How Smart Is Airbnb Smart Pricing and Should You Be Using It?

Have you ever considered using the Airbnb Smart Pricing tool for your listing? Adjusting your pricing on Airbnb is a beneficial strategy that can help keep your rate competitive and optimize your listing toward maximum revenue.

However, not all the hosts seem to be satisfied with the Smart Pricing feature. Let’s find out how Airbnb Smart Pricing works and explore alternative dynamic pricing apps that can help you set the best nightly price for your listing.

What Is Airbnb Smart Pricing?

Airbnb Smart Pricing is a built-in dynamic pricing tool that analyzes relevant data and factors for a property listing. Airbnb’s Smart Pricing tool automatically updates a listing’s price to match the demand of the market, but only within a minimum price to a maximum price range of your setting. The factors that it examines include the rental’s location, size, amenities, and the quality of your listing.

How Does It Work?

The Smart Pricing tool on Airbnb works on an algorithm that generates price tips from metrics related to the property. After cross-examining the information, it will recommend an “ideal” price based on its calculations. Once the short-term rental owner or manager decides to enable smart pricing, they’ll need to enter a minimum and maximum price. Then the engine will adjust your nightly price according to a range of relevant data, like base price, best price, cleaning fees, competitor rates, and so on.

What Data Is Used for Determining Prices?

1. Local demand in your area

If properties are regularly booked in your area, Airbnb will assume it’s a more popular and in-demand location and increase your price. If it’s low season or you live in an area that doesn’t get much foot traffic, Airbnb will take note and lower your rates to make your rental more appealing.

2. Amenities and listing quality

What your space offers in terms of amenities and features can affect your price tips. The more you offer, the higher your rates will be calculated by Airbnb.

Don’t fret if you have a limited property, though! You can also positively influence the algorithm by creating a comprehensive listing of your property. It also examines the quality and detail of a listing when doing calculations.

3. The average number of people who view your listing

How many people click on and view your listings can make an impact too. The greater your listing’s click rate, the better your calculated price tips will be.

To help boost your listing visibility, you should try to reach as wide an audience as possible. Marketing your listings on platforms like Instagram and Pinterest can draw additional views.

4. The number and average rating of your reviews

If you want to positively affect your suggested rates, aim to collect as many 5-star reviews as possible. Airbnb Smart Pricing takes into account the number and quality of your reviews from guests.

You can do this by striving to provide the best possible guest experience from the start. After your guests have checked out, you can encourage them to leave a review by writing a guest review for them first.

5. Room type

Your room type and what it offers also play a role in how Smart Pricing software rates your Airbnb listing. If your room offers an ensuite bathroom or a balcony opening up to a garden view, the Smart Pricing tool will factor that into its algorithm.

If your room doesn’t offer anything that helps it to stand out, don’t worry. You can give your room a more luxurious touch by adding simple furnishings like air conditioning, a bigger bed (if space allows), and a smart tv.

6. Calendar availability

The more you make your listing available to book on your calendar, the better your market data rate will be. This is because Airbnb would ideally like hosts to accept as many guests as possible, as they earn a percentage of the booking fees as commission. So, they reward more frequent hosting with higher price tips. This helps the company maximize revenue, which helps the Airbnb account holder increase their occupancy rates and improve their calendar availability rates.

7. Searches for listings similar to yours

Airbnb will also factor in how frequently searches for listings similar to yours are conducted by guests. This indicates the popularity and demand of your type of property, which helps to determine the price it will recommend.

Should You Be Using Airbnb Smart Pricing? [Pros and Cons]

Using Airbnb Smart Pricing sounds beneficial. So, why don’t more hosts use it? Some hosts have reported that the built-in tool really did help them increase their net revenue.

Other hosts have complained that it has limited the amount of revenue they could have made by lowering their nightly rate and moving away from what the vacation rental owners and property managers see as optimal pricing. So should you turn on an Airbnb Smart Pricing feature for your listing? Let’s take a closer look at its pros and cons.

Pros:

• It allows you to select your minimum and maximum prices, so you can still be in control of your pricing.
• It generates price tips that are based on real-time metrics.
• The price is market-related and meant to give you a competitive edge.
• You’re able to set your prices so the determined price will not go lower than the minimum price you choose.
• You can turn the feature on and off whenever you want.

Cons:

• The price generated may be less than what you would otherwise be charging, meaning you earn less per reservation.
• You might not know what to put as your minimum and maximum price and you may not have an idea of your predefined Airbnb pricing strategy.
• Some hosts have claimed that the tool prioritizes bookings over host income because of Airbnb’s commission that it takes.
• It does not employ specificity in its calculations. If you have a one-bedroom apartment, it will likely receive a very similar price recommendation to other one-bedroom apartments nearby, even if your apartment is comparatively nicer.
• Though Airbnb claims to take seasonality into account, some hosts have complained that the tool doesn’t seem to consider the time of the year. Hosts have received the same rate update for their rentals during their high and low seasons.
• It doesn’t recognize upcoming events that are far away until it’s too late and many Airbnbs are already booked.

