Here is what you need to know about Airbnb’s service fee under the new payment structure, and how you can calculate the most optimal nightly rate.
Airbnb remains to be the world’s largest online marketplace for vacation rentals. And as a real estate investor, buying a property and putting it up for short-term rental on this platform is a lucrative investment. But before you do that, it is important to understand the costs of listing your rental home on this website.
Until 2020, most Airbnb hosts were paying 3% to 5% service fee for each reservation under the split-fee structure. But now, many have to pay 14% to 16%. What does this mean for hosts like you?
In this article, you will learn all about the Airbnb service fee:
- Its two payment structures and which one would apply to you
- What the latest service fee structure means to new and existing Airbnb hosts
- Why you do not need to worry about the new service fee structure
- Ways you can make sure that your Airbnb is profitable
- How you can find the exact Airbnb service fee amounts
What Is Airbnb Service Fee?
Airbnb charges a service fee to both hosts and guests. This helps the platform run and covers the costs of the products and services that they provide.
When it comes to booking a place to stay, the Airbnb service fee is divided into two categories:
Shared Host and Guest Fees or Split-Fee Structure
This is the fee structure most often used on the platform. Here, Airbnb charges a service fee to both host and guest.
The host service fee, just like all Airbnb hosting fees, is deducted from the host payout. Under the split-fee structure, it amounts to 3% of the booking subtotal. This subtotal consists of the nightly rate, cleaning fee, and any extra guest fee but excludes Airbnb fees and taxes. Airbnb Plus, Airbnbs in Italy, and Airbnbs with Super Strict cancellation policies may pay more.
Meanwhile, the Airbnb guest service fee amounts to 14.2% of the booking subtotal, but it may actually go up to 20%. This varies on many booking factors such as the reservation subtotal, the length of stay, and the listing characteristics. The guest service fee usually gets lower as the reservation cost gets higher. Guests can see the Airbnb fee breakdown before they book a reservation and as they check out.
Host-Only Fee Structure
Beginning in 2019, Airbnb fees for hosts was revised to help hosts offer a predictable, competitive price. How much are Airbnb fees under this structure? It ranges from 14% to 20% of the booking subtotal and is deducted from the host payout. Airbnb Plus and those with Super Strict cancellation may pay an extra 2% or more, while Airbnbs in Mainland China pay only 10%. Guests will not be charged a service fee when they book an Airbnb that uses this arrangement.
The host-only fee structure is mandatory for hotels and software-connected hosts. But Airbnbs in the US, Canada, the Bahamas, Mexico, Argentina, Taiwan, or Uruguay are exempted. The rest of the Airbnbs have the option to switch to this arrangement instead of the split-fee structure.
How to Find the Exact Service Fee on Airbnb
Airbnb calculates its service fee based on the booking subtotal. This is the sum of the nightly rate, cleaning fee, and additional guest fee (if applicable). The platform does not publish the exact criteria it uses to calculate its service fee. So the only option you have is to find it on each reservation.
As a Host
Hosts can go to their Airbnb inbox and open the guest message thread. Or, they can also go to Transaction History and click on the reservation that they want to review. In both methods, they should find the Payout section, which breaks down the charges including the Airbnb Service Fee.
As a Guest
Meanwhile, guests will first have to enter their booking dates and the number of people staying. When they view a listing afterward, the service fee–along with other costs–will show up towards the bottom of that Airbnb’s rate card.
What the Latest Service Fee Structure Means to Airbnb Hosts
As of this writing, Airbnb has not eliminated guest fees altogether. The platform will continue to get their 23% to 25% Airbnb service fee from hosts who remain to opt for the split-fee structure and their guests.
If your listings are in the US, Canada, Mexico, the Bahamas, Argentina, Taiwan, or Uruguay, then you may stick to the split-fee payment structure. Switching to the host-only fee structure is optional.
But if you have at least one traditional hospitality listing regardless of your location, you will use the new structure by default. You are not allowed to switch your account to the split-fee structure.
If you are using the host-only fee payment structure for your Airbnb listings, you might see more bookings. According to Airbnb, hosts who tried it out in 2019 saw an average increase of 17% in their bookings. This is because guests prefer to book places that do not have a guest fee. Of course, you still have to price your rates competitively to attract bookings.
Under the host-only fee payment structure, a message will say that you are covering the guests’ service fee. This message is especially important in regions where guests are not used to paying fees on other booking platforms.
Why Hosts Do Not Need to Worry About the New Airbnb Fees
If you worry that you might have to increase your prices by 14% to 16% to match the new Airbnb cost to the host, you may not have to. But it is a good idea to review your pricing anyway.
When Airbnb first tested the host-only fee structure, the hosts that were part of the study reported an increase in bookings by an average of 17%. This makes sense because, from the guest’s perspective, they see savings and clarity.
