How do you break down your costs?

[Stephanie]

Hi there everyone!

We often see topics on pricing here in the CC and there are several different ways that hosts decide their nightly rate. One of these ways is based on breaking down the overhead costs and deciding the nightly rate dependant on those costs.

However, this is sometimes easier said than done, for example if you list a private room, it can sometimes be difficult to allocate what costs are used by you or your guest. A real headscratcher! 

So then, hosts, how do you break down your costs to work out what price to charge?

Share your strategies!

Many thanks

Stephanie

[Fiona398]

Hello Rob, 

Your account listing is very useful, the way you have simply itemised the expenditure.

Properties around here are listed at higher prices. Yet Airbnb recommend that I cut mine by 15%.

A good service and value for money is always what I try to achieve.

Regards, Fiona

[Dianne165]

Nice.   Great tool.

Thank you

Dianne

[Rebecca258]

Thanks Rob, this is really helpful. Can I ask, how have you determined your occupancy? This is a critical number for me in determining my break even point but I'm not sure how to guess / figure out how many nights I think I will be booked? Also, do you give discounts for week long bookings etc and if so, how is that calculated?

Thanks!

Bec

@Robin4 

[Robin4]

@Rebecca258 

Hi Bec, Speeding forward to the present,  I am only allowing reservations from within my state as we currently have no active cases.

A couple of correspondents here have felt talking about hosting at a time like this is grandstanding and not something that would sit well with many in the community who are feeling a lot of financial pain. I must admit I hadn't really taken that into consideration, and it is a valid point. I was more preoccupied with trying to say, for many this will be over sooner rather than later and when restrictions are lifted, it will be like taking the cork out of the bottle. There will be a rush of reservations as people just want to 'breath the air' again. In my mind I was trying to help, not rub salt into the wound, but I now understand!

For this reason it will be best if I DM you with details about how I am going about this Bec, I don't wish to make any further public comment about my personal hosting situation!

As far as discounts go, I do offer discounts for length of stay....... but I don't offer them upfront where they will be automatically taken into account when a guest books and pays!

Too often we have seen the situation where a guest books for a two week stay and pays the hosts discounted rate which in many instances can be as much as 15-20%. Five nights into the stay the guest will cancel and be refunded the unused portion (less one night) of the stay at the proportional discounted rate. The net result of this is the host receives a discounted payout a day after the guest arrives and then gets stuck with a 15-20% shortfall for 6 nights when the guest cancels plus a week of unbooked nights. 

It's called 'how to get a discount Airbnb stay', and it is actively promoted on other sites.

Rather than get caught in this trap Bec, I mention prominently in the listing description that I do offer discounts for longer stays but the discount will be offered as an appropriate refund  against the amount paid once the stay has concluded. Guests seem happy with that, the net result is the same......the only ones that wouldn't be happy with it are those that want to scam the host anyway.....and really, do we need those types of guests?

I will DM you mate, take care!

Cheers......Rob

[Jessica-and-Henry0]

@Stephanie 

In terms of costs & expenses related to hosting, I do not consider my mortgage payments as a hosting cost because it would be the same regardless of whether I host or not. I understand this would be different if a host bought a home with the intention to use hosting income to pay the mortgage. 

Also since I am hosting out of my home, I would have bills and costs associated to the cost of living that I'd have to pay for anyway such as for cleaning, utilities, garbage disposal and taxes so I tend to look at "increased costs/expenses" due to having 1 more person (= the guest) living in my home, and then the  cost/expenses of additional amenities I need to buy and supply and kitchen basics which are shared, and cost of labor that is needed (cleaning, laundry, communication with guests, managing the listing etc.) for hosting responsibilities as what my "hosting cost" would be. 

Then in my case, we host longer staying guests (usually staying for at least 1 month) so we do not have frequent turnovers. 

