How to Price Your Airbnb

One of the first questions almost every single Airbnb or STR owner asks the second they get into the business is “How much can I make from my property?”. While that question is a little bigger than this article, and fundamentally comes down to the basic STR formula (nightly rate x occupancy = revenue), today we’ll be addressing the first part of the formula: nightly rate.

Despite the desires of most owners, it’s impossible to give any hard and fast rules about revenue per number of beds or square footage. At the end of the day, these are going to vary wildly based on location, property condition, decor, amenities, etc. A property on a beachfront might bring 4x the revenue of an identical one 100 miles inland in a run-of-the-mill suburb. That said, there are some basic strategies you can use to make sure that you’re maximizing the potential of your given property.

We’ll cover the specific mechanics of pricing in this article, but check out our other posts on keys to maximizing your property and unique stays for ideas on how to optimize the property itself.

Understand Your Economics

The first and absolute most important thing when approaching pricing your STR, and evaluating it in the first place, is the property’s basic economics. As an owner, you need to have a bulletproof understanding of what your baseline is for your property. Without this, you’re flying blind with your pricing, and could end up either leaving revenue on the table, or offering some bookings at rates that don’t actually make you money.

Obviously, you never want to set your rates so low that you’re losing money, so knowing what your floor is, and never going below it, is extremely important.

Some specific questions to address: What is the bare minimum you need to make on your property each month? Can you just focus on annual revenue instead? What’s the bare minimum price for which it’s worth renting your property for a night that otherwise wouldn’t be booked? How is this affected by different lengths of stay? What are the variable vs fixed costs for the property? How much will you spend on things that need replaced, serviced, or cleaned after a certain amount of use?

This is going to look different for every property, so you’ll need to spend some time getting to know the property’s ins and outs to make sure you have a good grasp on it.

Pull Comps on Your Area

When starting out either researching an area to model potential returns, or getting a starting point for the listing price of your property, the best place to start is by pulling some comparisons in as close a geographic area as possible to yours.

This can be done manually, by scouring Airbnb listings in your area across different dates, or much more accurately by platforms like AirDNA or PriceLabs. These platforms access databases for you, and pull metrics like estimated occupancy rates to give you a much more accurate picture of the performance potential of a given property.

An extremely valuable additional resource is other owners in your area. This is irreplaceable, and can give you context for really understanding what the dynamics in your geographic market are.

An easy way to do this is to simply reach into your local network and talk to people you know who own STR’s. Additionally, if you’re in an area that has a developed STR marketplace, there may also be virtual or IRL owners groups you can join. These groups can be invaluable for understanding your area and making sure you don’t jump into something without first understanding.

There are also a number of additional considerations to take into account apart from general geographic area. For example, a ski-in property in a resort town is always going to command more than a property half a mile from the slopes in the same town. Similarly, beachfront property on the Florida coast might command a much higher rate than even similar “waterfront” property that’s on a bay or inlet.

You’ll need to get an understanding of these types of factors in your specific area to make sure you’re looking at truly comparable properties to what you have, and not something that doesn’t fully compare.

Once you’ve done this, you should have a reasonable range of what you can expect to start your property out at (for example, $150-$200 a night). Keep in mind, newer properties will need to start at the lower end of the comparable price range due to lack of reviews, but can quickly build up. Also, comparison-based pricing is ideally just a starting point. Read more to understand how to adjust prices moving forward.

Manage Pricing Dynamically

Once you actually have pricing live, and are getting bookings, you quickly want to start getting reactive with your pricing. The basic principle here is that certain weeks or times of the year are going to have much more demand, and others are going to have far less. For those peak weekends, supply is going to be limited, and much higher rates can be commanded.

Basically, what you want to do is respond to the demand in the market by raising or lowering prices down to specific nights as demand dictates. The most basic level of this is having higher weekend rates, something almost all property managers will do.

The easiest way to do this by far is going to be with a pricing software, like PriceLabs, or Beyond Pricing. The cost tradeoff is easily compensated for by the increase in revenue from intelligent price management. These software tools allow you to set minimums and maximums per night, as well as rules such as discounting as you get closer to a specific time slot, and will automatically dynamically increase prices for weekends where peak demand is projected.

For example, maybe there’s a huge concert or festival in town. If you’re managing pricing manually, you may or may not know about it far enough in advance to increase your prices in response to the demand. A software, though, will see the demand spike in the platforms, and automatically respond, without need for input from you.

A good measure of whether your prices are too low is how far out your properties are booked. While there will always be outliers, like people booking family vacation 8 months ahead of time to make sure a week works for everyone, you shouldn’t be fully booking many months in advance. If you have peak months that are fully, or even mostly booked 6 months in advance, your prices are too low.

Address these specifics:

As you develop your pricing management, here are a few additional specific considerations to take into account, and potentially adjust pricing for.

Peak and holiday weekends: this may be due to an event in town, or just holiday weekends, but for most places, there’s going to be increased demand for holiday weekends like Labor Day, July 4th, etc. Make sure your pricing plan is in place well ahead of time.

Last minute bookings: It’s a good idea to set rules to progressively lower pricing as unbooked time slots get closer. For example, dropping 10% in price 6 weeks out, and an additional 10% 3 weeks out.

Orphan days: some owners choose to offer special rates to try to fill midweek single or multi-night blocks between different stays. This can be a good way to fill otherwise unoccupied time slots. Most pricing softwares will allow you to set amounts to discount for these times.

Mid week: There’s multiple ways to address the dreaded mid week empty slots. Lowering prices for orphan days, as addressed above, is often a good one. Some owners though, especially in heavy vacation markets (beach towns etc.), will actually allow only weeklong bookings. This can be a good option, but only in specific markets where travelers are already doing a lot of weeklong stays, so be careful with this one.

As should be clear by now, the question of how to price your Airbnb isn’t a simple one. There’s a number of considerations, and it takes some work to understand your property, your area, and your guests to ensure you’re managing your pricing well. That said, pricing is a very significant lever in the overall performance of your property, and can have a massive impact on bookings and revenue, so getting it right matters.

As always, if you’d like some help pricing or managing your property, get in touch with us, and we’d be happy to talk.