Why Does The Success Measure Of Airbnb Occupancy Create Such A Dilemma For Owners?
I see they define dilemma as
.. a situation in which a difficult choice has to be made between two or more alternatives, especially ones that are equally undesirable.
I suppose a dilemma is a tough choice between two or more apparently constraining (not fully grasped or explained) equally undesirable concepts.
Let me elaborate…
We had a potential owner of a fancy two-bedroom apartment who declined our Airbnb management services.
We considered his questions and concerns. Unfortunately, we suggested we may not be the right match. And he agreed:
I’ve given it some thought and agree that this may not be the right match for me. I don’t really want to go for more occupancy even on much lower rates. The financials just don’t work for me.
It was just one dilemma too many. But within the Airbnb context, what is his dilemma? Let me try to explain. If I can answer this properly, hopefully, other owners may benefit from it.
He mentioned more occupancy, low rates and financials (annual income?) in the same breath.
I want to share what we mean by maximising annual Airbnb income, and how it’s done through a focus on occupancy.
But what do we mean by Airbnb occupancy, low rates and (maximising) annual income?
By defining these concepts better and by adding additional Airbnb success drivers, we can connect the dots better and understand their relationships.
At day zero, with no reviews yet, you’ll notice how we establish momentum by initially setting competitive rates. To ensure we attract guests who will review us quickly.
Built on trust with the machine generating reviews we set the trust-building snowball to run downhill gaining momentum. Demand increases, occupancy increases and we can now increase rates to increase annual Airbnb income.
The reason we explain this process, and repeat ideas, is because new owners unfortunately assume the worst hell will descend.
Therefore, let’s define maximising annual Airbnb income, and tell you how we try to set reasonable rates for the first year looking at Airbnb occupancy, demand and other.
Get a coffee.
Is he saying much lower (rates) will cause high occupancy and that his financials will therefore not work?
This is a quick jump from low rates to high Airbnb occupancy to poor finances. Is the owner connecting too few dots to draw such a conclusion?
We will find out.
Let me set the scene.
The following, not always obvious, drivers worsen the uninitiated Airbnb owner’s dilemma:
- Most owners want to maximise their return on investment.
- The word maximise is a concern for new owners. They imagine guests running amok in their precious abode while we <the agent) try to maximise annual Airbnb income at all costs. (False)
- New owners are worried about terrible guests, and to them low rates equal poor guests. (False)
- And the high rates make them money. (False) High rates with no Airbnb occupancy equals zero.
- With Airbnb, 99% of terrible guests get eliminated through the vetting process. (True)
- Arbitrary high rates defy the principle of supply and demand. (True)
- With high rates, momentum (gathered through reviews) slows down and reduces income. (True)
- Learn To Make Love To Airbnb; The best way to get Airbnb to ignore (divorce) you is with low. (True)
Okay, allow me to tackle the topics in more detail below, but let’s define a few concepts.
- Low rates for professional hosts means reasonable and competitive rates during low demand periods or when at zero or few reviews.
- High rates mean rates set because of high demand (high occupancy).
- Demand and supply: high demand / low supply increases occupancy and rates. Low demand increases supply counteracts with competitive rates.
- Occupancy is a measure of success. And Airbnb can rank your listing higher.
- High occupancy too far in advance means the daily rates were too low; Increase the daily rates. The opposite is true as well.
Did you again notice that rate changes are a consequence of occupancy or demand?
Now that we have the same hymn book, we can consider the Airbnb Success Drivers.
How many kisses made you happy at 18? Airbnb Feels The Same!
Getting one kiss, at 18, was a life-changing experience. But if you had a relationship, going kissing was a big thing.
How important were many kisses or no kisses to your relationship? We are all different, but a kiss was a good confirmation. And many? Heaven.
Most of us would not be happy with one kiss a month. Do you think Airbnb will promote your listing if you get a reservation once a month? (Because of your HIGH daily rate constraints).
You need to learn how to make love to Airbnb. Today’s article is also about getting kissed by Airbnb because you are doing good things.
Obviously, fear is a nasty, very nasty driver. The owner is driven to make quick decisions. It may even drive the owner to connect a few dots and set owners up for mediocrity.
An Airbnb business is simple to run. But only when you identifiy and connect all the dots. And understand the relationship between the dots. Now you’ll start earning good money.
What are some fears?
There are a few terrible guests. As, Airbnb Management Agency for many years, we take this for granted. Not because we like terrible guests, but because we know how to limit them effectively.
