How to build an Airbnb business: How to Price Your Short-Term Rental Perfectly!
The hotel and airline industry have been monitoring their pricing dynamically for years; every short-term rental operator should be doing the same. The supply and demand in your market changes everyday and so should your prices, but that’s a lot of work right? Not anymore. Let’s dig into the basics of dynamic pricing and how you can automate this crucial component.
- You’re leaving money on the table if you’re not using one
- Are you pricing too high or too low?
- How do you price appropriately for events? Seasonality?
- Is your occupancy too high? Is there even such a thing?
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Welcome to short term rental riches will discuss investing in real estate but with a specific focus on short term rentals quick actionable items to acquire manage and scale your portfolio I’m your host Tim Hubbard.
Welcome back to the short term rental riches podcast today we’re going to chat about pricing. It’s super important it’s relevant to anyone with a short term rental whether it’s a vacation rental and urban rental giant mansion or small little hut or tiny home out in the wilderness price scene is important and it’s something that has really really developed over the last few years companies have come on board to specifically handle pricing.
Because it’s something that like it or not computers can handle better than we can so what is a dynamic pricing tool so essentially a piece of software with a bunch of algorithms behind the scenes that you want to connect your listing it’s gonna manage your price scene for you and that’s gonna do it as efficient as it affected as possible and a lot of these companies have that ability so that you don’t have to manually do anything you basically connect it you set some parameters and let the tool takeover and of course you want to monitor it along the way successful companies have been using dynamic pricing for a long long time take a look at the airline industry for example their pricing changes every day every minute or even faster than that probably and it’s based on a number of things it’s based on the demand how many people are looking for those flights the supply how many flights are available the time time of day time of the week dissents until that flight takes off these are all the same parameters that we can use with their short term rentals are prices should be adjusting all of the time they should not be static because the demand and the supply is always changing in the background so if you’re not using one of these pricing tools are highly highly suggest that you check some out and I will mention some of those a little later in the episode they’re very reasonably priced and I can almost guarantee you that you’re going to make more money when you start implementing one these tools hotels have been using them for a long time airlines have been using them for a long time it’s time that we use them as well really easy to get set up there several companies it basically is going to link to your listings whether it’s on Airbnb. Autumn integrate with home away a lot of them integrate with management software now specifically for short term rentals.
Basically just connect through what’s called an API that sorted developer lingo for connection between 2 pieces of software and some of the features that we’re gonna use once we have the tool connected so you can have the software program to automatically adjust for seasonality for example if you have a property in an area where seasonality has a big impact on your prices you can have this it just automatically so it’ll go higher in the background the tools going to monitor the demand how many people are looking in your area and now different pricing programs work better or have more data I should say in different areas so you know there’s some that are more focused on the U. S. some there have a bigger presence outside of the U. S. the one that I use is price labs.C. O. and I use it because I have quite a few listens down it charges per listing versus a percentage I’ve contemplated I’ve actually used to think this is this the third pricing dynamic tool that I’ve used and I’ve been really happy with them for several reasons which I’ll mention but one of them just comes down to a price I don’t really like giving up a percentage of my revenues when I don’t have to sell I like that about it and and what are some of the things that they’re doing in the background well they’re sensually scraping data from all the markets basically across U. S. that have it a decent size population and they’re continuously adding markets where they have data and they’re scraping or polling information I should say in regards to supply so how many listings are in the area how many nights get booked on average how far in advance you know all this information and they can use that to adjust your prices for you now the cool thing is you can go in and set a based. Price so let’s just say it’s 100 Bucks a night but maybe they’re seasonality or there’s some events that come in a place these these tools can also monitor for events and so let’s say and monitors and it finds in the vents and even though your base price is $100 maybe you can get $300 a night when events in town they can have the software to that for you automatically so that you don’t have to go in and adjust sees prices constantly you can change the prices are have the prices adjusted automatically for weekends so you know where my rentals are the weekends usually more occupied and they get a higher rate so I increase the average price on the weekends by percentage you can also adjust the prices based on.
