PRICING YOUR PROPERTY THE SMART WAY

The most important thing to understand is that the price per night should not be fixed. Don’t get it in your head that “My apartment is worth €80 per night” and then stick to it like glue. To get the most value from the property you must be flexible. That is why pricing must be dynamic. Dynamic pricing always varies with the demand.

My dynamic pricing strategy shouldn’t be mistaken for Airbnb’s Smart Pricing option. Smart Pricing lets you set the minimum and maximum you want to charge per overnight stay. For example, I might set from €20 to €60 per night and then in theory Airbnb optimizes the prices according to the current demand. This should be selling in the best interest of the host. However, in practice, the lowest set price is the price being offered. This is not in your best interest. From Airbnb’s perspective, they just want to close the transaction between guests and hosts rapidly and earn their commission. The difference in the amount of commission they earn between the lower price and the higher price is negligible and they process thousands of similar transactions. Their profit isn’t impacted much by the lower price. However, the host is impacted by the full price difference and this makes a major impact on their profit. Not only is the individual rental amount significantly lower, it affects more transactions. That can spell disaster to the bottom line.

My semi-automatic algorithm operates in the best interest of the host. I recommend you read and follow it.  The Smart Pricing option should be kept locked away where it cannot harm you.

Another thing to keep in mind when it comes to prices is that it takes time to get established on Airbnb and realize the profit potential. Depending on the location, the apartment, and luck this could take anywhere from 3 to 8 months or even a year.

I always start with lower prices in the beginning to be competitive with other similar quality properties that have many 5-star reviews. That’s because guests tend to book with a proven apartment and an experienced host unless I give them an incentive to book with me.  My incentive is a lower price. Thus, the traveller is lured into taking a risk with our apartment.

In the beginning, as I operate at lower prices, I am accumulating the good reviews necessary for success. This raises my listing’s rating on Airbnb. As a result, when searching Airbnb for Sofia, my property climbs up in the results. If everything goes according to plan, I become the number one listing in my target neighborhood and maybe even one of the top ten in the city. The goal is to keep the calendar for the property fully booked one month in advance.  This goal is completely attainable by following the recommendations in this book.

What is Airbnb’s pricing?

There are several elements:

• Price per overnight stay (a price we set)
• Price for Cleaning fee (a price we set)
• Booking fee for hosts (what Airbnb charges you)
• Booking fee for guests (what Airbnb charges the guests)
• Deposit made by a guest.

Number of overnight stays х price per evening + Cleaning fee = booking total.

Airbnb charges the guest booking fee directly to them. Before a pay-out to a host, Airbnb applies the host fee. Airbnb takes ~17% commission in fees from the guest and about 3%, from the host. The total commission is about 20% for the transaction between a traveller and a host. Business is good!

My semi-automatic price adjusting strategy

One of the keys to my success as an Airbnb host is always to maximize the amount of money I earn per each stay while keeping the property occupied. I do this though a dynamic pricing strategy that is very easy to implement. My price adjustment process only takes less than two minutes per listing per week and produces great results.

1. Every Monday I open the calendar for the property and review the existing bookings.
2. If in the next week or two I have empty days, I decrease the prices just a bit. Sometimes I follow the optimal price advice provided by Airbnb. These tips are located to the right of the calendar with in “Pricing tips”. Too often, their prices are too low in my opinion. So, instead of using those prices, I use them as a baseline and slightly increase them. For example, if Airbnb recommends €32 per accommodation in Sofia, but I know the apartment can garner €5, I do not go below this price. This is the discount I provide only for the available days in the coming week or two. I don’t want to miss those days. It is better to get €42 EUR for two nights stay plus the Cleaning fee. That generates around €100 in two days, instead of asking €50 per overnight stay and having the apartment sit empty. Remember, one of the keys to success is never have an empty overnight stay but still earn your set minimum price per overnight stay. Setting a minimum protects me from undesirable tourists. By this I mean hipsters that usually sleep in hostels but will grab a cheap Airbnb if they can find it.
3. For the available days in the immediate future, I decrease the prices. I am careful about Fridays and Saturdays because these are popular days and should be priced accordingly.
4. For the days further out, I can set even higher prices. I take a risk and set a price of around €60 per evening for stays that are three months out. In the event someone decides to book, this makes a nice profit. Thanks to my habit of reviewing the calendar every Monday, my higher price will gradually start to decrease if days are still available in the calendar.
5. This is why it’s important to understand that the fixed price set during the initial Airbnb set-up is the optimistic price per overnight stay. Optimistic, but realistic too. It should not to be too high, because when someone searches for an overnight stay without entering specific dates this is the price displayed. If your price isn’t competitive with the other listings, you won’t capture the guest’s interest. If on average I am selling overnight stays in the next two weeks at €30, and in the mid-term (1 month) at €39, and in the longer term (over a month) for around €45 – €49, I would set the basic price at €39.

Why Monday? Monday is best because most often people arrange their trips and make their bookings during the weekend when they have more free time. So, by reviewing on Monday I know that whoever was booking over the weekend has already viewed my property. On Monday I get the most current picture and know where I need to act to optimize the price. It’s not necessary to do this more than once a week. On the other days, let search do its job and you do something else.