Even if you decide to use any of these pricing alternatives, going through the process of determining how much to charge for your place is still a worthwhile exercise to undertake. You will familiarize yourself with your local competition as well as sanity-check that any price tips provided to you are more or less aligned with what you know the opportunity to be.
Pricing your place on Airbnb is a 5-stage process:
Each of these steps is broken down in greater detail below…
Step 1: Researching Your Local Competition
Truly successful Airbnb hosts possess a thorough understanding of their local competition and the prices they’re able to command on Airbnb.
These hosts are aware of supply and demand in their local area at different times of the year and take advantage of this knowledge to maximize their earning potential.
The default nightly price tip provided to you by Airbnb upon listing your place was calculated using a limited number of factors. Factors considered include things like your location, the number of bedrooms and bathrooms, the type of property you have, what amenities you’re offering guests within your space and the number of guests it accommodates.
Whilst criteria like these may seem like they cover a broad range of variables able to pigeonhole you with other comparable listings, this is unfortunately only partially true.
Think about what all the 3 bedroom, 2 bathroom apartments look like in your city: You’ll have luxury apartments, run-down apartments, flashy new apartments in run-down areas, and shabby old apartments in glamorous neighborhoods. There are natural limits on Airbnb’s ability to find listings that are truly comparable to yours, without knowing more about your place. No two listings are exactly the same despite commonalities that may exist between them.
Your goal in researching the local competition is to better understand comparable listings in your local area to determine the optimal amount you’re able to charge for your place.
Very shortly you’ll be able to answer the question: What is my place worth at different times of the year?
Getting this even slightly wrong can represent the do-or-die difference between success and failure on Airbnb – especially for new hosts.
To begin, draw a simple monthly table like the one on the following page (or click here to download one):
The next thing you’ll want to do is step into the shoes of a guest that’s looking to find a place on Airbnb just like yours.
To do so, hop onto Airbnb and do a search as if you were a guest trying to find a place in your neighborhood. Be as specific as possible when entering the location (for example, enter “Gramercy Park, New York” instead of just “New York”).
For the dates, select check-in as the 15th January and check-out the 16th January (i.e. the middle of the month). Once Airbnb display your search results, work through the different search filters presented to you (above the listing thumbnails and below the search bar at the top). Select all the filters that are applicable to your listing. For example, if you’re going to Airbnb your entire three bedroom, two bathroom apartment, then select “Entire Home” for Room Type and “3+ Bedrooms” and “2+ Bathrooms” for Rooms and beds:
Also select any amenities, facilities or other relevant filters that help categorize your listing with other like-for-like listings.
From the results that Airbnb now present you with, there are two critical pieces of information you’ll be interested in:
1. Average Nightly Price
In the example above, we can see that the average nightly price is $891. The graph also illustrates the distribution and concentration of prices across available listings.
However we can also see that this figure includes “outlier” listings on the expensive (right) end of the displayed price range graph. These expensive outlier listings are significantly more expensive than all the other listings to their left. There are also two outlier listings on the cheap (left) end of the price range graph too. These cheap outlier listings are significantly cheaper than all the other listings that are to their right.
We’ll want to exclude outlier listings – both expensive and cheap – since they disproportionately skew the average nightly price of the neighborhood.
To do so, move the minimum price circle (on the left) to the lower end of the price range graph to exclude the cheaper outliers, and move the maximum price circle (on the right) to the upper end of the price range graph to exclude the expensive outliers:
The average* nightly cost is calculated as the: [ (new minimum price) + (new maximum price) ] / 2
In the example above, the new minimum price is $214 and the new maximum price is $270.
The new average* nightly cost is therefore ($214 + $270) / 2 = $242
*for reasons of practicality, the term “average” has been used instead of “median” for nightly cost.
2. Available Listings
At the very bottom of the search results page, Airbnb will tell you how many listings match your search with the filters that you specified.
In our example, Airbnb tell us that the number of available listings is 66 rentals:
Do not worry about removing “outlier listings” here – it is far less important than it is to determining the average nightly price.
What do we learn from these two pieces of information? That in your local neighborhood (in the middle of January 2018), there are 66 comparable listings to yours, and the average nightly cost for those listings is $242.
You can now populate the first two columns in the first row (i.e. for January) of your research table with those figures (ignoring the last two columns for now):
You’ll need to do this 12 times – once for each month of the year. This way, you make sure that the prices you determine account for variation across different months (this can have a big impact for locations that have wide seasonal travel fluctuations throughout the year).
To do this, simply update the dates of your search on Airbnb to the 15th of each month, and repeat for the months of February – December, repeating exactly what you have just done for January:
Once you’ve repeated this 11 more times, you should have a table with the first 2 columns complete. It should look something like this:
It’s now time to work out the average (bottom row). To do so, add the figures for each month and then divide by 12 (again, you can ignore the last two columns for now):
Your next goal is to move away from just understanding your competition to determining the optimal price to charge for your place for each month of the year.
You may be wondering: Why don’t we just take the average nightly cost (as it exists in the current table) for each month?
