How do you break down your costs?

Stephanie
Community Manager
Community Manager
London, United Kingdom

How do you break down your costs?

Break down costs.jpg

 

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

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22 Replies 22
Ben551
Level 10
Wellington, New Zealand

Hi @Stephanie  great question. I think we may have touched on this earlier in the year in another thread,  but possibly not in the way you are asking.

 

Old thread: https://community.withairbnb.com/t5/Hosting/Have-you-calculated-your-host-costs-per-night-lately/td-...

 

I still think people should calculate their nightly break even. But in terms of how to allocate shared space costs... the most practical method is the same way that pleases the tax man! I’ll try to give an example...

 

Let’s say you have soap and toilet paper in (say) a shared bathroom in your house. Your receipts show you have spent $200 on soap and toilet paper for the year. On average you have 2 non paying guests using that bathroom. You have also had an average of 2 guests stay for 100 nights over that year.  This means 50% of your guests are paying guests, using that bathroom 27% of the time.

 

The full equation:

(2 / 4) x (100 / 365) x $200 = $27

 

This means of that $27 worth of soap and toilet paper related to your Airbnb business, costing you 27 cents per night. You can also do this calculation based on forecast information.

 

Wow... in future I’m having a cup of tea before doing that kind of math.. (early morning here)...

after reading your reply I immediately went to my amazon account and started printing out all invoices. its tax season time.

Noel102
Level 10
Houston, TX

I took what I would bring in per month renting the place to a tenant, added the cost of utilities, then divided that number by my target occupancy.  

 

((rent + utilities) X 12) / (occupancy X 365)

 

Example:

$1,400 rent + $250 utilities = $1,650

$1,650 X 12 = $19,800

75% X 365 = 273.75

$19,800 / 273.75 = $72.33

Minimum nightly rate = $72

I like this math. Thank you.

 

I feel like the only thing that's not taken into consideration is any kind of adjustment for the "quality" of your space. In other words, a Ritz Carlton Hotel doesn't charge the same as the Hampton Inn next door even though they have the same location, same basic amenities, etc. The Ritz gets to charge more because their overhead is higher - NICER amenities, better food, high-quality sheets, blah, blah, blah. Maybe your base monthly rent takes that into account but, where I live, most of the "monthly rentals" aren't furnished and certainly not furnished well if they are.  So, given your math, how would you adjust for this? 

 

Of course, I'm asking this because my space is significantly nicer than most in the same neighborhood and I provide higher-quality amenities.  I also charge about 20% more as a result. Lately I've been getting a lot of people who gush over how nice my place is and then try to haggle. My prices are not negotiable.

J-Renato0
Level 10
Rio de Janeiro, Brazil

I go with Noel  ( I can find the name of Noel in the list to quote him ... )

 

Moreover
I think that, in an ideal scenario, the rental price of a furnished apartment (self contained) should value between 50% and 100% of the rental of a non furnished apartment or house.
The problem is, it is not always that we have an ideal scenario.

 

If in the city where the property are located there are seasonal prices  during high season it is necessary to consider it when renting short term or even mid term.

J-Renato0
Level 10
Rio de Janeiro, Brazil

I should have said... between 50% and 100% more than the rental of a non furnished property

Helen3
Level 10
Bristol, United Kingdom

What about your local taxes/

What about your cleaning costs and materials

What about the costs of running your airbnb?

What about bedding, towels and basics

 

All costs you need to add it to actually get near what your profit looks like.

Anne1325
Level 9
Melbourne, Australia

Great that this has been brought up as I've been struggling with how to price our Airbnb room!

 

As I've not been hosting for a year yet I worked it out my target on a (average) daily basis. This includes mortgage and close estimate of utilities and toilet paper/toiletries/cleaning products/etc.

 

I figure because I have a 2 bedder, which I occupy with my husband, and rent out the spare room, to mainly couples, the aim I reckon it should be is 50 - 50% on a days that we are booked. Not that I'm anywhere near the aim, but that's for a different discussion.

 

Although the above examples are great and certainly much more mathematical than mine I do not believe that you've allowed for fees and taxes @Noel102?

 

 

Robin4
Level 10
Mount Barker, Australia

@Stephanie 

Hi Stephanie, thanks for starting this thread. I don't know that even you appreciate how important this thread can be to a host.

I made a comment to Stephen in another post the other day about the importance of setting a proper accounting package in place before arriving at a listing amount. 

Too many of us hosts are simply guided by those other listings around them and their reaction is...."Well if those guys can make a profit, so can I"! Nothing could be further from the truth.

You can always adapt your accounting suite to suit your individual circumstances but you must have a framework somewhere to start from.

I have used something similar to this since 2015 but I picked this up from Ben I think it was.....another host here on the CC who put it into a more useable form than the Excel sheet I was using  some time back and I started adapting it to my individual situation.

I am enclosing the blank screenshot Stephanie, and I recommend every host download this screenshot by right clicking the image and saving it as a picture file! If you do that you will then be able to open this file in 'Paint' or another picture processing program and put your own figures into it......

Profit statement A.png

with this template you can make an accurate assessment as whether you are going to make money or lose money, and you can set your listing amount appropriately.

I have used this a number of times on hosts in my area and a few of them were supprised to learn they were actually making a loss. Longer stays were nearer the break even point but one night stays were costing them money. 

After doing all the sums, this is how I arrived at my listing amount and actually make a reasonable profit out of hosting.........

Profit statement.png

Now of course this is not totally accurate because the cleaning fee is only applicable as a $10 unit to one night stays. Thereafter its value is deminished by the length of the stay'. However, that does not have a large impact on these figures.

 

Sorry to be such a bore Stephanie but this is an important topic that you have raised and I felt the need to contribute to it!

 

Cheers.....Rob 

Thank you so much!  I am about to embark on my first hosting experience and this was great to break everything down!

Cheers,

Audrey

Stephanie
Community Manager
Community Manager
London, United Kingdom

That's great to hear @Audrey373 !

 

Do let us know how you get on with your new adventure.

 

Thanks,

 

Stephanie

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Sandra126
Level 10
Daylesford, Australia

@Robin4, you are truly unbeatable.

Makes me want to start a little Airbnb in my backyard... Instead of a separate house, which has all its own set of expenditures.

Robin4
Level 10
Mount Barker, Australia

@Sandra126 

I would not consider a seperate stand alone property to be worth consideration on a short term rental basis Sandra. I can't afford a property that is so stand out beautiful that it will command any price I might have in my head. I am always going to be in the competetive end of the hosting spectrum where pricing is an issue.

I do have a 10 berth houseboat on the Murray based at Kia Marina, just north of Mannum but I have that on the market at the moment. Floating real estate loses value each year unlike bricks and mortar and each year my investment there is worth a bit less than it was last year

 

 

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For my home situation many of my listing costs would have to be paid whether I was listing or not so, they cannot be charged as a cost of hosting....gardening, garbage disposal, power and water! The most significant one is our power which I have gone into on another thread of Lizzie's. With our cost of electricity the guests consumption could easily top $10 per day.

 

Sandra, an STR in the back yard is a good proposition for hosting. I could not see myself doing it through a remote listing somewhere. I am too old for that!

 

Cheers.....Rob

 

The boat is so cool @Robin4 !   As is your sage advice on expenditures and other weights for price affixing. I would add that starting out a bit lower than the mark your looking for might help get to that quicker than if you price it  up out of the gate.  People want to see great reviews before they book and if you get the reviews, you will sooner or later get the price you need.  Stay well, JR