Once you buy a short term rental property, you need to deploy the right nightly pricing strategy to achieve its true revenue and ROI potential.
In Airbnb investing, your rental income is the product of the daily rate that you get for renting out your property to guests and the occupancy rate that you’re able to achieve. The higher the two metrics are, the more money you’ll be able to make as an Airbnb host. That’s why it’s so important to select the optimal price for each night that your rental is available to guests.
Table of Contents
- What Is Nightly Pricing?
- Why Is It Important for Airbnb Hosts to Monitor and Adjust Their Nightly Pricing?
- How to Automatically Set Your Nightly Pricing That Maximizes Your Revenue
- Getting Started With the Best Airbnb Dynamic Pricing Tool
In this article, we’ll cover all the basics of nightly pricing for vacation rental properties. We’ll discuss what dynamic pricing is, how it works, and why it’s the best strategy for short term rental property investors.
We’ll also show you how Mashvisor’s newly released Dynamic Pricing tool can help you automate and optimize the process of pricing your Airbnb. Unless you adopt artificial intelligence (AI) and machine learning algorithms as your best friends as an Airbnb host, you’ll waste all your time adjusting the daily rates of your rental.
Without further ado, let’s get started!
What Is Nightly Pricing?
Nightly pricing, also known as daily pricing, refers to the ability to set a different price—or rate—for every night that your Airbnb property is listed for rent. To do that, short term rental hosts need to access their listing on the Airbnb platform and enter a value for each day.
The nightly rate of a vacation rental needs to reflect a number of different factors:
- The property size, type, characteristics, and amenities
- The property location and how it compares to other Aribnb listings in the area
- The market seasonality
- Recent and forecast trends in market supply and demand
It means that when pricing their property, Airbnb hosts should consider not only the actual rental but also market dynamics and how similar rentals are performing. In real estate investing, these are called rental comps.
As you can imagine, conducting the necessary Airbnb market research and analysis to price your property in the best possible way can take all your time and energy. You need to continue analyzing the local short term rental market day after day. At the same time, it is a must in order to maximize your occupancy rate, rental revenue, and, ultimately, return on investment.
You should not worry, though. Shortly we’ll show you how you can automatically implement dynamic pricing on Airbnb in a passive yet optimal manner.
Related: 8 Factors That Affect Rental Rate Calculation
Why Is It Important for Airbnb Hosts to Monitor and Adjust Their Nightly Pricing?
Saying that the price you ask for your short term rental property is one of the most important factors for the success of your Airbnb business does not suffice. As a savvy and smart investor, you need to know why it is the case.
Here, we’ll take a look at the four reasons why it is so important for Airbnb hosts to monitor and adjust their nightly pricing. In other words, we’ll investigate why dynamic pricing on Airbnb is a must.
The Nightly Rate Affects Ranking on Airbnb Search
The first reason why you should implement dynamic nightly pricing on your vacation rental, despite the extra work that it entails, is that pricing affects the ranking of listings on Airbnb. Airbnb itself clearly states that the listing price and how it compares to the price of other listings in the area is one of the factors behind its search algorithm.
The short term rental property website claims that its ultimate goal is to provide the best possible experience for guests. It means offering them not only the best rentals with the top amenities but also the listings with the most favorable rates from guests’ point of view. So, if two listings are otherwise identical, the Airbnb search mechanism will favor the cheaper one.
However, you should not simply set your daily rate at a value below the daily rates of all vacation rental comps in the market. If you do it, you’ll be missing out on a major opportunity to enhance income and ROI, as we’ll discuss in a bit. Instead, you should go for smart pricing, which reflects your competitors’ rates each and every day.
The Daily Price Impacts Occupancy
The second reason why strategizing about your Airbnb pricing is a must is that the rates you ask for affect whether guests would like to book your property or one of your competitors. With the right pricing, your listing will not only show higher in search results on Airbnb but will also get more reservations from guests.
After all, many travelers choose short term rentals over hotels in order to save money. So, between two properties that offer similar amenities and experiences, they will go for the cheaper one.
However, if you simply set up your nightly pricing below competitors’ rates and keep it there without any adjustments, you’re likely to be leaving money on the table. Even if your Airbnb occupancy rate is maximized, you won’t be reaching your income potential if the daily rate is too low.
To strike the right balance between nightly rates and occupancy rates, you need to implement dynamic pricing. During peak seasons, you can push up your Airbnb daily rate and still generate a good number of bookings. In low seasons, you should lower the asking rate for your short term rental to minimize vacancy and boost occupancy.
The Nightly Price Determines Rental Income
In Airbnb investment, the rental income is the product of the average daily rate and the occupancy rate expressed in number of days rather than a percentage. That’s why with short term rentals, investors can better enhance revenue than with long term rentals, where income equals the monthly rental rate.
As we said above, generally speaking, the occupancy rate of a vacation rental property is inversely proportional to the nightly pricing rate. But it doesn’t mean that lowering your rate in order to increase bookings will provide you with the maximum amount of Airbnb income.
To optimize Airbnb revenue, you should keep an eye on trends in the local short term rental market, major events in the area, and your competitors’ pricing strategy. As a savvy Airbnb host, you should be thinking ahead and acting proactively.
When you expect an increase in the number of visitors, you can increase your daily rate. When you forecast a slowdown in tourist activities, you need to bring it down. Such a dynamic pricing strategy is the only way to maximize revenue.