Overall in terms of utility bills, comparing months with a long-term guest (3 people) vs. without a guest (2 people) there is a difference of about 10~20% (which is anywhere from about $20~50/month) depending on season. For our first 2 guests, the increase was barely noticeable but since then, we've had guests who stayed home a lot or were excessive users 🙂 

Amenities and kitchen basics like soap, TP, coffee, cooking oil etc. I'd consider at most $30/month but very likely less. The most difficult to calculate is the cost of labor (for Henry and me) since we are on-site hosts but generously factoring in a total of 2~3hrs per week between the 2 of us, at minimum wage this would add up to about $100/month for the EXTRA cleaning and laundry we are required to do because we host. 

For the additional furniture (bed, desk& chair), sheets & bedding, and guest towels, we saw this more as an investment to start hosting so we consider these items "assets" which will depreciate over time (expected life 3~5yrs) rather than a cost. Fyi, we made an initial investment of about us$700 when we first decided to list our guest bedroom on Airbnb, and I think we've spent an additional $600 spread over the past 2yrs for replacements or additional items for guest use.

So on average the cost/expense of hosting a 1 month stay is about $150~180/month, even if we factored in depreciation we'd still be under $200/month (out of which, we are paying ourselves $100/month), and our monthly payout (excluding fees) for long-term stays have been as low as $610 (when we were first starting out and had no reviews) up to $810 during the summer peak season when the AC is on 24/7. Since we have long-term guests for 9 months of a year, hosting has ended up being a great supplemental income for us.

Of course, Henry (and I) did this math before we made the decision to host, and we looked at prices of similar listings and competitive alternate accomodations (such as guest houses, homestays, budget motels) to see how much we CAN/SHOULD charge and factoring in our estimated costs/expenses we were able to determine in advance if hosting would be "worth it". Since we did not consider long-term hosting at first our estimated profits and occupancy rates were way lower; anyhoo~ long-term hosting has allowed us to reduce costs/expenses much more than we initially planned so it worked out very well for us 🙂 

Henry and I didn't use any spreadsheets like @Robin4 but we did sit down and list everything on paper when we had these discussions. 

[Emily352]

After a fairly empirical initial approach, I began to use an Excel sheet by entering all the costs as factors having an impact on the final price of my rooms (heating, water and electricity bills, laundry, building’s expenses, toilet paper, sheets, towels, light bulbs, cost of cleaning and maintenance, co-host, AIRBNB fees, local taxes (tourist tax, IMU, TASI, TARI) and state taxes (flat rate tax).

It took some time to put the right price tag on my rooms and learn how short term housing business worked.

Furthermore five indices helped me to figure some stuff out by my own. When taken alone, these indices say little, but if aggregated in a broader and more accurate perspective, they made me realize what my profit margins could be:

° cost per occupied room = total cost rooms / occupied rooms;

° average revenue per room = revenue rooms / occupied rooms;

° average revenue per available room = (occupied rooms / available rooms) x (revenues rooms / occupied rooms);

° average revenue per guest = revenue rooms / guests per period;

° cost per occupied room = total cost rooms / occupied rooms

But I needed another variable: the number of nights. The number of nights was important to me because the fixed costs on one-day bookings ate almost half percent profit, while on bookings of 5 or more days, the gain increased, so as to allow me to offer price reductions of 10-15%, whilst remaining quite competitive. So since I’ve had this result, I’ve started setting minimum stays of at least 3-5 days.

[Sandra126]

There is another factor which works in the opposite direction: Every day I manage to hang on to the house the price of the real estate increases. Slowly. So, to counteract some of the high expenses, I will profit when I eventually come to sell. In the case of a rental obviously this doesn't apply.

[Vida16]

Hi I am in Merida, Yucatan and want to know how I calculate my overhead? I own outright the property and don't owe anything but local taxes in March of next year. I will have internet of $500 Mexican Pesos a month. $161 pesos of water a month, electricity of about $200 pesos a month. Food costs of maybe about $1000 a month for the property because I offer breakfast (make your own). So the total for all that is about roughly $2000 a month. If $500 pesos a month is about $30 USD? Then it is about $220 a month for costs. If I have take home after I pay out of 15% for co-hosting? And I am calculated to make about $1000 a month how much is that?

Phew...this is tough.