Airbnb Pricing Strategy: Getting Started

Updated Mar’24

Congratulations—you’ve now got your Airbnb listed, and you’re ready to start making money, whether it’s a side hustle, to pay the mortgage, or both. Now, you’re in the Airbnb interface and have to decide on an Airbnb pricing strategy. In the back of your mind, you realize this could greatly impact how much money you make. But where do you start?

Start right here! This blog post will outline how to set up a great pricing strategy to make you the most money possible and give you peace of mind that you’re doing perfectly.

What Metric Is the Most Important for Your Airbnb Pricing Strategy?

There are lots of metrics to think about when you’re managing your Airbnb. The one to focus on most is Revenue per Available Room (RevPAR, sometimes RevPAN for “Night”).

RevPAR is how much revenue you made divided by how many nights were available for each unit, usually calculated monthly. For example, if in February (28 days) you booked for 14 days and received $2,000 total, and the entire month was available, your RevPAR would be $2000 / 28 nights = $71. If the owner occupied the unit for ten nights in the same month, RevPAR would be 2000 / 18 nights = 111.

Unlike occupancy, RevPAR takes into consideration your availability. It doesn’t penalize you if an owner or maintenance issue took the unit off the market. And, it doesn’t benefit you if you rent really cheap but for the entire month.

While you want to maximize your RevPAR, it is a composite number. To get the highest RevPAR, you’ll be optimizing occupancy and nightly rate. We’ll discuss this below, and your strategy will evolve as you get more reviews and repeat customers.

To maximize your profit, you need to boost your revenue and optimize costs. This article will guide you in growing your revenue via intelligent pricing decisions. We recommend you download our free guide on designing your place for STR business to save you from unnecessary operations costs.

Airbnb Pricing Strategy: How to Get It Right

Now, back to your pricing strategy. Let’s split it into smaller, comprehensive steps.

Step 1: Forget Airbnb Smart Pricing

Airbnb’s smart pricing has one and only one purpose: to get more transactions on Airbnb. It is almost always a far too low price because hosts think they want occupancy (now you know we really care about RevPAR). Airbnb benefits from hosts underpricing, and more travelers get a good deal—they return to Airbnb and rent from the next host using smart pricing and charging too little. The “smart pricing” algorithms optimize the number of bookings and occupancy (and Airbnb’s market share in the broader travel market). They will not optimize your RevPAR. So politely decline that option, and let’s get you set up for success.

Step 2: The early days

Your early Airbnb pricing strategy will set you up for success later. Reviews are critical to conversion on Airbnb. Great reviews also influence how high you appear in search results, influencing how many people see your listing to convert. Early on, when you don’t have reviews, offering a 15-20% lower price than what the market will bear will help you get those first few positive reviews. People will think they got a great deal (because they did) and happily write a glowing review. Don’t be shy about asking your first guests for reviews! And it’s great to get these people in before the big events. That way, you’ll have good reviews to back up high rates at peak times.

Once three or four reviews are in, you can start doing proper revenue management. Read on for how.

A note on instant booking: Instant booking dramatically increases the number of people who will book with you, thus getting you those early happy guests faster. You must assess the costs-benefits of this decision, as instant booking jeopardizes your protection from issues like squatters.

Step 3: Set up your pricing for peak times

You’ll make the most money at peak times—summer for vacation markets, big ski weekends for ski resort destinations, and festivals for festival destinations. Frequently, you can get much, much more than you think: don’t let your own bias influence your rates. You’re anchored to many prices—especially your monthly mortgage or lease. It may seem ridiculous to rent a place that costs you $2000 a month for $1500 a night—but you might be able to!

Similarly, bias about “normal” pricing can also be a hindrance. Five hundred dollars a night for a dumpy two-bedroom that usually rents for $125 seems ridiculous until everything else is booked for a festival, and six friends split it for $250 each for a weekend ($500 a night!) instead of staying in a tent. It happens all the time.

The best way to get the pricing right is to use a dynamic pricing tool, which will recommend a price based on market trends like supply, demand, seasonality, events, holidays, and days of the week. We partner with the best dynamic pricing and confidently recommend them—check our integrations page. These industry-leading pricing tools use sophisticated algorithms and data-driven insights and can adapt rates in real-time to ensure that they are optimized to maximize your revenue. They will also let you tweak your pricing to be more aggressive if you want to be (or more conservative, too—especially in those early days!)

If you are not using a dynamic pricing tool, look at a sample of similar properties (10 or more) that are moving their prices so you’re sure they’re actively managed and see what they charge for peak times. This is called your “comp set”. Then, decide whether or not your place deserves a premium to the comp set and what your risk tolerance is for it not being rented, and set your price. If your place is superior, be at the high end of the comp set—or above it. If your place is less nice, be at the bottom of it. Again, if your listing is new, we advise you to be in line with or below the market to get early reviews and potential repeat customers.

Step 4: Set minimum stays

A key aspect of revenue per available night is getting bookings that are longer at peak times. If you let that Festival Saturday get booked as a 1-night stay, you might have missed out on Thursday, Friday, and Sunday nights around it—or even the entire week. For drive-to vacation markets, this can be crucial to overall returns.

If you compete with hotels in a more business-oriented market, you’ll probably want to keep your minimum stay short—1 or 2 nights. (Many vacation rental operators avoid 1-night bookings because of the risk of parties, so 2 is a safe starting point.)

Peak times like holidays and major events may warrant a much longer minimum stay. You can always lower it later, but taking that 2-night booking on New Year’s Eve in July might have missed a 1-week booking during the five remaining months. Or a 2-week booking—you’ll never know. What’s worse, Airbnb penalizes low availability. A few 2-night bookings can lower your search ranking dramatically.

