Are you stressing about selecting a nightly rate for your Airbnb? If your prices are too high - your listing could sit empty. But, if your prices are too low you’re leaving money on the table. Do you wish there was a way to guarantee that your Airbnb is generating the maximum cash flow possible?
If these are your worries, listen to Episode 4 of the Host Coach Airbnb Podcast. It is a complete game changer! Culin shares his secret sauce for pricing for occupancy. It’s the discovery that took us from casual investors to jumping “all in” on the Airbnb opportunity! We’ll help you understand Airbnb as a business and search engine which leads into why pricing is your biggest lever for success on the platform.
Tune in to learn how to set nightly prices for a fuller calendar that creates more cash flow and a shorter time frame to reaching financial freedom!
Topics discussed in this episode:
- How to select your base price
- Which 3rd-party pricing tool to use
- Understanding Airbnb as a business and how the it works as a search algorithm
- Meeting the market demand every single day
Host Coach Episode 4 Show Notes:
How do you select a nightly rate for your Airbnb that is guaranteed to make you the most money? If your prices are too high, your listing could sit empty, but if your prices are too low, you're leaving money on the table. It's not as simple as setting weekday and weekend prices. Pricing for occupancy is my secret sauce.
Discovering it is what made me realize that I had to share my knowledge with the world about Airbnb. In this episode, we're going to teach you everything you need to know about Airbnb pricing to achieve 90 plus percent occupancy year round. That's right. Fuller calendars mean more cash flow and a shorter time to reaching financial freedom.
Let's jump in. In previous episodes, we've shared the first two pillars of Airbnb investing success. Today we're gonna do a deep dive into Pillar three, pricing for occupancy, which is Culin's joy and obsession! This is my absolute favorite topic in Airbnb investing.
This is the thing that got me moving from being a kind of part-time host to really realizing the full potential that Airbnb could provide in terms of cashflow as a financial investment. So this is your silver bullet. This is your game changer! If you're considering an Airbnb investment, but were unsure how you were gonna stand out, if you could be successful, if you could compete and win -this information is going to be the answer to that question. Also, if you have any friends, relatives, clients, or colleagues that have a short-term rental investment, do yourself a favor. Save this link. Send it to them. They will thank you. It's a game changer, so let's jump right into it.
Pricing for occupancy means just what it says, price and occupancy. We use something called a third party dynamic pricing software to set our nightly prices. Before we get too far into that, let's take a quick moment in an explain how Airbnb works.
So as a company, Airbnb values two things. One, they value the guest experience. They want the guests to have a nice stay, and that comes from your reviews and your setup and your hospitality. From a business perspective, Airbnb only makes money when a guest books a listing. So in a given market, they may have three or 500 listings. They have to decide in what order to show those listings, right?
And obviously we wanna be at the top of that. Airbnb is a algorithm, right? Much like SEO people search for certain nights, they search for certain amenities, and the algorithm displays to them properties in a specific order. It's a lot like a Google search. When he talks about SEO, he means search engine optimization.
Our backgrounds were in tech, so we used to help write websites with certain words to make sure that they showed up when you typed into Google search. So we're applying that same sort of mindset where Airbnb is an algorithmic tool like Google. There are ways that Culin's gonna teach you to get to the top, to get to the top,
When you start a new listing, Airbnb gives you a boost. They're basically a trial period about a month where they try you out, and the algorithm is always trying different placements for different properties. The way that you begin to ensure that your property is at the top of search is by closing that sale, by closing that lead.
If Airbnb shows you consistently at the top of search and you don't book. Then you're gonna fall in search placement. If you do book, then that's a positive signal to the algorithm to continue to show your listing. So what is the biggest factor? There's a lot of factors in the algorithm, but the biggest factor in closing that sale is meeting the market for that day, and that means varying your price, having the appropriate price to to convert that listing view into a booking. And price is our biggest weapon in that arsenal.
