Before anything you need to understand what you are up against
The short-term property rental market and the hotel industry have been in constant flux ever since sites such as Airbnb have disrupted and transformed the way guests and hosts interact. Airbnb itself has become increasingly popular thanks to its user friendly platform and its extensive marketing campaigns but also because guests are increasingly looking for alternatives to pricey hotels. Airbnb offers an alternative that is cheaper, more personal, more spacious and more private so it's no surprise demand for such listings have shot up. The increase in demand has so far been reasonably matched by supply in big cities such as London which has led to a very large and diverse selection of listings for guests to choose from at very reasonable rates.
As you would expect working out the right pricing strategy plays a key role in determining how competitive your listing will be and ultimately the number of bookings you will be able to generate as a host. For this reason it's worth spending some time developing a strong and efficient pricing strategy that will aim to maximize bookings while at the same time maximizing profits.
How to come up with the right pricing for your Airbnb listing
Pricing your listing correctly is one of the most important but also challenging things you will have to do when it comes to setting up your listing on Airbnb. Coming up with the correct price can be a somewhat tricky process, there are so many factors to take into account that it can be very difficult to come up a value that you feel is correct and in line with demand. We've put together a list of best practises and a few tips to follow so that you end up with a pricing strategy that is easy to put together and will hopefully help you as host generate the most bookings while at the same time maximizing profits.
Step 1 - Figure out the lowest price you can go to cover all your costs and expenses
A good place to start is to figure out the break-even value for your listing which is the value at which all expenses are covered. Once you have figured this out you can work out how much actual profit you will be making on your rentals. It's also a useful number to know when guests are asking for discounts, that way you will have a better idea how much of a share of your profits you will be giving away. To work out this value simply calculate how much you are spending per month on all the bills and extra expenses, don't forget to include water bills, gas, fuel, house cleaning, mortgage payments, repairs, Airbnb fees, etc. as well an estimation of taxes that will have to be paid on the revenue made from your future rentals.
Once you have a value per month take into account that even if you are fully booked it's likely your property will be sitting empty for a few days between rentals. Lets assume the listing will be occupied for 25 days each month. The next step is to divide the monthly expenses/costs by 25 which will give you your break even value per day, anything you make on top of this value is profit. Take into account that if your bills vary a lot depending on the season it could be an idea to work out the break even value for each month individually.
Step 2 - Compare and contrast with other similar listings in the same street and area
The easiest way to go about comparing yourself to the competition is to enter the name of the street your property is located on in the Airbnb toolbar. Don't put any dates in and press search. At this point zoom in to your street and look at the other listings available. Click on the listings that have more than 10 reviews if there are any and have a look through their yearly pricing by looking in their calendar.
We'd recommend that at this point you create an Excel spreadsheet to put in all the data that you are about to collect. The things to make a note of are the average pricing people are charging per week, the occupancy rates, if they are offering weekend pricing and the discounts they offer per week and month. Also make a note of what each listing has that is unique and would justify it being able to charge higher prices. Once you have gathered the data for at least 5 similar properties to your own you can make an estimation of what you could be charging for yours. Take into account the extra features and qualities your listing has to offer when compared to the competition as well as the competitors additional features that might justify them charging a higher price.
When you are carrying out your research you will likely realise how little effort hosts put into pricing their listings correctly. Very often a single value is used throughout the whole year which will mean they are likely missing out on potential earnings throughout the year.
Step 3 - Research other factors that will influence the price throughout the year
Some of the most obvious things to look into are the different holidays throughout the year, events and concerts in your local area or town, all of which you can find out in your local tourist office.
Step 4 - Develop a pricing strategy that you feel is suitable for your listing
Using all the information you have gathered develop a price for each week and month that you feel adequately reflects what you have to offer. A few things to look at closely are:
1. That you are competitively priced when comparing yourself to the competition
2. That the price reflects demand - pricing lower in low season and higher in high season
3. During the low season price yourself slightly below the competition
4. That your pricing reflects the extra qualities and features your listing has to offer
Finding a price that is at the same time realistic and reflects what your property has to offer can be a really challenging process. It's simply impossible to take all the factors into account. A very useful experiment is to imagine yourself as a guest that would be looking to book your listing, take into account what the competition has to offer, what the area itself has to offer, the nearby transport links, the extra features your listing has to offer and ultimately come up with a price that you feel reflects those characteristics. If your area is popular in high season assume that demand will be there so don't hesitate in pricing yourself above the competition if you feel your listing is worth it. In the low season consider pricing yourself around or below the competition as guests tend to be more price conscious when they compare property listings.