What Is the Best Pricing Strategy for Your Vacation Rental Business?

Regardless of whether you decide to go with Airbnb Smart Pricing or not, you need to spend some time figuring out the best strategy for your vacation rental business. Some of the most effective approaches include:

1. Maximum Rate Per Night Strategy

This method aims to maximize the income you can earn by charging a higher-than-average Airbnb nightly rate for your property. The plus side of this method is that you can earn more than you otherwise would with Smart Pricing on Airbnb.

The downside is that it may be more difficult to book your calendar to capacity because of the higher fees. For this pricing strategy to yield results, you would need to offer a premium property or a property that offers a unique experience.

2. Maximum Fill-Rate Strategy

This strategy aims to maximize your occupancy rate. You can do this by setting your rate lower than that of similar, nearby rentals.

A benefit of doing this is you are likely to have a higher booking rate thanks to your attractive pricing. On the other hand, when you are more fully booked, it translates to more work, and you won’t be making as much income as you could.

If you find yourself during your low season or are struggling to secure reservations, the Maximum-Fill Strategy is ideal. Just ensure that the rate you charge is still enough to earn a profit.

3. Long-Term Renting Strategy

Long-term renting is essentially leasing, in that you rent out your property for a longer stay to the same guest, usually a minimum of 30 days. If you go for this option, some pluses are fewer management requirements and not much need to actively market your property.

As a downside, you would be earning less revenue than you would from short-term renting. You would also need to sign a rental agreement for legal protection in case anything goes wrong.

4. Balanced Airbnb Management Strategy

The Balanced Airbnb Management Strategy is a combination of the above pricing methods to earn the most revenue possible. It’s based on a flexible approach, meaning that during your low season, you can use the Long-Term Renting strategy to keep your property filled.

Then, during your high season and any special events, you can employ the Maximum Rate Per Night or the Maximum Fill-Rate approaches to optimize your earnings.

The benefits of this approach are a consistently high occupancy rate and greater income than you would otherwise earn with only one approach. However, the downsides are a higher guest turnover rate, more work, and more time spent on hosting tasks.

In the end, the method that you choose should suit your unique circumstances. There’s no “one size fits all” policy when it comes to effective Airbnb pricing strategies. If you find your bookings are increasing using one rate, you can update and adjust prices and set a new one to see if it gets similar results. Just always do some research before you start to charge a lower or higher price, otherwise, you may not generate a profit.

Top Airbnb Smart Pricing Tool Alternatives

Adjusting your pricing based on seasonality, events, and spikes in demand is certainly a good idea for maximizing revenue. As Airbnb Smart Pricing has received fairly mixed reviews from hosts, there are many dynamic pricing tools and software alternatives that are specifically designed for pricing management:

1. BeyondPricing

   BeyondPricing is a well-established revenue management software that’s been operating since 2013. BeyondPricing offers dynamic pricing management that’s data-driven. It also offers smart industry insights and personalized revenue management guidance for hosts.

2. PriceLabs

   PriceLabs allows you to easily manage your listing’s pricing and availability with their user-friendly software. PriceLabs also offers handy integrations with over 50 PMS’ and channel managers for fast, convenient access. iGMS is integrated with Pricelabs, allowing hosts to take advantage of streamlined vacation rental management and rest assured that their rates are optimized across all their channels.

3. Wheelhouse

   Wheelhouse is a revenue management and market-insight software designed for effective business management. It also offers important comp set intel to help you understand how your rental is performing against the market.

4. DPGO

   DPGO is a dynamic pricing software that can help to increase your revenue and occupancy rate. Some of the features it offers include AI-driven dynamic pricing, real-time industry information, and growth performance.

Conclusion

Using pricing tools is a good idea in general because it can help to maximize your revenue. Another way to jumpstart your business growth and success is by using vacation rental software.

Vacation rental software, like iGMS, streamlines routine operations and puts your business on autopilot. With iGMS at the helm, you can:

• Managing multiple accounts and listings on the top OTAs from a single interface.
• Synchronizing reservations across multiple platforms to eliminate double bookings.
• Using the unified inbox to organize your messages into a single feed to ensure prompt replies.
• Using automated templates and triggered messaging to improve communication.
• Creating and coordinating cleaning tasks with live tracking to completion.
• Building your own direct booking website.
• Managing direct bookings using a direct booking management toolkit.
• Securely processing payments via integration with Stripe.
• Creating essential reports on your business results within minutes.