Set the right price for your tourist accommodation

Many hosts, especially those who are new, will set a price for their tourist accommodation that they think is adequate and forget about it. It's the perfect formula to stop capturing the maximum benefit from your tourist accommodation. Remember that the idea is to get better bookings on Airbnb - not to always have your apartment full!

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With fixed prices, you lose money on your vacation rental

Let's imagine the case of Benicassim, a coastal town in Castellón, in eastern Spain. Simplifying, we have some key points about this city:

• High season in summer months and Holy Week
• Low season for the rest of the year
• Peak demand from July 18 to 21 –dates of the FIB festival–. The festival brings together 170,000 visitors.

And let's assume these three hosts.

• Host #1 will have a maximum occupancy rate and will have the accommodation booked several months in advance throughout the year. An inexperienced host might think they're doing well. However, the truth is that they're losing money because they could increase their income significantly during the summer.
• Host #2 will have a moderate occupancy rate throughout the year. But again, it will lose bookings during winter and also fail to maximize revenue during the high season.
• Host #3 will have a great high season because it will charge a higher price during the summer and still be fully booked during those months. However, it will be empty for the rest of the year because the accommodation price during winter is very high. The occupancy rate in winter will be greatly reduced.

In conclusion, none of these hosts are using smart strategies to price their tourist apartments to maximize the profitability of their accommodations. To adapt to demand, you need to adjust dynamic prices throughout the year. In addition, you need to consider what factors (such as location and special events) impact the demand for your tourist accommodation.

What factors determine the price of your tourist accommodation?

Demand from guests for tourist accommodations in any city is determined by three main factors:

Seasonality

The demand for tourist accommodations is not constant throughout the year. With certainty, in your area, there will be a high season and a low season for tourist accommodations.

The graph below shows the occupancy rates in 2018 for Nice, France. As you can see, demand is much higher in the summer months (July and August) compared to the lows of the winter months (November to January).

The peaks and valleys of each market are different. The most touristy locations will have a greater difference between seasons - for example, coastal areas in Spain -, compared to regions or areas with a higher proportion of business trips - for example, Madrid or Barcelona -. The latter will present more constant demand curves over time.

And even within the same city, different neighborhoods will have different seasonal patterns. For example, areas near the beach will have more demand in summer than urban centers. Knowing which situation applies to your accommodation is the first step to setting a base price on which to apply Airbnb's smart pricing strategy or dynamic pricing.

If your tourist accommodation suffers from low demand, in this post we tell you how you can also earn money with Airbnb in low season.

Day of the week

Does your area attract more professional travelers or more leisure tourists?

If the majority are professional travelers, you will observe higher demand during weekdays instead of weekends. But this factor - which affects how to determine the smart price of Airbnb - is hyper local. It not only varies from city to city, but also varies depending on the neighborhood within the same city.

Think about the case of Madrid.

The neighborhoods of Letras, Cortes or Justicia will have higher demand on weekends – they are in the city center and very close to tourist attractions. While other more peripheral neighborhoods like Plaza Castilla, Cuzco or Las Tablas – with a high concentration of offices and companies – will tend to have higher demand during the week.

Use this information to influence Airbnb's smart pricing: dynamic prices will vary depending on the day of the week the booking is made. This is closely related to how to position your tourist accommodation.

Special events

The dynamic price of Airbnb will also be affected by special events in the area. For example, large trade fairs or sporting events will cause demand to skyrocket in a very short period of time.

Again, the impact is geographically limited - usually within a few kilometers around -. Since guests want to be as close as they can to that event.

Let's think again about the case of Madrid. At the end of last year, with barely ten days' notice, it was announced that the Copa Libertadores was to be played in Madrid, instead of Argentina. Accommodations in the Spanish capital recorded a 79.5% occupancy rate, which is 5 percentage points higher than last year, when it recorded 75%, according to HOSTELTUR.

During these events, hosts can multiply their regular prices by 2 or 3. Just knowing when a major event will take place in your area is not enough to determine how much you need to adjust Airbnb's smart price. Continue reading to find out how to do it.

Cleaning expenses

Intelligently using Airbnb cleaning fees is key to maximizing the profitability of your business. In fact, you can use them to encourage certain types of bookings. We explain it to you with some examples:

• By setting high Airbnb cleaning fees you will discourage short stays. Why? Because cleaning fees are a fixed fee (regardless of the number of nights), and therefore will make the price per night of your accommodation more expensive.
• If you choose low Airbnb cleaning expenses, you will encourage reservations of a few nights - which normally imply higher costs for the host (more check-ins). Of course, you will get more reservations and reviews - and this can be your goal if you are just starting out.

How to use the price of your tourist accommodation to increase your bookings

If you have enough data, look back at your reservation calendar. You see that you have around 100% occupancy this year. Or that you have managed to have the highest price per night during the year.

