200 per night all or a full year at $90?
Option 2: Dynamic Pricing
Dynamic pricing is the option you should go for. On the surface, dynamic pricing and Airbnb’s brand of smart pricing may seem the same — both change the price of your rental based on market factors. Dig a little deeper, however, and you’ll see that dynamic pricing works differently.
Let’s say, for example, that you’re listing a relatively new condo located downtown in a major city. The condo is a block away from the subway and within walking distance of trendy bars. How do you price this listing?
Static pricing: you calculate the monthly expenses needed for upkeep, add a profit margin (around 15%) and list for a middling nightly rate. Your profits are alright during peak season but barely worth the effort in the off-season.
Seasonal pricing: Instead of having one price year-round, you price your property according to the season. Likely a higher price in summer and a lower one in winter. While this method is certainly better than a flat fee year round, you are ignoring high and low demand periods within the season. Weekends? A large conference in town? A special event in your area? Lower than expected demand due to weather? All those are things that seasonal pricing fails to consider.
Smart pricing: Airbnb calculates that in your city, a number of downtown listings sit empty at your preferred price point, and sets your nightly rate lower. However, the listings that sit empty are in areas that aren’t accessible by public transit and are less desirable listings. Despite these listings not being your direct competition, Airbnb places you among them, driving down your revenue.
Dynamic pricing: Supply and demand, upcoming special events, historical trends, day of week and time of year are all calculated in real time, giving you the best possible rate for your listing. You can truly maximize your peak season rates if you base yourself on accurate calculations, considering location, demand, booking windows and many other factors.
Dynamic pricing is the clear winner. It’s the only method that takes all the facts into account and helps you stay competitive without taking a hit in revenue. Static pricing doesn’t take into account the way the market fluctuates, and smart pricing doesn’t take other factors into account.
When you work with Angel Host, our dynamic pricing experts ensure your rental listing is the right fit for you, which means you can deliver better quality to your guests while making a respectable profit. Are you ready to see what we can do for you?