The Daily Rate Dictates Return on Investment
Last but not least, the nightly pricing of your vacation rental directly impacts the ROI that your property is able to bring to you. Whether you look at cash flow, cash on cash return, cap rate, or another measure of return on investment in real estate, the rental income is always present in the formula. The rental income, in turn, is affected by the average daily rate.
In order to boost your profit as an Airbnb host, you need to apply a dynamic Airbnb pricing strategy that ensures the highest revenue possible. Alternatively, your investment will generate suboptimal results.
Related: What Is a Good Cash on Cash Return?
How to Automatically Set Your Nightly Pricing That Maximizes Your Revenue
Now that you understand the importance of dynamic nightly pricing for achieving the full potential of your Airbnb investment, the question becomes: What’s the best way to do it?
Basically, there are three ways to apply dynamic pricing to your short term rental: manually, through a property management company, and automatically. The first entails conducting continuous competitive market analysis, and the second means hiring an Airbnb property manager. The third requires a pricing tool to automate the process.
Using Rental Comps to Adjust Nightly Rates
The traditional method of optimizing the daily rates of your short term rental property means that you must constantly keep an eye on the local market and your competitors. You need to explore available listings on the Airbnb platform that are located in the same area as your investment property. Find also listings that offer the same space, amenities, and experiences.
Once you’ve identified a few short term rental comps, you need to keep coming back to them every few days to check out their nightly prices for the upcoming weeks and months. Then, you need to analyze the trends and adjust your own daily rates accordingly.
Ideally, you should set your nightly price just below your competitors unless you are able to provide a bit more than they do. Such an Airbnb pricing strategy will help your listing rank better in Airbnb search results and will make it more attractive to guests.
However, the said approach is as far away from passive real estate investing as it gets. As an Airbnb host, you don’t want to spend all your time and energy tracking your competitors and adjusting rates on your calendar.
Using a Professional Property Management Company
To avoid such an active approach, many Airbnb investors opt for working with a professional Airbnb property manager, which can be either a local expert or a nationwide company. One of the main tasks of all short term rental property managers is to apply dynamic nightly pricing to boost revenue and profit. They should do it for both the property owner and for themselves.
While hiring a property manager offers a lot of benefits, it comes with one major downside: You need to split the revenue with them. As most Airbnb property managers charge between 20% and 40% of rental revenue, you’ll need to give up a significant portion of your potential income and ROI.
Once again, it is not an ideal scenario, especially when Airbnb hosts can access Airbnb pricing tools that cost just a fraction of property management fees.
Related: How to Choose an Airbnb Property Management Company
Using a Dynamic Pricing Automation Tool to Set Daily Prices
The most efficient way to set Airbnb dynamic pricing that maximizes revenue for you is to use an automation pricing tool.
But where can you find the best nightly pricing automation tool in the US vacation rental market?
Right here on Mashvisor!
What Is the Mashvisor Dynamic Pricing Tool?
To meet the needs of busy Airbnb hosts, we’ve just released our newest tool: The Mashvisor Dynamic Pricing Tool.
Our tool allows short term rental property investors to connect their Airbnb listings directly with our platform to start automating the process of setting up dynamic pricing. Whether you own a single Airbnb property or manage an entire portfolio, you can easily import them within a few minutes in a secure and safe way.
After importing your listing(s), the Mashvisor pricing tool will take over the management from Airbnb so that you don’t need to use multiple platforms to manage your vacation rentals.
How Does the Mashvisor Airbnb Pricing Tool Work?
On the Mashvisor platform, you can set your base price, as well as your minimum and maximum price.
To do that in the most optimal way possible, Mashvisor will provide you with access to Market Insights. It is an easy-to-use summary of the average performance of Airbnb properties in your area.
The available vacation rental data includes the average daily rate that hosts charge, as well as the occupancy rate and monthly revenue that it leads to. You can filter the results for your property type and number of bedrooms for the most accurate estimates.
If you’d like to exert more control over your listing, you can go to the calendar available on the Mashvisor dynamic pricing tool and enter the rates that you’d like to charge each day. You can adjust them by day or by an entire period.
If, on the other hand, you’d like to benefit from a passive investment, you can allow Mashvisor to automatically adjust the rates on your behalf. Indeed, the approach will lead to much better results unless you are a professional Airbnb investor with decades of experience in the short term rental industry.
The Mashvisor dynamic pricing tool analyzes the entire local market through the power of AI and machine learning to choose the best nightly pricing for each day. The rate is tailored to your specific property type and size, as well as the extras that it provides.
In such a case, the best price refers to the daily rate that will maximize your revenue by striking the right balance between pricing and occupancy.
To apply dynamic pricing to boost the revenue of your Airbnb property, sign up for a 7-day free trial of Mashvisor now.
Getting Started With the Best Airbnb Dynamic Pricing Tool
With over six million Airbnb listings around the world, implementing dynamic nightly pricing is now considered a must to outperform the competition and maximize your monthly rental income. The good news for Airbnb hosts is that they don’t need to spend hours a day analyzing rental comps. They also don’t need to share their profit with a professional manager to launch the best pricing strategy.
What they need to do instead is to get access to the best automation tool: The Mashvisor Dynamic Pricing Tool. The tool will allow them to hit the optimal nightly rates day after day based on AI-driven market research and competitor analysis. Meanwhile, Airbnb hosts can enjoy their passive income without the need for any intervention from them.
To learn more about the power of our pricing automation tool, schedule a free demo today.