Airbnb has been a leading platform in the travel industry for well over a decade. For hosts new to the short-term rental industry, Airbnb is great since it takes the guesswork out of marketing properties. Part of the features offered is Airbnb smart pricing. For many, this is a mysterious toggle that promises more revenue. But is Airbnb smart pricing always the best option?
This article will look at what Airbnb smart pricing is, how it comes up with the nightly rates, the pros and cons, and some better alternatives.
What is Airbnb smart pricing?
Airbnb smart pricing is a built-in tool that analyzes and evaluates data relevant to each property listing. Considering data from numerous sources, Airbnb automatically updates your listing’s price according to market demand, only ever staying within the minimum and maximum prices you have decided.
You can explore the smart pricing feature by clicking on “Pricing” at the top of a listing (in your host account) and then clicking on the edit link for “Nightly Price”. You’ll see a circle next to “Smart Pricing” which will activate the feature.
Simple enough right? Not so fast, Airbnb smart pricing is one of those features you should understand the ins and outs of before giving it full control over your nightly rates.
How does Airbnb calculate its “smart prices”?
The Airbnb smart pricing tool generates a recommended optimum price for you based on numerous factors related to your property. When looking through the factors, remember that Airbnb’s goal is to deliver the optimal experience to the guest. When you look at the factors below, you’ll see that a lot of what the algorithm does is to try and figure out how a guest perceives value. With that said, here are the variables affecting price:
1. The amenities that your listing offers
Airbnb smart pricing takes into account what your listing offers. The more you offer, the higher the price the tool will list your property at. This makes sense from a guest perspective too. Properties that offer more are generally more expensive to rent. Note that providing many amenities also has an impact on where Airbnb lists your property in search results.
2. Demand in the local area
If demand is high in the area your property is listed, Airbnb will increase your listing price. If you live in a seasonal tourist area, prices will generally increase during the busy season.
3. The number of views your listing receives and your average rating
Airbnb smart pricing calculates the optimum cost of your listing based on the number of views you receive, as well as the quality of reviews from previous guests. Here, Airbnb tries to mimic users’ appeal for certain types of properties. If a listing generates a lot of interest based on a snappy title, great photos, and solid reviews, it probably means that guests would be willing to pay more for it.
4. The type of room or property you have
The smart pricing tool also considers the type of rental you offer. For example, if it has an ensuite, balcony, or great views, it all factors into Airbnb’s recommended price.
5. The availability of your listing
The more calendar availability your listing has, the higher your recommended price point will be. It makes sense from Airbnb’s viewpoint. If the property is available all year round, it’s probably managed by a professional host rather than someone listing the place as a side hustle. This translates to a better guest experience, which warrants a higher price.
6. Other searches for listings like yours
Airbnb takes searches for properties like yours into account when they calculate your listing price. If your listing comes under a popular search category, your recommended price will be higher.
Is Airbnb smart pricing right for you?
On paper, the Airbnb smart pricing tool seems almost perfect. However, many hosts have reported several disadvantages with the tool. To help you decide if the Airbnb smart pricing tool is right for you, we have outlined the pros and cons.
- You have control over the minimum and maximum listing prices: When you set up the smart pricing tool, you will select a minimum price for your listing that the algorithm will never go below and, inversely, a maximum price. This means that whilst Airbnb will automatically change your listing price, you’ll still be able to list profitably while will increase your earnings.
- Airbnb pricing generates price tips that are based on real-time metrics: Airbnb’s smart pricing is related to real-time trends and patterns that the tool finds within your specific market. Your price will change based on patterns specific to your listing. So if an artist announces a concert in your area and prices surge, you’ll profit from that instantaneously.
- The pricing can give you a competitive edge: Given that prices fluctuate based on market demands, you’ll have the edge over local competitors who don’t adjust prices in real-time. If your price is too high, Airbnb will lower it so that your vacancy rate stays under a certain threshold.
- Airbnb smart pricing tends to set too low: The pricing tool often sets prices at the lower end of your scale. If you’re just starting out as a vacation rental manager, this can be a great way to boost your listing, get early reviews, and rake in the bookings. But, once you are more established and have a higher footfall, these low prices can cost you. This is because the smart pricing tool doesn’t take the wear and tear into account. So while your vacancy rate may be lower, you might run into higher maintenance expenses. Not to mention that reaching a 100% occupancy rate can mean you’re leaving money on the table.
