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:
- 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 (Read more here on why we must know this).
- 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 the 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:
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.
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.
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?
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?
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.