Setting Daily Airbnb Rates Too High: One Victory Not Worth Winning  | Cape Town Airbnb Management Agency
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Setting Daily Airbnb Rates Too High: One Victory Not Worth Winning 

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Setting Daily Airbnb Rates Too High: A Victory Not Worth Winning 

setting airbnb rates high is a pyrrhic victory

Introduction To Setting Daily Airbnb Rates Too High

Setting daily Airbnb rates is easy, but not simple. And Tom, Dick and their friend can set rates. But the question I always ask is, why do Superhosts do twice as much as ordinary Airbnb hosts? And this is nothing to boast about, as the average mom and pop, Airbnb hosts do not really do well (read the LearnAirbnb study). 

There are lots of reasons Is they fail. One major cause is they are clueless about setting the best daily Airbnb rates.

They normally set daily Airbnb rates three ways: 

  • Too high,
  • Too low or 
  • Just right. 

The problem is they don’t know what just – right is.

But there is a way. And we will get there, but let’s start at the beginning…

We all forget (or rather ignore) how to create trust and that the guest is the only judge of what is just right. More later. 

They prefer one solution…

Their Instinct Is To Go For The Apparent Comfort Of Setting High Rates. 

The easy way out. High rates, to them, translate to the elusive money at the end of the rainbow. 

They must believe that if they err, rather err on the high side. What a pyrrhic victory. 

Sadly, it only has bragability rights.

Is Setting Airbnb Rates High A Victory Not Worth Winning?

To answer this, I need to discuss a law we are familiar with.

I was always aware of what winning the battle but losing the war means. But I was not aware that it’s called the Pyrrhic Victory.

You Win The Battle But Lose The War

It is “a victory that is not worth winning because so much is lost to achieve it.” Merriam Webster definition of Pyrrhic Ref. (more on Pyrrhic here). 

Let me be bold and say… 

Setting Airbnb rates high is a victory not worth winning.

Now I have to prove this to you. Hopefully, I will do it. 

We got this very kind owner onboard. When we asked her how much she expected, annually, for her holiday home, she fell back into telling us what her daily rates should be. 

This is a sure sign of setting us all up for a Pyrrhic Victory. 

Why Not Focus On Our Long Term Income Goals?

Because we know some new owners have high daily rate expectations, we work hard at agreeing on the alternative; focusing on annual income goals, rather. 

Using the annual goal helps us to set competitive daily rates to achieve our long-term objectives.  

But now and then the owner would pressure us and say something like, I think x high rate per day will be better, or I asked this much per day in the past. 

Or, my hotel room in Paris was more expensive than you are suggesting for my house. Blablabla. 

Some stubborn owners would even instruct us on what the daily rates should be. 

Read: Two Chefs In The Kitchen Are One Too Many. 

Setting Airbnb Rates High: The Casualties

Let’s have a look at a few nasty implications of these pyrrhic victory loving owners. 

No Trust Equals Low Occupancy

Seth Godin said, 

Earn trust, earn trust, earn trust, then work on the rest. 

What is not clear to new hosts is the impact a lack of trust has on their income.

A new Airbnb listing has zero trust. And the host, therefore, pays a price for this lack. Only attractive rates smooth out this resistance to reserve.

See this LearnAirbnb graph showing the occupancy vs number of reviews (where trust increases as the number of reviews increases).

Please, let’s focus on trust. 

Why Is There No Goal To Get The First Fish On The Hook? 

The first aim of the new host should be to get a fish on the hook, then many more. And coach these guests into giving nothing but 5-star reviews when they depart. Remember, we are working on trust. 

But who wants to wait for that? 

And I can just hear the owner complain…

“It’s nothing but a waste of time. Your suggested rates will bring me terrible guests.”

This owner’s objection is just another fantasy (read more here). 

We talk about guests and trust through 5-star reviews. But the owner focuses on the rates. It’s a divide not easily bridged. 

The Risk Of Setting Daily Airbnb Rates High Brings Window Shoppers But No Buyers

Each Airbnb page has about 20 listings. When you search for accommodation, you get 100s of potential stays. But only 20 on page one. 

Which of these 100s of listings get the most attention from potential guests? Page one, obviously. 

Draw Them In. Get A Quick Reservation 

Airbnb knows there is nothing as welcoming as a host’s first reservation. And they promote new listings to the top. 

As a new owner, with high rates, your listing gets seen by many guests, but there are no or very few takers. 

Airbnb Has A Love Making Index – Ignore Love At Your Own Peril 

This measurement has a different name at Airbnb. Lovemaking, for me, is just clear and descriptive. 

Airbnb measures the number of window shoppers walking past vs the ones coming in and the ones buying. 

If many guests see your home, maybe have a look at the photos but reject it on no reviews or poor reviews (trust) and high rates, then you fail Airbnb. And Airbnb drops you from the top page. 

You are not making love to Airbnb

Setting daily Airbnb rates just right or just wrong has consequences; Airbnb expects guests to reserve your home as gifts from you to them. Give none or infrequently you are not making love (more here). 

Remember… 

Guests are the judges of just-right rates. Airbnb knows this, but you are too busy pyrrhicing around with plastic soldiers in the sand. 

It’s a hard lesson to learn. It has taken a few stubborn owners a long time to accept that they are losing lots of money, ignoring accumulating trust and Judge-Guest. 

Why Do These Owners Ignore Unreserved Dates That Are Causing Big Losses? 

I must share this madness with you. And I would need an example to explain.