A quick note on Airbnb's suggested prices
Airbnb has developed algorithms to determine a recommended price for your listing which takes into account multiple factors and influencers. Although pricing using this suggested price is extremely straight forward it does not necessarily mean it is the best option. The issue that very often arises is that even though the suggested pricing can be spot on it can also be completely off and well below the actual value of the property. Their pricing tends to be below the going rates which will of course generate larger numbers of bookings but will also mean you might be missing out on some well earned income. We'd recommend taking it into account when creating your own pricing strategy but maybe don't follow it to the letter.
Step 5 - If you have just signed up to Airbnb price yourself a little lower
One of the downsides as a new Airbnb user is that you will be lacking reviews from guests, it might seem like a minor detail but in the world of Airbnb it will have big consequences on the number of bookings you will be able to generate. This said Airbnb does push new listings that are added to their platform for the first month, this helps new listings generate much needed bookings and generate reviews. We'd highly recommend that to maximize your presence online and make a name for yourself start off by pricing yourself below your own estimated price. Price it so that if you compare yourself to other similar listings you come across as very competitively priced. Guests are normally highly reliant on reviews when they are making up their minds on Airbnb and a lack of these normally requires a lower price for guests to consider it. Once you have generated a number of bookings and have gained a number of strong positive reviews don't forget to put your prices back up to your original market value prices so that you are not missing out on that extra income you could be making.
Step 6 -Keep an eye on your pricing at all times
It's very important to keep an eye on your pricing and to keep it up to date and current, once every so many months have a look at your competitors pricing and compare it to your own. Also try to keep an eye on the general market trends, the demand levels in your area and reviews from guests, these are all factors that can help opitimize your own pricing strategy.
Extra tips that can help develop a more complete pricing strategy
1. Do everything you can to make your listing attractive
This is often overlooked but it's very important to remember that guests only have the pictures and short description to help them decide on booking with you or your competitor. Do all you can to highlight the positive aspects of your listing and of course opt for the free Airbnb professional photographer.
2. Consider putting in weekly and monthly rates to encourage longer bookings
Longer bookings might mean lower earning potential but they are a much safer bet especially if you are starting off on Airbnb. Medium to long-term bookings will also normally mean lower wear and tear and no extra effort for check-ins, cleaning, etc. To get those long-term bookings its worth offering a discounted weekly and monthly price. It would means less stress, management and uncertainty on your part as a host. To do this simply set weekly and monthly discount rates in the pricing section, we'd recommend putting in a percentage value rather than an actual number as the pricing will be different throughout the year depending on demand.
3. Consider lowering your price over the next week or two weeks if the property is sitting empty
Even though you might not make a profit this way it's always a good idea to try and earn the minimum so that you are not making a loss. The thing to look out for here is to make sure you vet your guests properly, offering a lower price might attract more students that are down for the weekend and might be less respectful of your property than a family on a week long holiday.
4. Charge a cleaning fee and a deposit
From the point of view of a host it makes more sense to charge a cleaning fee and a deposit, this way you won't have to be digging into your profits to pay for the cleaning. Always charge a deposit to cover any potential breakages, no matter how careful guests are there is always a chance something will get broken.
5. Set the Airbnb base price at the lowest price you are asking throughout the year
This is often overlooked but the base price comes up when guests are looking at your property. This is a value that you can use if you wish to set the price throughout the whole year at a set price. We'd of course recommend setting different prices depending on the season and demand levels. In any case set this value at the lowest amount you will be asking throughout the year which will look more attractive if guests are looking at your listing. Once guests enter in the exact dates the actual value will come up for that period which might be different to the base price you have set but hopefully by that time the guests will have fallen in love with your listing and be ready to book!
Don't have the time to manage your pricing strategy? We'll manage it for you!
At Bedspoke we manage the whole process in short to medium-term property management, from welcoming guests and handing over keys to managing enquiries, managing the cleaning and being available at all times in case there is an emergency. One of the bespoke services we offer is to manage your pricing strategy wherever you are, we carry out the research and update the pricing on an on-going basis so that it is up to date and ensures that your rentals attract the most guests while at the same time maximizing your income as a host. Check out all of our services on offer here at Bedspoke.