We understand, new owners are afraid. However, when they learn what we know it’s no longer a major issue.
As long as you don’t connect high occupancy, low rates to imply terrible guests.
Years ago, before Airbnb, we couldn’t verify guests. Even today, Booking.com and most other similar sites don’t have a guest rating (verification) system. The risk is high. (That’s why we don’t use Booking.com and others).
Airbnb gives us the previous review records, and where they stayed. If they don’t meet decency criteria, they cannot reserve. They need to ask.
We then read their previous reviews and ask why they got negative reviews. Or what they intend to do if they have no reviews. Only FULLY VERIFIED guests stay with us.
You can see that daily rates are never criteria to accept a guest or not. It’s a poor practice. Guests’ previous review ratings, reviews and verification (with Airbnb) are excellent and more than enough.
High occupancy and high demand depend on? Trust; number of reviews and host status.
Being a Superhost is a trustworthy status.
We have been Airbnb Superhost for more years than I can remember. And it’s with pride that we wear this badge.
Guests care about quality and value. And Superhost means that.
According to the LearnAirbnb study, the average Superhost earns twice as much as ordinary Airbnb hosts. But good Superhost hosts earn lots more.
Guests flock to Superhost. To me, this is the proof of my argument. Everything I am trying to share is that hosts need to work on building trust before anything else.
Guests go with features first, then decide on photos (professional photos), then confirm it with the host’s rating out of 5 and then they read previous guests reviews for confirmation. Now they have all the information to justify the rate they will pay.
Superhosts gets a badge of honour, below the left of their profile photo, for guests to take note of. And guests can search specifically to only see Superhosts listings. Knowing it guarantees them a high standard of service.
This LearnAirbnb.com study, done before Covid, clearly shows the importance of creating trust through reviews.
The relationship between the number of reviews to occupancy (demand) is not really equal. But there is a good correlation to show the importance.
The highest occupancy is at 250 reviews. At 50 reviews they got 50% occupancy.
Things changed after Covid as guests started staying longer. Which increased occupancy at fewer reviews.
In general we can still say; the more reviews the higher the annual Airbnb income for the host.
What does this imply?
- Don’t let apparent low rates make you oblivious to gaining trust creating reviews.
- Invest in competitive rates, and discount long stays, to create high demand (many stays) which generates more reviews.
- A reminder: High demand, high Airbnb occupancy, with great guests means you are making love to Airbnb. And they reward you with high search listings.
- We focused the first year on learning, creating higher demand through excellent reviews, gathering more reviews and adjusting rates to demand.
Read how you become an Airbnb Superhost.
Professional Superhosts have been through the Airbnb mill. They understand the relationship between Airbnb occupancy, rates, number of 5 star reviews, the momentum (number of reservations over time) on occupancy and how it drives demand up. And as demand increases, Airbnb occupancy increases, rate increases follow and annual Airbnb income increases.
When you list your accommodation with a Superhost Airbnb agency, you may have zero reviews. But guests see our Superhost badge and Airbnb makes our +1300 4.9 star 🌟 reviews readily available to enquiring guests.
Build trust, more trust, and then even more. Now focus on the rest.
Many new Airbnb owners, using an agency, demanding a high- daily-rates-make-me-money strategy ignore the guest’s freedom to choose.
I have mentioned trust and I will mention it again. Never forget it.
What does a lack of trust mean? Guests will vote with their wallets and go where trust exists. They will skip your high rate zero reviews offer. Because they get better value elsewhere.
The only judge of value is the guests who made the reservation.
And don’t ignore the aspects of regularity and quantity. One reservation is not enough. You need excellent guests to reserve often.
Practical: How To Set The Best Annual Income To Aim For An Airbnb Starting At Day Zero For Our Daily Pricing
It’s day zero. Zero reviews. Zero credibility. And we compete with Superhosts. How do we attract guests?
With high rates? 😍
Our aim should be to beat an annual Airbnb income target. But during year one, we have no clue what to aim for. We need to establish common ground between us and the owner.
Note: the owner and Airbnb agency work together on the strategic long-term goals. But here after the owner should make space for the agent to get the job done. Or get another agent.
How High Owner’s Expectations Kill The Relationship And The Ability To Maximise Annual Airbnb Income
Owner’s expectations are not only a guideline to establish annual income goals. No. There is no way we can work with an owner who sits with expectations we cannot meet. That’s why we ask them what they would like to make in a year.