Owner: I Want An Extra R1500 Per Night! 

Our homeowner sets the high rates. Let’s assume R5000 per night is just right. But the homeowner wants R7500 per night. 

Which is R1500 too much for guests. 

The owner is worried about not making an extra R1500 per night. Dumb. 

Instead Of Accumulating Trust, They Accumulate Unoccupied Days

What happens when the home is not occupied for one day? They will drop a potential R5000. The worst is that they will not lose only R5000 as the unoccupied days accumulate. It will be a disaster. 

(But do they care?) 

At What Cost Are These Owners Winning The Daily High Pricing Battles? 

They are not worried about days where they should have made money but made zero. It’s like water under the bridge. 

This confuses me: Do they prefer zero occupancies as long as they have high rates?

Does it make sense to you? 

I could give them R50000 in ten days instead of zero. But they still complain that the daily Airbnb rates were too low. 😳😳

They are so focused on winning an insignificant battle they will sacrifice a lot of income. 

What Can You Learn From The Travesty Of Setting Airbnb Rates High? 

Unfortunately, some owners learn nothing. Most will get it from day one. Others took years of darkness to see the light. 

  • By now you know that if your rates are too high you learn nothing, other than learning about your empty bank account. 
  • The owner who focuses on annual goals and stacking up trust will succeed. 

When HomeOwners Change Their Mind & Accept The Guest Is The Only Judge Of Rates… 

That’s the day when the war is over. The mental war of setting high rates is exhausted. Gone. Bodies lying around. 

You become humble. You want to make peace with the guest. And listen. 

Now That Peace Is In The Air How Do We Set Airbnb Daily Rates To Succeed? 

By now we agree:

The Guest Is The Only Judge Of Value! 

I have said it. But I like to repeat it.😉

Setting daily rates is not driven by crazy high or stupid low daily rates. No. We must find reasonable just-right-daily rates as directed by whom? Guests. 

How Do We Set Just Right Daily Airbnb Rates? 

Let me not elaborate, as this is a long discussion for another day. I’ll summarise. 

A Few Daily Rate Pointers

  • Your daily rates are based on supply and demand.
  • If rates are too low, you’ll get (too) many reservations. If too high, too few or no reservations. 
  • If too many reservations then increase the rates, if too few, then reduce the rates. 
  • Guests compare on rate, review ratings and number of reviews first. If rates are too high and the reviews too few (or bad) they skip you. 
  • When they skip you, Airbnb drops you out of contention. 
  • Don’t forget the resistance to reserve with no or few reviews. 

How Do We Use The Annual Income Goal To Guide Airbnb Daily Rates? 

Again, let’s try an example to explain. Assume we agreed on R700000 annually. (The Pyrrhic owner wants R7500 per night). 

  • First, let’s get a ground-zero figure: At a 100% occupancy rate, only R1918 is required per night (for 365 days) to get R700000.
  • At 60% occupancy, we can achieve R700000 per year with a rate of R3200 per night. And we could easily get 60% or even higher.
  • As a guide (or best gut feel): You now set short-stay (4 night) rates high, at say R5000 per night and progressively discount for longer stays until you get to R3200 p/n for 28 nights stays. 
  • Adjust for seasons. 

Side Note: The above excludes the expected R210000 we will generate in 14 days over high peak. (About 30% of the R700000 is made over the Christmas and New Year period (4% of the year generates 30% of the income)). 

You Never Stop Adjusting Airbnb Daily Rates

That’s the recipe. Well, most of it. You never stop adjusting. You still work on increasing rates at high demand or reducing rates at low demand periods. 

If demand is high, then why not beat R700000?

When Demand Is Low; Be Bold With Rates.

For example, it was early Jan. We had a great run with a home; most of January and February booked. But nothing for the next 14 days, early Jan. 

Today is 2 Jan and time is running out. The rate is R5000 per night. But having so many open nights is bad. Let’s reduce the next 14 days to R4000 per night. We are giving R1000 away to make R4000 instead of zero. (We will sacrifice the pyrrhic owner’s principles to make some money).  

Adjust Rates For Seasons

Obviously, we adjust for seasons; summer, winter and high season. During high season, rates are three times higher and minimum-length of stay increases from 4 nights to 10 or more nights. 

Summary:

Vote Against Large Losses By Not Relying On Empty Promises Of High Rates

The high daily rate battles bring nothing but an illusion. 

The goal is to achieve the annual income aim. The long game. 

When you play the game right, you have something substantial to bank, and you are happy. Guests are happy. And Airbnb rewards you with more because you are making love to them. The review count increases, occupancy increases, rates increases. It’s an upward spiral.

Who would not choose just-right-rates driven by guests? 

What Did We Learn From This Experience? 

Setting daily Airbnb rates is not the driver of profitability. It’s a combination of factors. 

We believe in allowing the level of trust to accumulate. By focusing on getting guests to stay, paying the price with competitive rates, we not only increase demand, but we also stack up high scoring reviews. 

Today, demand for our Arbnb accommodation is high. We even get the odd far-in-advance reservation. This means we should probably increase rates, slightly, over that future period.

This is the ideal place to be. And as you will agree, the pyrrhic victory mentally is not the way to get here. Let me conclude with Seth Godin;

“Build trust and earn attention. The entity that gets the most trust will get the most customers.”

Have fun

 

Johan Horak

At CapeHolidays where only the remarkable is good enough. It’s not always easy. 

BTW: Do you have other ideas about setting daily Airbnb rates?

 

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