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Dynamic Pricing: Airbnb Hosts’ Secret Weapon?
Using dynamic pricing on Airbnb or other vacation rental platforms is a common yet effective practice to maximize your hosting revenue.
If you’re ready to fine-tune your pricing and ensure you’re not leaving any money on the table while also finding out how iGMS can help you, read on to learn how dynamic Airbnb pricing can work for your listing.
What Is Dynamic Airbnb Pricing?
Dynamic Airbnb pricing means your rental rates change in real-time, responding to shifts in the market—whether it’s demand and supply, seasonality, or events in your area. This goes beyond just setting different rates for peak and off-peak seasons; it ensures your prices are always in line with the latest market trends.
What Is an Airbnb Dynamic Pricing Tool?
These tools are a type of software that helps hosts and property managers automatically optimize their listing prices. It does this by analyzing important market data and updating your prices daily.
There are many dynamic pricing tools on the market. The most popular are those that have integrations with a number of vacation rental software solutions like iGMS. For instance, as an iGMS user, you can use Pricelabs or DPGO pricing tools as they are integrated with this software.
While sticking to a flat pricing strategy might seem simple, it doesn’t do much for your bottom line. A dynamic strategy, on the other hand, makes data-driven adjustments, so you can avoid the pitfalls of underpricing or overpricing and instead unlock your rental’s full revenue potential.
Why Using a Flat Pricing Strategy Is Not a Good Idea for a Short-term Rental Business
Opting for a “set-it-and-forget-it” pricing strategy might seem convenient, but if you’re aiming to grow your business, this approach won’t take you far. Here’s why a flat pricing strategy falls short:
1. Optimizing only for maximum occupancy rate
Take John, an Airbnb host focused on maximizing his occupancy rate. He sets his prices a bit lower than his competitors and books up his calendar months in advance. John finds this approach simple and convenient, never tweaking his rates, no matter the season or day of the week.
But when he calculates his earnings for the quarter, he notices that his competitor, Mike, made more money despite hosting fewer guests. The difference? Mike used a dynamic pricing tool that suggested raising his rates just before a big local event, something John didn’t even know about.
2. Overpricing your rental when the demand drops
In a bid to increase his revenue, John decides to charge more. At first, it looks like an effective and cost, strategy, but soon, he starts noticing that bookings are coming in slower.
Not only is a dip in demand affecting his revenue, but it is also the fact that his property looks overpriced to potential guests. This puts them off from making a booking and they choose competitors’ listings over John’s.
3. Changing your pricing based only on seasonality
John does his research on low and high seasons in his area. He sets two different prices for summer and winter. While he keeps his occupancy rate at a moderate level, he still loses out on potential revenue.
The Solution: Getting a dynamic pricing tool to make data-informed decisions
So, to keep your pricing competitive and unlock your rental’s revenue potential, you should dig deeper into market data. However, hosts usually don’t have the time nor the specific knowledge to conduct a data analysis.
This is where an Airbnb dynamic pricing tool comes into play. This sdoes this research for you. It changes your prices automatically so you can rest assured that your pricing is competitive all the time and your listing doesn’t fall behind.
What Are the Downsides of Using the Airbnb Pricing Tool (Smart Pricing)?
Airbnb Smart Pricing is a handy built-in tool that automatically updates your listing’s price based on market demand, considering factors like location, season, and listing type. While it’s free and convenient, many hosts find that it has its drawbacks:
- Prioritizes Occupancy Over Revenue: Airbnb benefits from more bookings because it earns a commission on each one. As a result, Smart Pricing often focuses on filling your calendar rather than maximizing your revenue.
- Favors Guest Attraction Over Host Profit: Airbnb’s goal is to attract more guests to the platform, sometimes at the expense of hosts. This can lead to lower pricing suggestions, which may not align with your financial goals.
- Lower Nightly Rates: You might find yourself charging less than your property is worth, leading to a drop in revenue.
- Limited Customization: Smart Pricing doesn’t allow you to set a base price for your listing or override its suggestions with your own pricing rules. For example, you can’t set special discounts for last-minute bookings.