Whilst there’s nothing stopping you from doing this, you ideally want to make pricing adjustments that reflect supply and demand of available listings at different times of the year: More available listings means more guest options, and you should therefore charge less (since supply is greater than demand). Fewer available listings means there are less guest options, and you can therefore charge more (since demand is greater than supply).
Whilst it’s entirely up to you how much more or less you believe you should charge, a good framework to use is:
So if we use our example, the adjustments are going to look like this:
Or more practically…
With this, we’re now able to populate the New Average Nightly Cost column. Using our example, it’ll look like this:
Congratulations. You now possess a much more accurate base nightly price for each month of the year. Next we’ll be populating the final column with strategic discounts and moving away from “one-size-fits-all” pricing…
Step 2: Moving Away From One-Size-Fits-All Pricing
Having a single, year-round price for your place almost always represents a missed opportunity. You will inevitably be over-charging or under-pricing at any given point in time.
With this step, you’ll be using the information you just discovered through researching your local competition (Step 1) to make monthly adjustments to the default nightly price you currently charge year-round for your place.
If you’re a new host, before updating your monthly prices, you’ll also want to consider making strategic discounts to the figures you’ve just arrived at from Step 1. This is because guests are more comfortable to book with hosts that have a proven track record on Airbnb. As a new host, you have limited options for getting around this.
Offering lower prices to attract guests is one of the few tactics new hosts are able to use to go head-to-head with more established existing listings.
New hosts are advised to reduce their prices until a time that they’ve built up enough of a track-record on Airbnb to return to prices that don’t need to be strategically discounted.
New hosts should discount their prices anywhere between 20-40% until they have at least 5-10 positive guest reviews. These discounts will prove a small price to pay to speed-up your success on Airbnb. The additional profits you’ll subsequently make will cover (many times over) whatever short-term losses you incurred to get you there.
Assuming we applied a 30% discount to the previous example, our new temporarily-reduced figures will look like this:
In this example we see that after applying the temporary 30% discounted rate, our new average nightly cost for the entire year is a figure of $160. For the month of January, it is $153.
If you’re not using Smart Pricing, you’ll want to update the pricing on your calendar to reflect these new average nightly cost figures (that include the temporary 30% reductions if you’re a new host) for each month of the year.
To do so:
Repeat this 11 times – once for each remaining month of the year.
Once complete, you will have successfully shifted from a one-size-fits-all pricing strategy to one that optimizes your month-by-month earning potential.
Step 3: Increasing Prices for Times of High Demand
We’ve just seen how it’s possible to develop a more granular pricing strategy that reflects your ability to command different prices for different months of the year. You’re still able to take this one step deeper.
There may be specific days or weeks where your city or local area is more popular than at other times throughout the year. Examples include sporting events, conferences and conventions.
Airbnb offer the ability to set custom pricing for these special dates.
During these times, you’ll be able to charge more for your place than other times of the year. To do so, you’ll need to have researched key events that are happening in your city or local area to identify what they are and when they’re happening.
These events will be like honey to the bees for drawing in more tourists and travelers. And when they arrive in your city, these travelers are all going to need somewhere to stay – meaning that demand will be pushed up whilst supply (hotels, other Airbnb homes, etc.) will remain fixed.
In short, you’ll be able to charge more for your place.
o how do you go about identifying the times when this will be possible? A basic Google search should do the trick.
Searching for something like “key events in [your city] [current year ]” or “annual events in [your city ]” should bring up a few different pages with useful information.
Below is an example for New York City:
You could theoretically search for events forever, listing out every single event, both big and small, for an area as localized as your immediate neighborhood through to national holidays celebrated country-wide.
To maintain relevance, try keeping this list useful but practical by compiling a list for the top 10-15 key events that you believe are most likely to impact supply of short-term accommodation options for areas in and around where you live.
It’s important to remember that custom weekly and monthly prices will override your normal nightly, weekly, and monthly prices; as well as any other custom nightly prices you’ve saved on your calendar.
If you’re unsure how much more you should (or could) be charging for times of special events, a good little trick is to check out how much more hotels are charging for the same time period. You won’t necessarily be copying their exact prices, but you may wish to replicate similar price pattern increases for the amounts you already regularly charge.
When it comes to custom pricing for local events like a conference or festival, it’s important to become aware of these sooner rather than later and stay one step ahead of the game. Guests looking to attend these events will often try lock in their accommodation well before the actual event or its immediate run-up. If you increase your prices after they’ve already booked, you’ve missed the opportunity to charge more for your place.
You should aim to lock-in custom price increases for key events 6-12 months before the event actually takes place. This is why conducting event research as early as possible is so important.
Using the example from the previous table, the New York Fashion Week is happening from 11-18 February.
If we lived in New York, we may wish to increase our prices for those dates knowing that there will be a greater demand for Airbnb listings in New York that week.
Before increasing your prices for a specific event, it’s important to make sure that the sort of guests likely to attend the event are guests that would actually be interested in your place. For example, if you’re offering a shared room in a non-glamorous neighborhood on the outskirts of the city; a custom price increase for the New York Fashion Week probably isn’t for you.
