School Holiday Owners (1)
All FAQs: Home Owner (4)
New owners are concerned, initially, with the daily rates we set.
“Set the Airbnb rates high and I am happy. Rates are my measure of success!”
For example, I got this email from a new owner, after we notified him of his second booking.
I would have expected the going rate to be higher late in November….but I know you guys know what you are doing.
Although he says we know what we do, he is concerned. Correctly so.
And most owners, initially, feel the same way. Only high rates will ease their minds. But after they realise we are stacking snow, hand upon hand, building trust they get the idea.
Who can stop a snowball of trust?
Eventually, they happily bank a lot of money as the trust-snowball gets momentum and picks up speed.
Patience is the name of the game. We must crawl before we walk.
Unfortunately, rates are not based on fact.
It’s based on the time for guests to take action (speed to book or lack thereof – more below), the level of trust you established (reviews for example), perception etc.
At the moment your new house has no reviews and therefore no trust. No guest will take action (book your home) without an incentive.
Why Would An Airbnb Guest Be Your Guinea Pig?
Guests do not book willy nilly. They base their decisions on the ratings by other guests – positive reviews, Superhost status. Do they like the features, the photos, and the rates? There are more, like cancelation policies, etc.
You can have it all but with no reviews, your home will come second when compared to similar homes with many reviews.
Therefore, you really don’t have much of a choice but to make it more attractive and your only ally – competitive rates.
This means you can bring guests to take action faster with rates you may perceive as uncomfortable.
At ground zero you are buying reviews. You are paying a price to get trust.
Our only aim is to focus on achieving higher annual income. This will change your mindset. You now focus on the long term. One solid hand of snow at a time.
Let’s talk time/speed ….
The issue with maximizing rates, in isolation, is it ignores time-to-take-action – speed at which you get or don’t get bookings (more below) . High rates are useless if over time you get no bookings.
Consider the “slower and faster” time to take action scenario:
- Let’s say you set high rates and after two weeks you have no bookings. Well, you have nothing to bank and have no possible reviews to build trust. This is slow and useless. And you end up like the rest who try to make money with Airbnb.
- Let’s say you set a rate and get a booking for 28 days within a week, then another few bookings. Fast.
Use Feedback From Time-To-Action!
We are getting feedback from both above.
- The first one we know we are wasting our time. Zero money. Zero reviews. No launch.
- With the second option, we know people are interested and the snowball is being packed. By getting bookings so quickly we are going to get many reviews quickly. Trust. Even if the rates do not meet our expectations.
Action speeds up, due to high demand, we can conclude:
Our Airbnb rates are too low and we can now increase. If we cannot increase now we will increase the rates for the same time next year. Slowly over time, as we collect more reviews, increase occupancy we tweak the rates upwards. And the owner is happy.
If demand slows down we start all over again by reducing rates until guests start taking action faster. And slowly work our way up again.
On the other hand; if you are focusing on high rates you may impress your neigbours but not your bank manager.
Allow us to do what we do best; focus on time to take action, get bookings and reviews and accumulate. Based on these multipliers we will get better than competitive rates. Why? As we build trust the time to take action reduces (higher demand) and due to demand, we increase the rates. Over time the tortoise wins the race.
Patience is the game now.
How to set prices on Airbnb, within reason, maximise income is quite simple if you follow a strategy that works. This means you should focus on occupancy and not setting high rates, on getting more reviews and eliminating resistance to book. Read the following FAQ where I discus high rates and time-to-action (demand).
Read FAQ (Will I Make Money Setting High Rates On Airbnb)
To set prices on Airbnb depends on the number of reviews we have and the established demand. Assuming we list a new property with no reviews and the owner wants to maximise income annually; we go through the following with the owner:
- After we have qualified the accommodation as being remarkable we discuss the owner’s income expectations.
- It’s critical to know what annual income the owner expects. The owner, in most cases, tells us; “you are the experts you must tell me!”, this is correct; we are the experts and we will guide the owner but an owner without some expectations is a concern. The owner may want to cover costs, her bond, or make at least what she can do renting it out long term. These are good starts and we can work with that.
- We use the owner’s annual income, plug it into our income calculator and see what seasonal Airbnb rates and occupancy are required to achieve it. We start off using 35% occupancy as a guide and we adjust the rates to try and achieve this owner income. If we can generate the income at 35% occupancy and the rates are very competitive we know we have a great opportunity to meet or exceed owner income expectations during year one. If we need 40% occupancy or higher or even higher rates we know this owner – agent relationship may not kick-off very well. Either the owner should lower her expectations or we would decline.
Airbnb Pricing Strategy Philosophy Part 1
Airbnb Seasonal Rate Calculator Part 2
Maximising Airbnb accommodation income is “shorthand” for our focus on (long term) profitability over a year. Instead of focusing on maximising daily rates we ensure with our philosophy to:
- Build trust – reviews and high ratings from happy guests.
- We base our Airbnb rates on demand. And demand depends on seasonality and mostly on trust.
- Maximising income does not mean we are unreasonable at any time; our guest will never say the rates are cheap; we are not and will not ever be cheap, but guests will tell you we are reasonable.
- Our model of building a snowball of trust takes longer than a year. Getting 40 reviews needs patience (more here).
- But if we are lucky and demand jumps quickly to higher than 50% occupancy we increase rates. Let me add; we always adjust rates depending on demand. Always within reason.
Maximised income depends on trust; high rates depend on high demand.
As a Cape Town Airbnb accommodation agency;