Unlike Airbnb’s Smart Pricing, alternative dynamic pricing tools use more sophisticated algorithms and data points to offer more accurate pricing recommendations. Plus, they give you more control, so you can fine-tune your rates to suit your strategy.
What Are the Factors a Dynamic Pricing Tool Takes into Account?
A dynamic pricing tool takes into account plenty of different factors and market trends that change every day.
1. Seasonality
It’s no secret that vacation rental income can be inconsistent due to seasonality. However, if you use an Airbnb dynamic pricing tool, it can help to minimize the effect of seasonal shifts.
That means a tool will generate the best pricing suggestions for low season, ensuring that your listing will still attract bookings. For high season, your listing will be priced to maximize your profit and achieve optimal occupancy.
2. Supply and Demand
A dynamic pricing tool also analyzes supply and demand in your area. If it’s falling, the tool will recommend that you lower your rates to make them more appealing to guests. However, if it surges, your pricing is adjusted so that you can make the most out of the growing demand.
3. Day of the Week
Weekends tend to be booked more often and, therefore, your nightly rates for weekends will be higher than those for weekdays. However, if your rental is located in a destination that attracts mostly business travelers, then your listing will be more expensive during the weekdays.
4. Special events
As special events usually attract more travelers, it’s important not to miss out on these temporary spikes in demand. A dynamic pricing tool will suggest that you raise your prices should a big event take place in your location.
5. The number of days left to book
A tool will look at how far ahead the booking date is. This way, a last-minute booking will be cheaper than bookings made in advance.
6. Historical performance of your listing
Historical data on how the property has been performing over time is one of the key factors your pricing solution will keep an eye on. Additionally, it will constantly monitor and learn historical trends and booking behavior in different markets throughout the world to come up with data-backed pricing suggestions.
7. Competitor occupancy
To identify dates in high demand, a tool looks at the future occupancy of your competitor listings. If they don’t have any inventory left, but travelers continue seeking vacation rentals for these particular dates, a tool will suggest that you charge a higher nightly rate for your listing.
8. Competitor prices
How can you keep your pricing competitive without conducting thorough research on your competitors’ nightly rates? A dynamic pricing tool will do this task for you and adjust your rates in relation to your competitors’ prices so you won’t lose out on potential revenue.
9. Amenities
As amenities that Airbnb hosts provide at their rentals do matter to guests, they will also be taken into account by an Airbnb pricing tool to generate price suggestions.
10. Number and quality of reviews
Reviews are essential to Airbnb guests when looking for a property to book. If you have plenty of 5-star reviews, you can certainly charge more than your competitor with fewer reviews from guests.
What Are the Benefits of Using a Dynamic Pricing Tool?
As discussed above, dynamic pricing tools provide you with recommendations on your nightly rate. However, it’s not the only benefit that you can take advantage of.
1. Save time on analyzing market data
As property management involves lots of multi-tasking, Airbnb hosts don’t usually have time to gather data and adjust their rates in response to market fluctuations. Nevertheless, it’s essential to do so if your goal is to have your business rolling and upscaling.
When using a dynamic pricing tool, you don’t need to spend time on an analysis or hire a data scientist. A smart software solution will handle data collection and analysis in a fast and efficient way.
2. Get prices changed automatically on your booking calendar
When you have a pricing tool in place, you don’t need to log in to every vacation rental platform separately to update pricing for your properties. A tool will automatically push your new rates to your PMS or booking calendars.
3. Optimize your occupancy rate
Your listing will look more appealing to both hosts and guests when it’s adequately priced. We all know what happens if a host charges a sky-high price — their properties sit empty.
However, if your rental is booked for months ahead, it might be a sign that your price is lower than it should be. Low rates may also attract unsavory guests, and this is something you will definitely want to avoid.
By having a pricing tool on hand, you as host can keep your reservations consistent while receiving bookings from your target guests.
4. Maximize your revenue
As dynamic pricing updates your rates based on market trends, you can rest assured that your rental remains competitive. You will be able to capitalize on unexpected spikes in demand and local events taking place in your location, which will result in higher earnings.