To customize your pricing for a specific (set of) night(s):
Step 4: Offering Long-Term Discounts
Airbnb provide the ability to offer long-term discounts that encourage guests to book longer reservations by offering a weekly or monthly discount.
It may seem counter-intuitive but sometimes charging less for your place on Airbnb can net you more profits than charging more.
Offering weekly or monthly discounts may be a great incentive for guests requiring a long-term accommodation option.
You may lose a few dollars for each night of the booking, but potentially gain a longer-term and more lucrative guest.
This is especially so when the guest is open to the idea of an extended stay.
Consider the following example scenarios – one where a weekly discount is offered, and one where no weekly discount is offered:
As you can see, when the host in Scenario 1 offers a 10% weekly discount to guests, they were able to attract one additional weekly stay in their place. This ended up scoring Host 1 an additional $490 in monthly revenue.
Guests are enticed by discounts, and are more likely to book places that offer them reduced rates.
As well as making your place appear cheaper than others being considered, long-term discounts also promote longer stays which have the added bonuses of optimizing your occupancy rates and lowering individual stay overheads too.
When used correctly, long-term discounting has the effect of making you a more profitable host on Airbnb.
Weekly discounts will apply to the entirety of any reservation for 7-27 nights. Monthly discounts will apply to the entirety of any reservation for 28 nights or longer. These discounts will apply even if you’ve set a one-time price for a specific week or month.
For any additional nights beyond a week or a month, the discount will still apply to the additional nights beyond the single week or month. For example, if you set a base nightly price of $100 and offered a 10% weekly discount, then a 9 night reservation would be calculated as 9 x ($100 – 10%). It would not be 7 x ($100 – 10%) + 2 x $100.
When guests make a long-term reservation request they will see your discount in their price breakdown.
An added benefit of setting a monthly discount rate is appearing in long-term searches (of 28 nights or more), which is only possible for hosts that have offered a monthly discount.
If uncertain of how much to discount your place for long-term stays, do a search for comparable listings in your local area and look at the weekly and monthly discounts offered by these other listings (try find “established” listings with 15+ reviews).
Airbnb also offer discounting price tips based on your listing’s features and amenities, location, booking history, availability, and seasonal supply and demand in your area.
To set your weekly and monthly discounts:
- Login to Airbnb
- In Hosting mode, select Listings from the top navigation bar
- Click on your listing
- Click on Pricing from the menu at the top
- Click the Edit button for the Length-of-stay discounts section
- Enter your weekly and/or monthly discounts into the Weekly and Monthly input boxes
- Click the Save button
Changes may take up to an hour to appear on your public listing page.
Over time and with trial-and-error, you can experiment to see the impact higher and lower long-term discounts have on your bookings. When starting off, opt for larger discounts if in doubt.
Step 5: Adding Extra Fees
Airbnb allow hosts to add an extra fee for weekends in light of the fact that more travelers travel on these days. This means there’s more demand, less supply and therefore justification for why you’re able to charge more for your place.
When enabled, weekend pricing replaces your default nightly price for every Friday and Saturday.
Weekend pricing should be reserved for listings that receive an increase in travel on weekends. If your place receives travelers fairly consistently across the entire week, then the higher prices that come with implementing weekend pricing may actually serve as a disincentive for guests considering booking your place when less expensive alternative options exist.
Again, there is no prescribed figure you should use when it comes to increasing your prices for the weekend, however a 10-15% increase on your regular weekday rate is seen as a common and acceptable amount.
For a more accurate idea, conduct a search on Airbnb for listings in your area to see if, and how much more, other listings charge for weekends. Similarly, you can also search online for local hotels to see if they increase their prices for weekends – another good indication that it’s safe for you to do so too.
Remember that it is a dollar amount (not percentage) that is specified for weekend pricing.
To add a weekend price to your listing:
Hosts have the ability to charge a fee to each night of a reservation for additional guests.
You specify the amount for each additional guest, as well as define the number of guests required before the additional guest fee kicks in:
The additional guest fee will then apply for each additional guest for each night of the booking.
The benefit of using the additional guest fee is that you’re able to offer your place at a lower price and only charge more for bookings that actually require a higher guest count. In this way, it has the potential to make your place appear cheaper to smaller parties looking for a place to stay.
The downside of using the additional guest fee is that it is difficult to enforce in the absence of you being there at check-in to confirm the number of guests actually arriving for a booking. Some guests also interpret the fee as being indicative of an overbearing host which may serve as a disincentive for booking your home in the first place.
It is therefore important to weigh up the pros and cons of using the additional guest fee for your place. This decision inevitably involves considering who your target guests are and what kind of space you’re offering on Airbnb.
In the U.S., additional guest fees typically range between $10 – $25 per night per guest.
To add an extra guest fee to your listing:
- Login to Airbnb
- In Hosting mode, select Listings from the top navigation bar
- Click on your listing
- Click on Pricing from the menu at the top
- Click the Edit button for the Extra charges section
- Enter your extra guest fee into the Extra guests input box
- Select the number of guests after which the extra guest fee is to apply
- Click the Save button