Mostly, they would pass the buck back. And say, but you are the experts. Yes, we are but we are not talking about our expert opinion yet.
We need to see if the owner has an unrealistic high, a reasonable, or very low annual expectation.
This tells us immediately if we can work with the owner. With, unrealistic high expectations, we know we cannot work with the owner. The others are easier.
With unrealistic annual income expectations, the proposal I will share will not work. Because the eventual rates will not be competitive. And the push-for-high-income-owner finds it difficult to accept our longer term strategy of supply demand building trust. And it creates limited to no freedom to gain trust before we gain momentum.
With that out of the way…
Let me share our thoughts on how to approximate day-zero annual income:
- We ask for the owner’s expectations. If reasonable, we continue.
- We discuss how this compares to annual long-term rentals rates in the area.
- In general, we, at least, want to beat long-term rental income at 50% Airbnb occupancy. It’s not always possible. We are still gathering trust (reviews) and building momentum in year one.
You (or your Airbnb agent, if you use one) take your reasonable annual goal and now slice and dice it. I’ll not get into a lot of details as it will require many words.
Here are the oversimplified steps to set first year Airbnb daily rates:
- Divide the annual expected income goal by 365 days. This figure is the minimum daily amount you want if you rented your accommodation for a year. Call it the average daily rate for the year (AD). The AD is now adjusted for seasons and length of stay.
- Take the AD rates as a guide and significantly increase it for your high peak periods. Check on your Superhost competitors to see their rates. They know the business.
- Take the AD rates and increase it for 28 night stays for summer and more-popular summer months.
- Take the AD and reduce it for winter months and set 28 night stay rates.
- Then go to seasonal periods and take your daily rates as set above, and increase short stays by 30 to 40%. Then discount slightly for 14 and 21 nights until you are back at your seasonal 28 night stay rates.
- Adjust for demand. When you get a reservation 5 to 12 months in advance, know that your rates are probably too low. Increase them slightly.
- When you get many reservations for a period, increase the rates.
- When your immediate months and weeks attract little or no reservations, your rates are too optimistic. Reduce them.
- As a guideline, we like to have two months, in advance, occupied at 50 to 80%. Go through your rates weekly and adjust them up or down.
- BTW. Airbnb credits you with (guest) attention if you adjust rates regularly.
Continue to play the rate-adjustment game according to demand – occupancy. And you will eventually get it. Your demand will increase, increasing occupancy with great guests, leaving you excellent reviews (I hope). All of which makes you, well deserved, more money.
To maximise occupancy or not? What is the verdict? Well, if I explained myself well, it’s now for you to tell.
My intention was to show you how trust creates momentum, how Airbnb loves speed, how guests and Airbnb award you for your investment in relationships.
And as you invest and gain in trust, demand for your Airbnb increases, occupancy increases and how you adapt your daily rates based on supply and demand.
☝️Trust => ☝️Demand =>☝️Airbnb Occupancy => ☝️Rates = Increased Annual Income
Never did you read that arbitrary high rates have any value. Setting high rates to vetting guests is poor practice and causes poor returns.
What is your opinion? How can we improve our Airbnb Occupancy strategy?
Regards Johan Horak
Experience The 5 Star Cape Town Airbnb Superhost Management Agency
Earn trust, earn trust, earn trust. Then you can worry about the rest.”
– Seth Godin
Other Questions On Airbnb Occupancy
- What are Airbnb Occupancy Rates? Occupancy rates are the proportion of days in a month for which a property has bookings, and it’s one of the most important key performance indicators for any vacation rental owner or property manager. If you have a property with a high occupancy rate you’ll see significant revenue generation, but what occupancy rate should you be aiming for? What makes up a “good” occupancy rate? Read more at AllTheRooms…
- What are the ideal occupancy rates for Airbnb? 80 to 90%. The average is less than 50% as per AllTheRooms. Our Airbnb’s run at 65% to 90%. Obviously, Airbnb occupancy depends on how guests judge it – reviews.
- How do you increase Airbnb occupancy? You set competitive daily rates, more optimistic rates far in advance, very competitive rates for immediate open days. Two months in advance is immediate. Set seasonal rates and shorten length of stay. But increase stay length for high demand periods. Encourage every guest to write a review. Set your Airbnb up to get many reviews. The speed and quality of reviews increase occupancy, this increases demand. Become a SuperHost. Now you can increase rates.