The length of stay so but they have what’s called them an orphan day him what the heck is an orphan day well that’s that’s when you have 2 proteins that sandwich a day that is not booked and let’s just say it’s like a Wednesday or something you know so you’ve got a Sunday through Tuesday booked and then you’ve got a Thursday Friday Saturday and you’ve got this random day in the middle we call an orphan day in the industry and you can have the software automatically pick up on those days and discount them as well as on a day that’s likely to get books with that time span and during that day of the week so you can really adjusted and so many so many different ways another thing you can do which actually here you know I get this question more often as a as a rejection of why people don’t do short term stays you know like one night because they say well you know someone books one night 3 months from now that blocks a big span of time that someone may have booked otherwise for for more time but all you really need to do is set up a booking printer that says you know with this reservation requests is more than 2 months or 3 months in advance that the minimum night stay has to be 3 days a week or 2 weeks or whatever you decided to be and those options are available by using these we can we can increase our occupancies and we can increase the revenue that comes in but you know you can.
In this I found out I guess the hard way but I didn’t put a cap on my prices and so the algorithms picked up a really big advent and where some of my rentals are and you know the occupancy was already really high and I had people book my properties that may be gosh 34 or maybe even like 5 times the normal daily rate.
But you know what happens when the rates go up too far is that the state has to be absolutely perfect there can’t be anything wrong N. I think that there is a price it’s just too too high really so you tend to get maybe not a bad review but. You know people just aren’t as happy because there’s a value component there and if it’s a normal you know a lot of minor smaller properties it’s a smaller 2 bedroom apartment and they’re paying like a crazy price for it just because there is nothing else available it doesn’t seem like the values there it’s almost like they were forced into doing it because it didn’t have other options so there is such thing as is charging too much I guess and now on the other end let’s say your occupancy is super high you know like upper nineties and you just just year round it’s really really high what does that mean well it’s likely that you’re not charging enough.
If your properties are seen posts all time then you’re probably not charging enough and you may be leaving money on the table so by using one of these pricing tools you can experiment with that you can raise the prices slightly still keep your high occupancy button but not leave money on the table.
So you’re also going to find the schools to be really helpful when you start adding more listings or if you already have a bunch of listings managing all the different prices. Can be complicated you gotta open a listing on Airbnb for example check the prices close it down open another one and if you’re doing that you know dozens of times it’s hard to just sort of stay organized so with the tool that I use price labs I can view groups of properties so I can just filter them by city and I can see them all to glance the the base price they charge the minimum price that I charge and I think that you do you probably want to charge a minimum prices well if it gets too low you may be attracting guests that she maybe don’t want at your property in this totally depends on you know where your property is what type it is and all those sorts of things but then you can set your Max price in there so you have 3 levels and then you can also view what they call price and is like a health score so they will show your occupancy 3 days out 7 days out or 30 days out and I believe you can adjust that as well and it changes color so if it’s green everything’s good if it’s red yeah maybe need take a look at it make some adjustments so it’s really helpful for doing a lot of properties at a glance. Amy’s pricing tool they have their own pricing tool I’ve never used it personally but from what I found their prices are really low I guess my theory on that is that you know the more bookings Airbnb gets the higher revenue the company makes their maybe not as inclined or is maybe not in their absolute best interests to charge higher prices because they make it less bookings so if you’re using a third party software tool like price labs the one that I use there’s a couple others we’ll house beyond pricing.
And some of our kind of come and gone but I think those are the the most popular ones so price labs.CO wheel house were beyond pricing those are all those are all good programs have been around for a while in their third party pricing tool so there’s no real conflict of interest there I think they’re great tools I would definitely definitely check one out if you’re not using it it only takes a little set up I mean honestly like 30 minutes you can have one of these things going they’re not expensive I almost guarantee you’re gonna raise your revenue and you’re also kind of like an added benefit is that your listing is going to be updated more often because of the prices are updating every day then that’s sending a signal to Airbnb and homeaway and where we have your listing that you are managing that property maybe a little more actively than someone else and you get rewarded for that with their SCO algorithms so you may even find that your your listings are higher in their search results I think once you use one you will never go back to manually doing that you’ll stay ahead of your competition and you’ll increase your revenues and you also eliminate a job you know you don’t have to hire anyone to monitor your prices or you don’t need to go on a monitor prices you can spend as little as a couple minutes you know a day or week or however often you want just to look at a glance and know that everything is maximized in the Chernin as much as you should be in staying as occupied as possible so hope that helps and look forward to talking with you guys next.
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