Airbnb Revenue Management: 3 Steps

Let’s Talk About Airbnb Revenue Management 2

Introduction

The goal of this post is to share my Airbnb revenue management strategy and methodology. I’ve been using it successfully since 2017 and it’s so simple.

 

Let me first ask you: Do you want to make more money from your Airbnb listing? Silly me, of course, you do.

 

Do you use Airbnb’s Smart Pricing suggestions? Do you use a third-party pricing tool like Beyond Pricing, PriceLabs, or Wheelhouse? Do you not know what I’m talking about so far?

 

Airbnb revenue management is a function of two things: rates and occupancy. Your aim is to achieve maximal numbers for both. I’m going to walk you through the three typical pricing strategies first, then my strategy.

 

Airbnb revenue is a function of two things: rates and occupancy. Click To Tweet

 

There are three strategies when it comes to Airbnb revenue management or calendar management.

 

Three Airbnb Revenue Management Strategies

Strategy #1: Sets one price for the entire year. The hosts who use this method may increase their prices on the weekends and for the most popular events. This group is performing poorly at Airbnb revenue management and missing loads of opportunities for revenue maximization.

 

Strategy #2: Uses Airbnb’s Smart Pricing tool. It’s free, updates automatically, and based on Airbnb’s data. What could go wrong? Smart Airbnb hosts quickly realize the prices are low. This is because Airbnb’s goal is to put ‘heads in beds’. They’d rather give you 100% occupancy at a lower price, then 80% occupancy at a much higher price. This is a win for Airbnb and guests, but not hosts. Additionally, this tool comes with extremely minimal functionality.

 

Strategy #3: Using a third-party intelligent pricing tool. (My recommendation is PriceLabs; but, Beyond Pricing or Wheelhouse are the best alternatives). You want to be in this group. As an Airbnb property manager trying to make the most money for my hosts, I had no idea about many of the premium dates due largely to professional conferences (ie can charge higher rates) until I started using these tools. This alone made the cost worth it.

 

Airbnbs goal is 'heads in beds', not profit for Airbnb host. This is one of two reasons you should not use Airbnb Smart Pricing. Click To Tweet

 

Let’s say you’re already connected to one of these tools. Or, I’ve convinced you to consider it. Now, what?

 

Step 1: Booking Lead Time

We need to know the “Booking Lead Time” to understand how far in advance the average reservation is confirmed. You’ll need AllTheRooms Analytics Dashboard for this.

 

After you type in your city, scroll to the bottom of the dashboard and click “Booking Lead Time”. Your chart is likely to look one of two ways:

Booking lead time - airbnb revenue management - SF

alltherooms analytics - memphis

 

The upper chart is of San Francisco and shows the monthly “Booking Lead Time”. You can clearly see two distinct seasons. The first runs from April to October with a lead time of about 35 days. The second runs November to March with a lead time of about 25 days. This is an important distinction for your Airbnb revenue management strategy.

 

The lower is of Memphis and shows the weekly “Booking Lead Time”. It’s not as clear as the upper chart, but the lead time is about 30 days throughout the year. It goes up slightly around April, May, and June but decreases slightly around December, January, and February.

 

In the majority of markets, your booking lead time will be around 30 days. Use this number if you do not subscribe to a service like AllTheRooms.

 

One exception to this general rule is if you host families or groups who do tend to book further out, as far as 6  months in advance.

 

Click To Tweet

 

Step 2: Occupancy Targets

Once you know your “Booking Lead Time” you can decide on your occupancy targets. An occupancy target is how high you want your occupancy within a certain time frame.

 

Let’s take Memphis above where the lead time is about 30 days. Stated differently, the average reservation is confirmed 30 days in advance of check-in.

 

If we know this, then we know that about 50% of Airbnb bookings are confirmed within 30 days of today and the remaining 50% are confirmed 30+ days from today. Based on this, the host wants an occupancy rate of 50% within 30 days.

 

However, as a host, you may feel more comfortable with higher occupancy. You may opt for 60% or even 80% occupied within the next 30 days, in this example. It’s your choice. You’ll be leaving money on the table because the higher you want your occupancy above average, the lower you’ll have to put your price to entice more guests to book your place early.

 

Does that make sense? This is super important. Please ask me for clarification in the comments.

 

My Airbnb Revenue Management Strategy

You have to understand that these tools aren’t a set it and forget it kind of tool. You’ve got to monitor your future occupancy rates. With my strategy, you will do this once per week. Let’s say Wednesday morning.