Larger homes can usually require a longer stay. Travelers are used to paying a substantial cleaning fee for a large property. Usually, they are traveling with a large group for a specific event (spring training, bachelor/bachelorette, family reunion, etc.), and those logistics mean longer is preferable for everyone.

As the time approaches, you may want to lower your minimum stay requirements. How far out you do this depends: those “sleeps 20” properties aren’t going to be booked last minute! (If someone tries to, watch out for parties!). But a studio might be booked the night before—or even the same day!

Did you know that almost half of Expedia’s hotel bookings are for the same night? (This was pre-COVID).

A dynamic pricing tool will automate all this by adjusting your minimum stay for any period based on different factors. You can set up your policy so that you require longer stays well in advance and allow shorter stays if a unit hasn’t been booked.

Gap nights

Sophisticated and longer stay requirements come with a big downside: Gaps. Sometimes called “orphan nights,” these gaps are unbookable periods between two long, very desirable bookings. For example, you have a minimum of 7 nights required for bookings in July. Someone checks out on the 7th, and the next guest checks in on the 11th. If someone looks for a 3-night stay on the 7th, your unit will not appear anywhere. This is because you’re “not available”—that’s a 3-night booking, but you require 7.

A dynamic pricing tool can help you optimize your listings’ availability and automatically make all gaps bookable if you set rules for assigning shorter minimum stays to gaps. It will lower the minimum stay requirement for each night so you can maximize your booked nights, and through that RevPAR (after all, those 4 nights were available… that nobody booked them was your fault!).

You can also do this manually by checking once per week or whenever a new booking comes in and adjusting the calendar manually. Stay vigilant! At $200 a night, that 4-night gap is worth $800—13% of your potential revenue that month! And it’s even worse if it’s a peak time. Making the right decisions in STR business might take some time and effort from your side. Use Hospitable vacation rental software to automate 90% of your hosting routine and invest your precious time in something that boosts your RevPAR.

Off-peak pricing

Pricing when something big isn’t happening is pretty simple: you’ll want to look at your comp set and price towards the lower end of it. Again, a good dynamic pricing software tool will do the math for you and automatically recommend good, day-specific off-peak pricing. If you are in a highly seasonal market (say, the Hamptons in New York, or Miami, or a ski resort—most markets are at least somewhat if not extremely seasonal), picking up a few stays off-peak will increase your overall returns but is not something you want to spend a lot of time on.

That’s a major advantage of dynamic pricing software for vacation rentals—it’ll set reasonable off-peak prices and allow you to control them (down to weekday/weekend variances) but not require spending much time on it. A vital tenet of any pricing strategy is that if people don’t want what you’re selling—that beach vacation in New York in February, for example—price doesn’t matter! So yes, pick up some bookings if you can, but if there’s no demand, there’s nothing price can do to fix that.

Targeted Discounts and Promotions

If you’ve followed our instructions above, you’re in great shape and could probably sit back and watch the bookings come in, filling your calendar and setting RevPAR records. But you can do slightly more—you can improve around the edges. Literally.

People who have booked a 1- or 2-night weekend stay will likely take advantage of a deal to add an extra night. If in your market—like many markets—Thursdays and Sundays are hard to book, offering a promotion after booking can be a great way of increasing your RevPAR by getting a night booked that would otherwise have sat empty. Hospitable will handle the whole process. Check out our step-by-step guide on upselling extra nights.

Additional Sales

RevPAR is the key metric—but you can generate more revenue than just from nights. We highly recommend keeping your cleaning fees and other fees in line with what is normal in your market. These are easy to compare across different units, especially in a channel like Airbnb, and if you have a high price for this, any browsing customers will think that all of your prices are too high—so it is best to avoid.

Selling add-ons, on the other hand, is a great way to meet your clients’ needs while generating additional revenue. These add-ons can range from simple things like cribs and toys for babies to tours and other amenities for everyone. Some hosts even rent cars to guests. These are all ways to generate more income from a single booking, even beyond the nightly stay.

You can automate upselling without being pushy or intrusive. See more details in our help article.

Repeat Customers

Many clients who enjoy their stay will come back and rent from you again. Some vacation rental businesses have over 80% of their bookings from repeat customers. The highest risk is usually on the guest’s side: they have just a few vacations per year, and accommodations are almost always the largest expense of that vacation. Getting something they know and are familiar with—be it your management or the same place they stayed before—reduces the risk. People will pay a premium for this safety!

There’s also less risk to you, which means, among other things, you can more safely take a direct booking off of Airbnb, and avoid Airbnb’s fees and cancellation policies (and any changes Airbnb feels like making to those policies). But how can you ensure that these guests won’t just forget you after their stay and will come back again? Building a direct booking strategy is the best way to secure repeat customers and higher profits.

Capture your guests’ details when they book your property for the first time, especially their email addresses. Send them regular news and updates, tell them about new amenities or features, offer deals and discounts to keep your place front of mind, and entice them to book again directly on your website.

You can easily create a functional, beautiful vacation rental website with Hospitable Direct. Since Hospitable Direct integrates with Google Vacation Rentals, your property will get listed on this metasearch engine. Then you’ll be able to get direct bookings without investing any money in promotion.

Summary

If you’ve read this far, you know more than most people ever will about managing pricing and availability at your rental or rentals. Nothing can have a more significant impact on your success as a host—for less work or cost—than being vigilant and intelligent with Airbnb pricing strategy.

Your other revenue-making objective is to avoid unnecessary costs. Don’t forget to download our free guide below on preparing your place for the STR business.

If this feels a bit overwhelming, or you already have a checklist that’s longer than hours in the day, check out any pricing tools on our integrations page. With seamless integration, you can see price recommendations 2 minutes after you sign up, have access to AI-generated comp sets, and really take control of your revenue management.