Have you then optimized the profitability of your tourist accommodation? Probably not.

Low price and very high occupancy

This is a very typical mistake among new hosts. They usually focus too much on getting and maintaining a very high occupancy rate.

It's comforting to see that your tourist accommodation has been booked at lightning speed months in advance. After all, it seems like you're doing well with your Airbnb price because there are hardly any free nights.

The problem is that this intuition is incorrect. You're probably not earning everything you can.

Having a very high occupancy rate more than 4 weeks in advance means that the tourist accommodation price is very low.

And in this way you are losing money. Look at an example:

In this case, we have three hosts who are earning the same amount of money per month for their apartment. To simplify, we will assume an average of 3 nights per stay; and that each host dedicates 2 hours of work each time there is a reservation. This time includes cleaning the Airbnb, check-in and check-out, responding to the hosts, etc.

If we just look at the Income row, we see that in all three cases they are earning around 3,000€/month. However, when we include the time factor –the Hours column–, we see that Host #2, who has the lowest number of bookings (7), is making the most out of their time (214.5€/hour).

The problem with being 100% occupied is that you don't know when you could have charged more and still maintained the same occupancy rate. Let's go back to the table example. If host #1 raised the price of the tourist flat to €125/night, then they would be losing €750/month. If they set the same price as host #2, €143/night, then... they would be losing €1,300/month!

The key is that having 100% occupancy more than a month in advance is a mistake. You must try –even if you have some nights without a reservation–, to increase your price until you find the optimal occupancy rate.

High price and irregular occupancy rate

Another typical mistake of new hosts is to focus exclusively on maintaining a high tourist flat price –the highest possible–, throughout the year.

Let's see why this is a mistake with an example:

Host #1 maintains the price of the tourist accommodation at €150/night throughout the year. While Host #2 tries to balance the price of the tourist flat with a higher occupancy rate.

As you can see, even when Host #1 has a price of €150, well above Host #2 (averaging €120), the occupancy rate for the months with less demand negatively affects the income of the first host. Keep in mind that the goal is not to get more bookings on Airbnb, but better ones.

By reducing the price of the tourist accommodation during the bad months, Host #2 achieves higher income at the end of the year.

The price of the tourist flat and its occupancy rate must be balanced

The price of the vacation rental and its occupancy rate are the most important levers that hosts have at their disposal. Don't waste them. Use them to improve the profitability of your Airbnb.

Finally, if you want to start using the tourist accommodation price to maximize your reservations, you should take a look at these pricing tools for Airbnb and download for free the Airbnb financial calculator - to be able to make these estimates with your own data.

The 9 biggest mistakes when pricing your tourist accommodation

Have you chosen a price for your Airbnb and left it that way since you started? That is usually the main mistake of beginner hosts. If you're not adjusting your prices regularly (for example, twice a month) depending on the season, special events, or your competition... you're making pricing mistakes in tourist accommodations.

Not using automated pricing

There are Airbnb pricing tools that can help you achieve up to 40% more revenue. These software use algorithms that detect changes in nearby competition - and demand! - and assign the right price to optimize your occupancy rate and maximize your profitability.

The programs usually include a series of factors, such as:

• Special events
• Weekends and weekdays
• How many days are left until the reservation date
• Seasonality
• Price of nearby hotels
• Price of your competitors
• Occupancy rate

This way you will avoid the tourist accommodation pricing mistakes that we will tell you about below.

Setting a very high price at the beginning of the activity.

If you're just starting out, don't try to set the target price you want right away. The smartest way to avoid mistakes is to set your nightly price below your competition. This way you'll get your first booking sooner.

When you just start with your tourist accommodation, you have little credibility – and no evaluation as a host! Therefore, it is complicated to compete with other Airbnb with hundreds of reviews.

Set a very low price when you already have experience

Once you have obtained several reviews, you must increase your price to match that of your competitors.

Having a fully booked calendar 4 months in advance may seem great... However, having such a high occupancy rate so far in advance means you're leaving money on the table. A clear pricing mistake in vacation rentals.

The golden rule is to have 75-90% booked 2-4 weeks in advance but only 50% of bookings 8-10 weeks ahead.

Having the same price on weekdays and weekends

If your Airbnb price is the same during the week as on the weekend... you're not doing it right.

Take a look at what happens with the nightly price in hotels. Aren't they higher during the weekend?

The reason is that during those days the demand is higher.

Not taking into account seasonality

In any area –except the most touristy– there are usually variations in accommodation demand throughout the year.

Knowing when it's high or low season can help you adjust the price and avoid this typical mistake: Having a very high price in low season (or very low in high season) will crush the profitability of your business.

Not taking into account special events

Very popular special events are usually organized well in advance. Take a look at your local calendar and mark the days with sports events, concerts, or trade fairs.