- It doesn’t take into account differences between properties: The Airbnb smart pricing tool does not differentiate between higher or lower quality listings. For example, your listing will most likely receive a similar price recommendation to other listings that have the same specs, even if your apartment is better situated or if you offer a great experience.
- It does not forecast seasonal trends or local events and holidays: In its calculations, the Airbnb smart pricing does not anticipate the time of year, local holidays or events, and high/low seasons. Rather, it responds in real-time to market fluctuations. This can have a huge effect if your property tends to be the first to get booked during a surge.
What are the alternatives to using Airbnb smart pricing?
Perhaps Airbnb smart pricing doesn’t sound like the right tool for you or your properties, but what are the alternatives?
- Set the prices yourself with competitor research: There is always the option to conduct your own research. Not only will this allow you to adjust your pricing based on your own opinions and findings, but it will also enable you to get a better understanding of the market you are working within. However, this is time-consuming, especially if you have multiple properties. It also doesn’t take into account market fluctuations.
- Use dynamic pricing applications: If you still want to use algorithms to help your pricing, consider dynamic pricing apps offered by a third party. Essentially, dynamic pricing apps are a supercharged version of the Airbnb smart pricing algorithm. Most importantly, they are designed to maximize profit for you, rather than serving Airbnb’s goal of maximizing value for the guest. Dynamic pricing apps take into account all the variables Airbnb does, but it goes one step further. For starters, the apps look at how your local competitors are responding to seasonal changes. The apps also tend to look at past trends in an area to predict future market prices. In the example of a ski resort town, dynamic pricing will adjust the nightly rates before guests start booking, compared to Airbnb’s option that will do it in real time in response to increased bookings.
Dynamic pricing vs Airbnb’s smart pricing
What advantages does dynamic pricing have over Airbnb’s smart pricing?
- Have more control: Dynamic pricing goes a step beyond setting a maximum and minimum rate. You can adjust your optimization to take into account owner holds, downtime for maitenance and repairs and a slew of other variables. That granularity can end up making a big difference to your bottom line.
- Extend to different platforms: Dynamic pricing applications give you the option to extend your pricing optimizations into Vrbo, Booking.com, and other channels. So, if you plan on enhancing your marketing (and you should), going with dynamic pricing is a better move than sticking with just one platform, i.e. Airbnb.
If a dynamic pricing app seems like the best way to go for you, what do we recommend?
Beyond is a revenue management platform for short-term rental managers and owners that helps you receive, grow and retain revenue. This platform is easy to use and includes a dynamic and demand-driven pricing tool. Beyond also boasts extensive market data, OTA distribution, and a top-quality booking engine. It also offers personalized industry insights based on your unique property portfolio.
Beyond takes a percentage of the income for its services, meaning that this is the best option for property managers who charge a set minimum fee from the property owners, since the profit lands in your pocket. For those managers that charge their clients a percentage of the income, Beyond is perhaps not the best option. That said, in recent months, Beyond has added flex pricing so that managers and property owners can choose the best model for their business.
PriceLabs is one of the most innovative and easy-to-use revenue management tools for the vacation and short-term rental industry. The PriceLabs team has years of experience in revenue management, travel, and the analytics industry, bringing all of this together to make sure you get your best possible rates.
This platform allows you to easily manage your listing’s pricing and availability with its user-friendly software. It also offers a number of handy integrations. What is great about PriceLabs is that it is easy to streamline your vacation rental management, with a guarantee that your rates are optimized across all channels.
PriceLabs takes a flat rate for its services.
Wheelhouse is the only revenue management platform that allows you to build a customized pricing strategy that aligns with the unique goals you have for each of your properties. It dynamically updates your pricing daily, using top, demand-driven data to make sure you’re always strategically priced to earn more in the high season and book more in the low season. Wheelhouse gives you the choice between a percentage fee, or a flat fee, so you can easily select the model that works best for you and your property.
If you want to maximize the revenue on your vacation rental properties, dynamic pricing is essential. Airbnb smart pricing tools may work well, particularly when starting out. However, dynamic pricing apps are the best option for more streamlined control across multiple channels, and are available in a variety of formats for different income models.