So let's talk about how most people price their Airbnbs, about 90% of all hosts just manually set price. They look around the market, maybe they do some research and they say, my place is worth $200 a night. They plug in that number $200 a night and. Go about their business. What that tends to do is it tends to underprice weekends and special events and holidays and overprice weekdays. So it's not uncommon at all. If you're doing AirDNA research and see 50% occupancy for a market, that's because 90% of the people in that market are using a set it and forget it, manual price strategy.
The way we get to fuller occupancy, 90 to 95% occupancy is to meet the market for a specific day, and we do that with third party pricing tool. I use PriceLabs. A lot of people recommend PriceLabs. There are others. There's Wheelhouse, there's Beyond Pricing, and the way these softwares work, they're very inexpensive, like $30 a month, they're connected directly to Airbnb.
They know on any given day what the demand is. How many people are searching for a stay that weekend for example. Maybe it's a holiday weekend and that search volume is up. Maybe it's a next Tuesday night and the search volume is down. Taking that information in addition to a base price that you set, let's use that $200 example.
If I set a base price at $200 for the night and PriceLabs has data from Airbnb showing that's a festival going on that weekend, or there's a college graduation going on that weekend and searches demand is up 200%, it's gonna take that $200 base price and maybe turn it to 400. This was a game changer for me.
My initial cabin was doing well when we first had it, it was doing about $4,000 a month. I got hooked up with Price Labs within a month. That $4,000 for monthly revenue jumped to $6,000, and it did so because I was filling the calendar more during weekdays, and I was getting these higher prices.
We have a cabin near James Madison University, and there was a random weekend the first year it was using price labs in May four days, and when this cabin usually rents for $300 a night, it jumped to six or $700 a night. We thought something was broken. Like we were like, wait a minute, something's wrong.
But, some family booked the cabin at that rate. Culin is, like we have to figure out. We actually ended up asking the guest. We were like, so hey, we're so happy to host you. Is there anything special going on? And it turns out that it was the JMU graduation and every year since, I don't have to know when JMU graduation is. The PriceLabs algorithm just sees that searches are up 300% and turns the prices up. It's a lot like airlines with dynamic pricing. Everyone's thinks oh, dynamic pricing - I'm not so sure about that. Airlines and hotels have been using dynamic pricing forever.
When you search for a flight to Florida or to the beach and you think about it and then you come back two days later and it's $200 more. It's because they know more and more people are searching. So we're applying that same concept to a new industry. It's supply and demand that you would never be able to see, or be able to interpret manually.
So special events, festivals, weekends, holidays, it's gonna turn your price up and it's, to me, it turned my price up far further than I would've ever considered reasonable. So there's a big increase in revenue on that side. On the occupancy side, that $200 base price next Tuesday night, there's not that many people searching to stay in a property next Tuesday night.
So PriceLabs is going to adjust that price down for you. And continue to adjust that price down as the vacancy becomes closer and to such a point that you're able to book that night.
Back to the algorithm. Now that you're filling your calendar, every time Airbnb shows your property, you are closing that sale. They get their service revenue. Airbnb collects about 12% from the guest, about 3% from the host. They take 15% of the booking amount, and now you're feeding the business, the algorithm, what it wants, which is a closed sale, creating revenue for the company.
And to jump in for a second, I know some of you out there are saying, I don't want to take less than $200 a night. I poured my blood, sweat, and tears and my design efforts. And this is my beautiful special place. And I would like to tell you if this is a business, if this is a cashflow-centric business, then you need to disconnect the "I" from the business. Yes, it is your Airbnb, but you built it as a cash flowing mechanism.
And so while you would like to make $200 a night - it may only be worth $150 or $120 on certain evenings. But, feeding into the algorithm that means you're going to be able to get the higher prices on the high demand days. So you just have to let go of the, my house is worth this every single night. And we have friends that do it and they miss out on bookings.
Maybe it's a pride thing, maybe it's a fear thing. Having watched this across 10 of our properties and across so many different coaching clients' properties in different countries, different states, different communities, totally different sizes of houses, it works. And so I have complete confidence.