Bookings during those days tend to be much more expensive. If you don't take these events into account, you'll be making a serious pricing error for the tourist accommodations.

Entering a price war

Entering a price war can be the end for your vacation rental. You may think that the best idea is to always keep your prices lower than your competition, but beware! You can get caught in several traps if you don't know well what a price war is.

Entering such a battle means lower the prices of your tourist accommodation relative to the competition. What's the problem? That someone from the competition might use the same strategy as you. And in the end you end up with a very low price, with very low profit margin. That is, you and your competitors will end up in a vicious circle:

1. Lower prices
2. Your competition imitates you
3. You try to beat them
4. And so ... until profitability is affected

Quality trap

Quality is something that many people consider when choosing a vacation rental. For the same reason, since it's a vacation, they want to have all the comforts possible without worrying about anything and enjoy a quality place.

The problem arises from the premise that we tend to identify lower-priced accommodations with lower quality. A potential customer will ask: “Why is this accommodation so cheap, what's the catch?”. They may think that the beds won't be good, that the accommodation is not well located or any other possible flaw.

In other words, just like in other areas such as fashion, we tend to think that expensive things are of higher quality. It may not be the case, but if you enter a price war with the accommodations in your area, you may end up driving away potential customers just because you have a lower price.

There are other ways to compete in the vacation rental sector that are healthier than entering a price war with your competition.

Loyalty trap

Let's say you lower the price of your vacation rental compared to the competition in order to get more bookings. At first, it may seem good, but the problem is that you'll get a clientele that is impossible to loyalty.

People who are looking for a cheap vacation rental usually don't take into account all the amenities offered, but simply focus on the price. If that clientele wants to stay in that area again, when searching, they'll look for the cheapest accommodation, whether it's yours or not. In other words, even if they've stayed at your vacation rental, if there's a better offer, they'll take it.

Pricing positioning has this great danger, it attracts people who at the time of traveling look for something that is economical and, therefore, cannot be loyal. Do not underestimate the occasional offer, but the exercise of looking for your target customer must be the first thing you do.

Now that you're understanding better what a price war is and its consequences, we can talk about the biggest problem or the biggest trap of all.

If you lower the price of your vacation rental, your profit margin will be smaller so your apartment will be less profitable. For this reason, when your bookings slightly decrease, you may not even cover your operating costs and your vacation rental may no longer be profitable.

In addition, a property in your area with similar characteristics and positioned by quality rather than price, will obtain a higher profit having the same number of reservations. Therefore, the vacation rental that is positioned by quality will have more chances of surviving changes in demand.

In this way, if activity drops a little during a low tourist season, having your accommodation positioned by price, your profits will be much more sensitive to this change. For the same reason, if demand were to increase, your profits would not increase significantly either.

Pricing tools for tourist apartments

Next, you'll read a comparison of pricing tools for tourist apartments. They'll help you know how much to charge per night on Airbnb based on the different factors that affect the price.

Are you one of the hosts who always charge the same? Remember that changes in season (high, low, medium); the number of nights; or the existence of special events in your area.

Below you'll find the comparison of specific software. However, before we understand what benefits they have and what are the theoretical bases for the operation of these tools to set dynamic prices in your tourist accommodation.

Benefits of pricing tools for Airbnb

A good pricing tool for tourist accommodations uses a large amount of real-time data to optimize the price you should charge per night.

Here are some reasons why this type of Airbnb pricing software is the most effective way to increase the profitability of your business:

• They give you a real image of the demand in your market; and in your neighborhood! Demand is the main KPI of your business. It is the number that increases your bookings and earnings. Your Airbnb prices must reflect how much your customers are willing to pay. And that must include the effect of local events or the seasonality of your area.
• Different prices for each night: We have sometimes talked about how much to charge per night on Airbnb. It's not the same on a Saturday as on a Thursday; nor should a Saturday in February be the same as a Saturday on the August bridge.
• Automatic price update throughout the year: All Airbnb pricing tools allow you to calculate and update prices for each day. All year round. This way you can optimize the profitability of your accommodation.
• Analyze your performance against the market: Since these Airbnb pricing software include market data, you will know how well or poorly your accommodation is doing compared to the competition.
• It allows you to plan and make adequate forecasts: so you can know what income to expect – and how to make money with Airbnb during off-peak season too!

Operation of pricing tools for vacation rentals

The operation of pricing tools for Airbnb is very similar. First, you must set a base price - the standard you charge per night; add a minimum price - the one you would charge in low season; and then let the software determine the percentage increases and decreases according to seasonality, events, day of the week, etc.

How they determine the base price of your accommodation

Setting the correct base price for your accommodation is key to maximizing returns. When you use these pricing software for Airbnb, учётная запись is the first piece of data you need to enter, as it is the figure from which they start to recalculate the price for the rest of the days.