5. Improve your Airbnb ranking
Keeping your booking calendar up to date is essential for your visibility on Airbnb. An updated calendar is one of the ranking factors that Airbnb takes into account. As a pricing tool will adjust your rates daily, Airbnb will push your listing higher in the search results.
6. Automate your pricing management along with other operational tasks
Lots of pricing tools are integrated with vacation rental software solutions. This helps to keep all the listings management in one place. In addition to automating your pricing management, you can automate a bunch of daily tasks like guest communication, cleaning, and team management, etc.
For example, Pricelabs and DPGO are integrated with iGMS so you can streamline your hosting operations while having your rates adjusted across all the platforms in use.
Top 5 Dynamic Pricing Tools
To help you incorporate dynamic pricing in your business strategy, we’ve put together a list of the top dynamic pricing tools on the market. Take a look at the list to find the tool that will suit your business needs.
1. Pricelabs
Pricelabs is a web-based dynamic pricing software solution for vacation rentals. The tool enables hosts to utilize data-driven insights and automation rules to boost their revenue. It recommends prices based on market supply and demand, seasonal and day-of-week trends, special events and holiday predictions, and the number of days left to book.
Aside from this, Pricelabs allows you to adjust prices in bulk. This feature comes in handy to hosts who manage multiple listings. In addition to pricing optimization, Pricelabs enables you to apply dynamic min-stay rules so you can eliminate gaps in your calendar.
The cost of using the tool starts at $19.99 per listing and reduces if you manage more listings. You can use Pricelabs’ calculator to estimate your price.
2. DPGO
DPGO is an AI-based dynamic pricing tool that develops a pricing strategy based on daily market insights. The tool utilizes a smart algorithm that learns more every day and offers greater profitability and effective pricing strategies.
DPGO continuously analyzes competitors’ pricing and over 900 price-impacting factors 24/7. It bases its suggestions on market demand and supply, market trends, events and holidays, etc. The tool also provides a growth performance analysis that estimates the overall score of each of your listings and delivers insights on what can be improved.
There are two pricing plans that you can choose from — flexible (0.5% discount of the booked price) and fixed ($1 per booked night).
3. Wheelhouse
Wheelhouse is a dynamic pricing tool for individual short-term rental hosts as well as for large property managers with hundreds of listings. Built by a team of Ph.D. data scientists and revenue management veterans, the Wheelhouse Pricing Engine analyzes over 10 billion data points every day.
In addition to dynamic pricing automation, the tool offers market reports and comp sets so you can better understand the market and make data-driven decisions.
Wheelhouse offers several pricing plans:
- 1% of revenue
- $19.99 per listing per month
- Enterprise plan for portfolios of over 100 listings.
4. Beyond Pricing
Beyond Pricing is a popular revenue management solution for short-term rental hosts and managers to grow their profit margins. Beyond Pricing supports more than 340,000 listings in over 7,500 cities. The tool leverages a dynamic pricing algorithm that automatically positions your properties to be booked at the best price at the right time.
Thanks to the Health Score function, you can see how your listing is performing in relation to your competition and make the necessary improvements.
The Bulk Actions feature allows you to apply pricing recommendations to all your listings at once without accessing them individually. You can also benefit from using the Guidance function that is available within the Beyond Pricing platform.
You can also benefit from free by using the Guidance function that is available within the Beyond Pricing platform.
The Beyond Pricing team will help you develop the best revenue management strategy and guide you through every step of implementing it for your listings.
5. AirDNA Smart Rates
Backed by data of over 10 million vacation rentals on Airbnb and Vrbo, AirDNA Smart Rates analyzes real-time market demand and supply to provide personalized pricing recommendations. The tool provides you with the reasoning behind each pricing suggestion and you can see how each recommendation has been calculated.
You can also set preferences for minimum and maximum rates, discounts, and choose how aggressively you want to price your short-term rentals. In the MarketMinder dashboard, you can also access data on your competitors’ pricing. This will help you to always be one step ahead of your competition
About the Author
Olga Vasylieva is the Content and Social Media Team Lead at iGMS. Olga is on a mission to help hosts and property managers grow their businesses and deliver an excellent guest experience. She is a travel enthusiast and is inspired by life in all its aspects.