 

Most hosts are concerned with only their nightly rate and their minimum, but it doesn’t matter what you think you can get or what you want your minimum to be. That’s because Airbnb is a true market in that the market will tell you what your listing is worth, not the other way around.

 

The Airbnb market will tell you what your listing is worth, not the other way around. Click To Tweet

 

For example, if you want to charge $200 per night and you’re at 20% occupancy, you’re charging more than the market thinks your space is worth. It’s the opposite if you’re charging $100 per night and your occupancy is 95%.

 

If you’re curious what your space is worth, click here for a simple tool from Airbnb to give you a starting point.

 

My strategy assumes you want 100% occupancy at the highest price possible. To achieve this, we will set occupancy targets based on how far in advance guests book your space. Based on Memphis above, our occupancy targets might be as follows:

  • 100% occupancy within 7 days
  • 80% occupancy within 14 days
  • 50% occupancy within 30 days
  • 30% occupancy within 60 days
  • 15% occupancy within 90 days.

 

Every Wednesday morning, I log in to PriceLabs and monitor my occupancy levels for each one of my managed Airbnbs.

 

It takes five minutes.

 

If my true occupancy is above my target, I raise the base price within PriceLabs. If my true occupancy is below my target, I lower my base price.

 

The amount I lower/raise depends on how different my real occupancy is to my target occupancy, but normally it will be about 10%. If my base price is $150, then I’m lowering/highering $15.  All of my recommended pricing tools tell you your occupancy for certain time frames.

 

Let’s run through an example. Here is a screenshot of my PriceLabs dashboard:

airbnb revenue managment

 

The top Airbnb listing is significantly under-occupied. It’s telling me that 96% of the next month is open. That’s way above my target of 50%. So, we’re going to lower, right? Ten percent is about $12.50, but I’m going to lower the base price by $15. I may also decide to do a re-optimization of this particular Airbnb listing due to such underperformance.

 

The middle listing is good. Because one booking can swing occupancy by 10%+, my “good” range for 30 days is between 40-60%. I would note that I’m on the upper end and that my 90-day average is on the lower end, too.

 

The lower listing is over-occupied, by a lot. I have zero available days in the next month. Even my 90-day occupancy is high at 45% (my target is 15%). I’m going to raise the base price by $15 because I’m highly over-occupied.

 

In PriceLabs, you can change what timeframe is shown per column. Let’s say your “Booking Lead Time” is 45-days, then you can change that middle column to show your occupancy at 45-days.

 

Airbnb Revenue Management – Customizations

The vast majority of Wednesday’s, I’m not doing anything with my customizations. The only time I will test out customization is if I notice a trend.

  • Are a lot of unbooked days passing? I will consider a last-minute discount customization
  • Are a lot of bookings coming further out than my average “Booking Lead Time”? I can increase my minimum nights after 60 days in the future or I can increase all price by 15% after 90 days.
  • Are my weekdays always open? I may decide to lower my prices between Monday and Thursday

 

Customizations are one of the reasons why I love PriceLabs. These dynamic pricing tools are not set-it-and-forget-it, no matter what you use, you will need to make adjustments.

 

I have a PriceLabs playlist on my YouTube channel, but one, in particular, is relevant: Tutorial on PriceLabs Customizations with Timestamps.

 

PriceLabs newest customization is called Occupancy Based Adjustments. This setting automatically lowers and raises your pricing based on your occupancy targets. Genius!

 

Don’t be fooled, though! You still have to monitor because one 2-week reservation can throw everything out of whack.

 

Summary: Airbnb Revenue Management

In summary, your nightly rate is based on your occupancy. The market sets your occupancy. First, find your “Booking Lead Time”. Second, create your occupancy targets over certain future timeframes, or use mine, and compare your actuals.

 

Third, choose one day per week to check your occupancy and make an adjustment to the base price or customizations accordingly.

 

Your Airbnb rate is based on your future occupancy. The market tells you your occupancy. Click To Tweet

 

What was your “lightbuld” moment when it came to one of the hardest parts of Airbnb hosting: pricing?

I'm Danny, the Airbnb expert

About Danny Rusteen:

Starting in 2012, Danny has been an Airbnb employee, Superhost, and Airbnb property manager. Danny lives in Airbnbs (1,000 nights). As a guest, Danny has traveled to 33 countries and sifted through thousands of Airbnb listings, so he knows what makes a listing stand out and how to offer a world-class experience to your guest. Follow his journey.

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