[Festival] A Smart Pricing Journey

[Ann72]

When you decide to list your place on Airbnb, one of the most difficult decisions to make is setting the nightly price.  I’m going to walk you through how I set my prices and how using Smart Pricing maximized my bookings and my income.

With this house, I set the nightly price at $209 the first year (2015).  I came up with that price not by looking at nearby listings, but by deciding that this very beautiful little house with high end finishes and great interior design set on half a dozen acres shouldn’t be priced too low, yet I needed the price to be somewhat modest to attract bookings the first year.

After achieving SuperHost, I raised the price to $297 the second season.  By setting such a high price, I wanted to convey that I valued the property highly.  I left that price for three years and had a good number of bookings and consistently excellent reviews.  After a few years, more Airbnbs flooded our local market, but I still had bookings. 

Last year I had fewer bookings, partly because the calendar was blocked for half the short summer season.  Over the winter I decided to look closely at my prices versus my expenses in maintaining the house. I saw two things:  that $297 was the “sweet spot” – most of my bookings had come in at that price – and that a lower price wouldn’t be cost-efficient.

I decided then to try Smart Pricing.  But I knew that I would have to set my minimum at the “sweet spot” of $297 a night.  I simply couldn’t afford to accept a lower price. 

If you haven’t used Smart Pricing, here’s how you go about it.

Go to your listing and choose “Pricing.”  Next to “Nightly Price,” choose “Edit.”

Before going any farther, look at that sentence at the bottom of the screenshot: “You are responsible for choosing the listing price.”  Keep that in mind.

After choosing “Edit,” you’ll see this screen for editing your nightly price:

Right under “Nightly price,” you’ll see “Smart Pricing.”  Turn it on so the check mark looks like the one in the screenshot above.

Then go to the Minimum price.  You’ll see a tip in green. Mine says $177 – 40% less than my chosen minimum.  That’s too low, but let’s talk about why the tips are so low.

Airbnb’s data shows that lower prices attract more bookings.  That may be true, but I look at it this way: more bookings means more wear and tear, which means more things need to be replaced or repaired.  And that costs money. Now, let’s say I would like to bring in $5,000 for the month. At $297 a night, I would only need to book 16 nights. At $177 a night, I would need to book 28 nights.  I would rather have only 16 nights booked at my price than 28 nights booked at a lower price – because of wear and tear.

So set the minimum price at what you would normally charge.  Then set the maximum price at the tip in green.  The price will probably never go anywhere near that maximum.  But the algorithm likes to have a range to work with.

Now take a look at the graph at the bottom of the screenshot.  The green dots show some booked nights in September, October, and November.  (This is a summer vacation kind of place, so the bookings dwindle after October.)  The nights have been booked at $297. Then look at the black dots under the green line.  They show the suggested price. But here’s what’s strange: the suggested minimum is $177, but the suggested price looks like $250.  That’s weird. What would happen if I changed the minimum to $177? Take a look:

With the minimum set at $177, all the unbooked night for September, October, and November are now $253.

Yet look at the second half of December and the first half of January:

Prices now range from $253 to $422 a night!  That’s okay, but since they range from $297 to $422 a night when my minimum is set at $297, I’m going to leave my minimum at $297, because I don’t want to risk getting a booking at $177 – which might happen when I’m not looking.

Another interesting thing about the screenshot above is this:  Smart Pricing often does not raise prices for holidays. Why? Because searches for holiday dates are more numerous, and in keeping with Airbnb’s belief that lower prices mean more bookings, it wants to show lower prices for popular date searches.  Many hosts who use Smart Pricing manually raise prices over holiday dates. In this case, however, Smart Pricing has raised my rates for the Christmas and New Year holidays. I will have to keep an eye on that the closer I get to those dates, however, because prices go down the closer you get to unbooked dates.

Last January, I switched to Smart Pricing for all three of my properties.  All three also have Instant Book turned on, with all the requirements checked:

With Smart Pricing on and your minimum set, you might get a message on your calendar page asking if you’d like to send out a special discount for unbooked nights.  The discount offer usually covers about 10 days and is sent by email to guests looking at those dates. In the off season, when I typically have almost no bookings, I frequently sent out this discount offer.  In return I got half a dozen or more bookings when I typically had none. But the boost my listings got in the rankings was worth more than that.

Since turning on Smart Pricing, using Instant Book, and sending out a series of special discount offers, the following things have happened:

•     Average number of bookings per month went up more than 50%
•     By May, booked income for 2019 was 100% of booked income for 2018
•     Overall income for the year so far has gone up 38% over 2018
•     Number of nights booked has gone up 25%
•     Average nightly price across three listings has gone up 10%
•     At this point last year, I had 50 bookings; this year so far, I have 78 bookings.

I concluded that the more you use Airbnb’s tools, the higher your place rises in the rankings.  The discount offers get more eyes and clicks, and more eyes and clicks lift your listing in the rankings.  As Lizzie’s post from a couple of years ago shows, Smart Pricing uses more than 70 factors to determine the prices on your calendar.  But keep in mind the following:

•     Smart Pricing and Pricing Rule Sets cannot be used together.  You can use Availability Rule Sets with Smart Pricing, though.
•     Price Tips are not the same as Smart Pricing.  I have never used Price Tips and never will. They don’t offer the same benefits as Smart Pricing.
•     Remind yourself that the minimum price you’ve set is the price you will be happy with if you get bookings at that price.  So try not to be disappointed when those minimum-price bookings come in. If you want bookings at a higher price, raise the minimum.
•     When looking at the suggested minimum or reviewing an email from Airbnb suggesting you lower your price, remember this: “You are responsible for choosing the listing price.”  It’s YOUR house or apartment. YOU pay the bills and YOU know the value of what you’re offering. If you don’t want to get those emails from Airbnb, turn off email notifications in your settings.  