We're always telling people, you gotta let go and trust Price Labs because it's a game changer. It helps you meet the market. It's just like selling a house. You know that house might have been worth $300,000 last year, but this year it's only worth $200,000.
One question is I made the example of $200 as a base price. How do I set that base price? Again, PriceLabs has a tool called Base Price Help. We click on that button and it takes you through a couple of little questions. It creates a comparable set of properties in the area. So you have the ability to refine your area. It will pick a market geography.
I did this with a client yesterday, and he was near the beach, but not on the beach, right? He was like a mile away from the beach, and it was putting in some beachfront properties as comparable. So we had to adjust that and draw a tighter circle in his neighborhood to get a better comparable set.
And then the software allows you to pick, is this a two bedroom, a three bedroom, a four bedroom? You wanna pick a comparably sized property, and then it will suggest a base price. In my experience, it always starts you at the mean. The 50%, is what a base price, 50%, the average base price for that comparable set. And that might be $200 a night in this case.
For that same client, he was using a base price of $90 a night on his manual settings. And then PriceLabs suggested a base price of $147 a night for him. So right there alone from just the base price, not turning anything up or changing any occupancy, it was a 50% increase in his in his property's cash flow!
And who doesn't want to make more money with the same investment that they already have? I generally recommend starting with that 50% median base price, but our goal over time is to adjust that up as we get occupancy, as the algorithm begins to favor our listing. As we get reviews and wishlist editions and all those other things that play into the algorithm, we're going to be able to start to command a premium over the average.
How do we know when we can adjust that base price up? When our occupancy over a 30 day range increases over 60%, then we know that we want to turn that base price up a little bit. PriceLabs shows you this number. It's just in a column, it says 30 day occupancy.
If you were at a hundred percent occupancy, we're leaving money on the table. People would've paid more for those nights. So we're looking to be around 40 to 60% in that 30 day occupancy. And as we exceed that 60% occupancy over the 30 day period, we know then we can start to adjust that base price up.
And over time I've been able to do that on our properties. And I would say across the portfolio of 10, we run about 80% -the highest, top 80 percentile of pricing. So you're able to command a premium on your base price. And there, that's a slightly double-edged sword. Of course, you make more money, but you also need to make sure that your listing is up to standards.
This is when you do quarterly inspections. You surprise and delight your guests. Make sure that there's hot cocoa and tea and coffee or a labeled bottle of wine. Things that people are paying top dollar expect to get. You don't have to do that during the lower time periods, the lower payments during the week, but it's nice to spoil the people that are paying big bucks to stay in your places.
So this is how we reach 90, 95% occupancy. We just meet the market each day. One thing that I do manually, and we won't go too far into this one, an overview episode, is in the near term I do manually look at any openings over the next seven to 14 days. If PriceLabs is discounting them, but they're still not booking, you can go into PriceLabs and do a manual discounting where I'll take another 5% or 10% off the nightly rate and I will do that until it books.
Culin, why don't you tell them about the concept you came up with about pricing your weekends to push your weekdays to being booked? If people fall in love with your property and your weekend is booked and your weekdays are half the price, then people will adjust. And I think particularly after Covid, people are a little bit more flexible with their time off and they're working away.
When those weekends fill up, it does push people into more weekday stays, increasing your weekday occupancy and PriceLabs does it. So your weekends - your Friday, Saturday, Sunday will be a higher price. And that slides people into what Culin calls the shoulder days.
So now you have the silver bullet to Airbnb's success pricing for occupancy. If you were on the fence about Airbnb investing, this should have you leaping into the opportunity to build financial freedom if you already have an Airbnb investment. Pricing for occupancy is a game changer and a profit catalyst!!
We're growing our Airbnb investing podcast and we know, you know, fellow KW agents or clients with Airbnbs. Share this episode with them as a resource. The knowledge in this episode supercharges profitability, and they will thank you and so will we!
If you want personalized help from the Host Coaches - we're delighted to help! You can book a free 30-minute online Airbnb coaching session with us. We also have an Airbnb investing book and audio book available on Amazon to walk you through the 12 steps of Airbnb investing success!
