5 Things Airbnb Hosts Need to Know About Dynamic Pricing
Business Management Vacation Rentals (short term rentals)

5 Things Airbnb Hosts Need to Know About Dynamic Pricing

I was recently on a strategy call with one of my students and one of the big problems they were struggling with was a lack of bookings. They were in a slow time of year and they were steadily seeing a decline in revenue. This is a common struggle among hosts and it’s an issue that can be easily prevented with dynamic pricing.

In my previous blog, 6 Airbnb Pricing Strategies You Need to Implement Now to Get More Revenue, I wrote about mindset, being objective about your listing, dynamic pricing, and having a minimum price threshold. In this blog, I’d like to dive deeper into dynamic pricing a little more.

1. What is dynamic pricing?

Dynamic pricing, also called real-time pricing, is an approach to making the cost for a product or service highly flexible. The goal of dynamic pricing is to sell goods or services and to be able to adjust prices on the fly in response to market demands.

As it relates to Airbnb, dynamic pricing means that your nightly costs are constantly changing and fluctuating, hence the word “dynamic”. There are many factors that come into play when determining what your nightly cost should be; things like seasonality, special events, holidays, weather, the day of the week, etc.

2. You need to shift your mindset about pricing

When it comes to your business as an Airbnb host, mindset is the number one thing that will make or break your business. The first mindset shift I want you to make is that your goal shouldn’t be to fill your calendar, it should be to bring in more revenue.

Sometimes when hosts hear that they need to lower their prices to get bookings, they scoff at the idea. I agree! It’s not the ideal strategy to use to bring in revenue. I also know from experience that you need to have a minimum price threshold you won’t go below. While I agree that a host should never price their listing below their minimum price threshold, the minimum price must be set by data—not by how much a host feels they deserve.

3. Not every night on the calendar holds the same value

It’s important to realize that not every night on the calendar holds the same value. Generally, people will pay more for a Friday night than a Monday night (weekend nights are more valuable than weeknights). But if Friday night is tonight, and it’s vacant, I’d seriously consider lowering the price to get it booked as soon as possible.

You can’t get a reservation for last week’s vacant nights, right? Think of a night on your calendar as perishable inventory. It’s as perishable as the fruit at the grocery store or the fish at a restaurant. If you don’t sell that night, it will disappear into the past and it will be a loss you cannot recoup.

4. Dynamic pricing does not always mean discounting

There is another side to the coin when it comes to dynamic pricing. And that is, charging a premium for nights that are far in the future. For nights that are 90 days or more in the future, I increase pricing by approximately 30 percent.

When people book well in advance they pay a premium for those nights. They are paying a premium because they are ensuring those nights are reserved for them and no one else. When people book 2-6 weeks in the future, they pay average prices. If there is still inventory left within the next two weeks, people pay below average prices. In the end, it averages out. Just like how some months you’ll earn more than others because of seasonality.

Below is an example of how I approach the percentage price increase and a decrease within a four-month period. This is a screenshot of my settings in the dynamic software pricing tool Beyond Pricing. More on this below. Essentially what you’re looking at is a big discount on pricing for the next three nights, then the discount tapers down as the nights get further out. Then for nights over 60 days the price increases.

Five Things Airbnb Hosts Need to Know About Dynamic Pricing

5. Set up a dynamic software pricing tool ASAP

Dynamic pricing is something you can do by hand but I wouldn’t recommend it; it will be very time-consuming. One of the core concepts I teach my students is automation; creating systems to do the work for them.

If you’ve been actively hosting longer than four weeks I recommend setting up a dynamic software pricing tool as soon as possible. I recommend Wheelhouse or Beyond Pricing because their system does all of the work for you; they utilize real-time market data to ensure the price recommendations maximize revenue and occupancy for hosts. I‘ve used both of these tools with my listings and they have been a game changer in terms of revenue.

In conclusion

You shouldn’t think of dynamic pricing as a “discounting tool” or something to be afraid of. In fact, setting up a dynamic pricing tool will increase your profits, even after accounting for the cost of the tool.

Having dynamic, fluctuating prices is a must-have part of this business and you must accept the fact that lowering prices from time-to-time is a necessary evil.

Take advantage of software pricing tools available to you and embrace the mentality that 50% of something is better than 100% of nothing.

Happy hosting,

Nathan Rice

Give it to me!