To be honest, Smart Pricing worked so well that I almost got tired of all the bookings coming in!  But with property taxes looming on the horizon, I couldn’t be happier with the results. Why not give Smart Pricing a try?  You might be surprised at the results.

[Ann72]

Thank you, @Ria16.  I realized it was the one factor you couldn't reliably predict when looking at the costs of running and maintaining a house.  You could probably search for the average life span of any appliance or product and guess that the life span assumes daily use, but that would be a lot of math for one person.  🙂

[Susie111]

@Ann72  Thank you for sharing!

I learn something new every time I read one of your threads 🙂

[Ann72]

@Susie111 Aww!  You made my night.  🙂

[Susan151]

@Ann72  This was a fascinating post. I have not tried to use this tool for one reason– seasonality. Though Boston is a year round destination, in actual fact, my price range in the summer [April - October] is substantially different than other times of year. In January and February, the bottom drops out. Though, my occupancy percentage is about double that of nearby, similar places, it is only by playing with the price a lot.

Do you have any thoughts on how someone who has to have more than one "bottom line" can use this tool effectively?

[Ann72]

@Susan151 I remember that you mentioned awhile ago that SP didn't work for your area.  Your situation presents a conundrum.  On the one hand, your listing is similarly seasonal to mine.  On the other, you attract people who aren't necessarily vacationing, but have business in the area, so it makes sense you CAN get bookings in the off-season.  How far in advance are your bookings made?  As you can see, SP puts the price up for dates farther out, and lowers it as those dates approach.  I would try implementing it now and leaving it for a month or two to see what happens as November-March dates approach.  You might get some far-in-advance bookings at a higher price that could mitigate lower-priced nights that need to be filled closer in.

[Susan151]

@Ann72  I am usually booked about two to three months in advance. I am fully booked through the end of October [combination of business and tourist travel] and 25% of November is also booked. The moment I open graduations dates for May/June of 2020 [will happen in the next two weeks] they will be booked within moments at my highest price point.

I don't have a lot of "closer" in bookings.

So, I am trying to figure out how to "test" this, but not have that lower winter minimum affect my prices from April onward. But you have my mind working hard, and that is always a good thing!

[Ann72]

@Susan151 I would leave the higher SP price in place.  As you approach the slow dates, you might then get the message about sending out a special discount offer, which would lower the prices for dates that aren't booked.  Play a game of chicken and see how long you can keep those higher prices in place.  🙂

[Alice595]

@Ann72  Thanks for spending your time and writing such a useful and great post! And thanks for sharing your wonderful experience!

[Ann72]

@Alice595 Thank you so much!!!

[Rilwan0]

Nice and very intuitive post. Thank you. 

[Adza0]

Excellent post @Ann72 . Thanks for taking the time to share. 

I started hosting earlier this year with smart pricing turned on, which I believe has worked quite well for me.  Like you, I started with what i estimated to be a reasonable rate, but had to adjust upwards to account for unexpected costs. You have offered some really great pointers that I will start monitoring to improve revenue. 

In maximizing your income, how  did you arrive at minimum nights per booking?

Thanks again. 

[Ann72]

@Adza0 Thank you!  I appreciate your kind words and I'm glad you're having success with SP, too.

The first year, I set the listings at 4 minimum nights.  The housekeeper I had then charged $250 per cleaning and I couldn't imagine that anyone would want to pay that high a cleaning fee for one or even two nights.  But I had so many requests for shorter stays that I reduced it to one night and had plenty of bookings for 1, 2, or 3 nights (and longer, of course).

However, I recently changed it to two nights.  I just don't like the one-night stays.  They require just as much work as two or more night stays with a lower return, and for some reason the one-nighters are less likely to review.

[Adza0]

Thanks @Ann72, appreciated. I agree that the one nights requires more effort, and creates gaps that are not booked. I had to adjust to 2 as well, but was considering 4. Based on your feedback, I will hold at 2 and monitor. Further, most of my bookings are 3 or more days at this point. Thanks again

[Debra-and-Philip0]

Thank you for the article to help explain this feature.  While it is probably a good idea, I didn’t like the fact that people are seeing different rates all the time. I didn’t want to confuse my audience for my first year as people are getting to know me. I have a discounted rate for weekly stays too. I have looked at features offered from my competition and I feel confident with my pricing.  I agree with making the price a bit higher so that you are booked with less bookings and it is less wear and tear on your product. I have a fully contained suite with full kitchen and laundry so I have a lot of guests that stay for extended vacations. 

I did a survey at my work and friends and most said they didn’t like the cleaning or extra fees added on as well. They wanted to see the price it is and they didn’t want to see the add ons when final bill comes. So for now I’m going with not using SP as this works for me and I’m as busy as I want to be. 

Cheers Debra 

[Kira32]

I love the way you explain everything thank you @Ann72 👍