Because the listing says that you are covering the guests’ service fee, they would think that they are getting a great deal. This especially works if the guest has encountered the Airbnb service fee in a previous booking. They would also no longer wonder where the added fees are coming from.
Before thinking about whether to increase your price, you also need to consider the potential increase in bookings you will get. If, under the host-only fee structure, you keep your current price but get 17% more bookings, how much profit would you get? And is it better or worse than when you were using the split-fee structure?
How to Make Sure That Your Airbnb Is Profitable
You need to make sure that your listings are turning profits under your chosen payment structure. And if possible, try to find ways to gain independence from Airbnb so you do not get exploited by the one thing that is getting you bookings.
#1: Review Your Nightly Rate
Before calculating how much you need to charge on your Airbnb, you first need to look at three metrics:
- Cash flow. This is the difference between your monthly income and expenses related to your Airbnb bookings. With this, you will have an accurate picture of your listing’s profit margin.
- Cash-on-cash return. This is the ratio of your annual pre-tax cash flow to the total cash invested. Your listing should have a cash-on-cash return of at least 8%.
- Cap rate. This measures your net operating income relative to your listing’s current market value or purchase price. It gives you a quick view of the property’s potential for profitability.
Once you know how your Airbnbs are doing based on the three key metrics, you can calculate your potential returns with the new payment structure. You can do this with a real estate investment tool like Mashvisor’s Airbnb investment property calculator.
Our calculator has made it easy for investors to determine the profitability of their vacation rentals. We use up-to-date data taken from Airbnb itself along with machine-learning algorithms to give accurate calculations. So instead of manually collecting data from Airbnb, which may take days, you can review your investment’s performance and make the necessary adjustments in minutes.
Even if our Airbnb calculator is more commonly used by investors to decide whether the property they wish to buy has big profit potential, you can still use it for your current properties.
How to use Mashvisor’s Airbnb calculator
- Log into Mashvisor’s Property Finder.
- Click on any listing, then scroll down to the Rental Strategy section.
- Input the information that you already have, such as your current gross monthly rental income, occupancy rate (per year), one-time startup costs, and monthly expenses.
- If you have not yet started hosting on Airbnb, you can use Mashvisor to get the Airbnb data for the neighborhood where your property is located. Just type in the neighborhood in the search bar and click on a listing. You should find the analytics for the neighborhood below the analytics for the listing you clicked on.
- Add custom expense to include the Airbnb service fee. You can estimate by getting 3% (for split-fee structure) or 16% (for host-only fee structure) of your monthly rental income.
- If you are still paying the mortgage for that listing, configure it under the Mortgage calculator.
- You should then see the monthly expenses, cash flow, cash-on-cash return, and cap rate for your listing. If you scroll down, you will also find the Investment Payback Table, which shows year-on-year projections.
- If the numbers are below your targets, you could edit your monthly income and the Airbnb service fee until you find the correct amounts that will earn profits.
- Once you are happy with the calculated monthly income, you can calculate your optimal nightly rate by using this formula: (Monthly income * 12) / occupancy rate in days.
The host-fee structure might increase your actual occupancy rate by 17% based on Airbnb’s test. Nevertheless, it is best to use your current or neighborhood-average occupancy rate in your calculations to keep your estimate conservative.
#2: Consider Becoming Less Dependent on Airbnb
Because Airbnb owns the platform where you manage your listing, they reserve the right to change their service fee whenever they see fit. Even though they notify the hosts well before the implementation date, these changes could still affect your bottom line.
Airbnb also alters its algorithms at will. These changes can result in your listing dropping down in the search results, affecting your occupancy rate. Thus, it is better to prepare for these changes not just by increasing your nightly rate, but also by doing the following:
Get Listed on Other Channels
The easiest way to become less dependent on Airbnb is to get listed on other channels. Vrbo, Booking.com, Expedia, Tripadvisor, and Agoda are some of the few booking websites that allow both hotels and vacation homes to be listed.
Build a Direct Booking Website
By building your own website where you can accept direct bookings, you will no longer need to worry about commission fees, and you will also have more control over your marketing efforts.
Take Control of Your Bottom Line
There are two structures for Airbnb service fee:
- The split-fee structure, in which both host and guest are charged 3% and 14.2% of the booking subtotal; and,
- The host-only fee structure, in which only the host is charged 14% to 16% of the booking subtotal.
The second payment structure is only mandatory for certain hosts. If your listings are in the US, for example, and you are not part of a hospitality business or did not sign up using third-party software, you are free to choose between split-fee and host-only. And while the host-only fee structure charges more commission, the fact that the guests no longer have to pay a service fee may increase the number of your bookings. This may offset the higher expense.
To determine if this change would benefit your listing, however, you can make your projections using a tool like Mashvisor’s Airbnb calculator. This could help you not only decide on which payment structure to use, but also determine the optimal nightly rate to charge. If you want to get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today followed by 15% off for life.