The definition of base price is the average of what you have charged per night in your accommodation.

If you're an experienced host, this is really simple to calculate. You just need to calculate the average price you've received for bookings. For example, if your nightly price during peak season is €200, and during off-peak season is €150; the base price is €175. If you only have weekday and weekend prices, it will be the average of those two.

If you're just starting out with your accommodation and you don't have any bookings, you'll need to find accommodations similar to yours (same quality, same number of rooms) that have around 50-80% of the following month booked. Your base price will be slightly lower – subtract 15-20% – from that average until you get your first 3 or 4 bookings and your first review.

Once you've correctly set the base price, monitor how your accommodation is performing against the ideal booking curve. This will help you know if it's booking too fast (and therefore the base price is too low); too slow (your base price is high); or at the right speed.

When should you change the base price in the tools for tourist accommodation prices?

Once you have set your base price for your accommodation, we're ready to start. The next step is to check how your reservations are going at that base price per night to determine if it's correct or if you need to make some adjustments. These Airbnb pricing tools compare your statistics with those of your listing and compare them with the model.

For example, the following are usually included:

• Your current prices per night
• Percentage of nights reserved in the next 30 days
• Percentage of nights reserved in the next 60 days
• Percentage of nights reserved in the next 90 days

This percentage of nights is reviewed over several time horizons to balance the model. For example, if you are overbooked in the next 45 days but booked less than expected in the next 90 days, it is balanced. This is an index that will be used to take actions.

Depending on how booked your property is at the base price we have set, we should adjust it weekly. For example, if your percentage of nights booked is slightly high, you should increase your base price - try increasing it by 5%. If, on the contrary, your percentage of nights booked is very low, reduce your base price by 15-20% until reservations start coming in.

Let's use an extreme case to better understand how the base price adjustment works in Airbnb pricing tools. Imagine your accommodation is 100% booked for the next 60 days. In that case, you should increase your base price significantly. You can take a look at this table to see how much you should raise or lower it:

💡Why isn't it optimal to be 100% booked? If your accommodation is 100% booked, it always means you're leaving money on the table. Revenue management for Airbnb is a combination of percentage of nights booked and prices. For example, it's better to be 90% booked at €200 per night than 100% booked at €175 per night (€200 x 30 nights x 90% = €5,300 vs €175 x 30 x 100% = €5,250).

Once you have correctly determined your base price, it's time to let the Airbnb pricing tool of your choice make the necessary adjustments based on the variables in its model.

Comparison of vacation rental pricing software

It is true that there is a wide variety of vacation rental pricing software. However, not all of them have coverage in Spain or Latin America. The tools we discuss here do!

Airbnb price estimator

Airbnb will suggest a price for your Airbnb based on the information you have provided (such as the city, the number of available rooms or the type of accommodation) as well as additional information from the environment (average prices of accommodations similar to yours, historical price trends, etc.).

You can play with the price estimator that Airbnb offers. You can use it as a basis to set the final price for your accommodation. However, you should adapt it to your circumstances. If this is your first Airbnb listing, as is likely the case, consider lowering your average price. In this sense, it is advisable to search your area for listings similar to yours and personally decide the price to include.

However, Airbnb integrated dynamic pricing into its own platform in June 2018. The vacation rental platform must have the best data collection of all services. Mainly, because it controls both supply and demand. Discover how smart pricing works and how to enable it in help from Airbnb.

Airbnb's smart pricing tool is completely free for hosts on the platform.

Airbnb's smart pricing is a strategy that involves changing the price per night of your accommodation when there are changes in the supply and demand of your market. Is this something that happens in your neighborhood? Of course! Keep reading to find out how they do it.

Changes in supply come from adding more and more tourist accommodations to certain markets. The greater the supply, the greater the competition and therefore less power to set high prices. For example, in the city of Madrid, the annual growth rate of Airbnb listings is 58% since 2010. In the same city, they went from having 39,040 in 2017 to 50,120 listings in 2018.

😱Seriously! If you're not using Airbnb's smart pricing, you're losing money.

Wheelhouse

Wheelhouse is compatible with Airbnb, Homeaway, VRBO. It is also available in several cities, including some Spanish and Latin American cities.

The price is 1% of automated reservations if you have less than 10 properties. For property managers or vacation rental managers with more than 10 properties, Wheelhouse charges 0.75%.

https://www.youtube.com/watch?v=vgSZXn3nM0s

Pricelabs

Pricelabs is another Airbnb pricing tool available in Europe. Unlike other alternatives, Pricelabs charges from $19.99 per automated listing.

https://youtu.be/cpem_nBhuAw

Beyond Pricing

Finally, Beyond Pricing is another Airbnb pricing software. Available in Europe and some Latin American cities. It charges from 1% of automated reservations.

https://youtu.be/MFTHwoDWRF4

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