How to set prices on Airbnb?

Let’s start with what is maximise income?”

Maximising income is quite simple if you follow a strategy that works. This means you should focus on occupancy and not setting high rates, and on getting more reviews (trust) and  eliminating all resistance to book . Read the FAQ (1) where I discuss high rates and time-to-action (demand).

To set prices on Airbnb it 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:

1. After we have qualified the accommodation as being remarkable we discuss the owner’s income expectations.
2. It’s critical to know what annual income the owner expects (Read more here on why we  must  know this). 
3. 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 annual expected income at 35% occupancy  and the rates are very competitive we know we have a great opportunity to meet or exceed the owner income expectations during year one. If during year one, we need 40% occupancy or higher to achieve the owner’s income goal, we know this owner – agent relationship may not last 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 

Case Study 1: Airbnb Annual Income Expectations: Simonstown Villa:  

Let’s consider the following email from a new owner with a lovely 4 bedroom accommodation in Simonstown. She would not be able to manage her home or market it. This is what she told me after I asked her for her annual income expectations:

New Owner

The financial data was as follows for the period May 2018 to June 2019 – 12 months. The loft room was booked for 191 nights at an average of 752 rand per night and generated 143697 rands for the year. The garden suite was booked for 181 nights and had an average nightly revenue of 1419 and generated 256921k for the year. Total revenue after booking sites costs was 400618k. New Owner

This is really an achievement. 

Agent CapeHolidays

Interesting. And your logic makes sense. Obviously we need to see the home. And I believe if it gets foolproof remarkable interior with lots of flexibility like 8 single beds (can be made in Kings), for example, then it should exceed our own expectations.

These are the homes we prefer.

Looking at the figures you shared  the owner is doing 50% occupancy  during the year for both properties. Excellent. And a good sign. This means even higher occupancy/rates during summer as winter is relatively dead. The average Airbnb occupancy for this area is much lower. Obviously ours are on average 20% higher and winners a lot higher. But it took about 12 months of building trust with each property to get there.

New Owner

I would consider this a benchmark to use and hopefully surpass as the entire house would now be available at time that we are not there, this obviously also depends on when we plan to use it too.

For now my view is that we should be able to add a further 200k to the value above. To answer your question we would expect to achieve a minimum of what has been achieved historically and add up to 100k on top of this after costs and achieve a gross 550k before your 20% costs. This is a view based on the data we have, I am sure you will have a view, please could you give us your opinion and experience.

Reasonable! Who would argue?

Agent CapeHolidays

Due to various issues (like meeting expectations) we only start off a new home if we can achieve the owner’s goal at 35% occupancy. This does not mean we will not try and beat it. But agreeing to a new house where 50% occupancy is required, to achieve the R550 000 goal, then we may disappoint you before we start. And that’s not fair on you. Agreeing at the  kickoff stage to higher occupancy  than what is our norm will cause pressure to maximising rates rather than  working on getting trust, and adjusting rates to address occupancy based on supply and demand during the first 12 months.[/su_highlight

I must say that I am confident we can achieve 50% and higher occupancy to meet and exceed R550 000 but why make a promise just to keep the owner happy? Why not rather exceed expectations after 12 months?

Our Motto

We don’t have to be the biggest accommodation agency in Cape Town or Simonstown! No. We only want to be the best!

This implies that we   can walk away; as we are not trying to win a deal at all costs. No.  We rather shake hands and walk. Ensuring we will always look the owner in the face knowing we did what was best for both parties.

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:

1. 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. 
2. 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. 

1. The first one we know we are wasting our time. Zero money. Zero reviews. No launch. 
2. 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. 

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