The Ultimate Guide To Smart Pricing For Short-Term Rentals

If you’re looking to make some extra money by renting out a property, then short-term rentals might be the right choice for you. Short-term rentals provide an opportunity to make more money than long-term leases while still providing a great service to your guests. However, pricing your rental correctly is essential if you want to maximize your profits.

In this article, we’ll discuss the proper pricing strategy for short-term rentals and provide tips on how to price your listings correctly. We’ll also provide a guide on the best way that can be used when it comes to setting rental prices.

Proper Strategies for Vacation Rental Pricing

Vacation rentals are based on the same logic as the other industries, i.e. ” the market determines the price”. However, this does not mean that if you set the price at the average market level, you will sell.

Understanding the factors that impact rental prices is essential if you want to maximize your profits. Seasonal demand fluctuations, the location of your rental property, market supply and demand, historical business data, and target customer attributes are all important considerations when setting competitive prices for short-term rentals.

1. Understanding the market demand

The pricing strategy for vacation rentals needs to take full account of market demand. If your property is offering a standardized product, then it is appropriate to raise the price; while if you are offering a personalized service to your guests, then it is appropriate to lower the price.

Market demand determines the pricing of short-term rentals and also the direction of the short-term rental business. If you set the price too high, guests will not want to stay, while if the price is too low, you will lose money because the costs are not covered.

So before pricing short-term rentals, you can use the data and smart analytics of booking sites such as Airbnb and Booking.com to get user figures and preference information. In addition, the platforms are able to accurately analyze user needs and segment, mine and identify potential customers. It can also adjust the price range, optimize the price strategy, etc.

2. Identifying target customers

The price offered for vacation rentals will be different for different target guests, so the pricing strategy will be different.

If you are running a regular listing, then your guests may be more concerned about value for money and they are relatively more price sensitive. At this point, you need to attract them by giving lower pricing based on the average price of the same type of properties in the area.

If your property is for high-end guests, they usually do not pursue lower prices but demand higher quality, so you need to price it according to their needs, and you can also raise the price appropriately based on user reviews, stay experience, and other factors.

Suppose your short-term rentals are popular during the high season and the vacancy rate is high during the low season. In that case, you need to be flexible in adjusting prices at different times of the year – raising prices during holidays or weekends, and offering special rates and long-term rental discounts during the low season in order to generate more revenue or even profit during the low season.

If you are not sure about the attributes of your target guests, you can refer to the listings similar to yours, and analyze the pricing strategy of your competitors to use as a reference for your own pricing.

3. Regarding the costs

In addition to market factors, the operating costs of short-term rentals are also an important consideration in pricing, which mainly includes

• Renovation costs: the initial decoration of the house is a large cost and takes a long time to pay back
• Labor cost: the lower the price of a property, the greater the impact of labor cost on the revenue
• Operating expenses: the rent, utilities, maintenance, and other costs are ongoing investments

The cost composition of each short-term rental is different, so completely referring to the surrounding competition for pricing is not feasible, it should be set reasonably according to your actual situation.

4. Avoiding common misconceptions

When first starting out in vacation rentals, many hosts have stepped into the following potholes.

• The prices are not changed for half a year or even one year
• The prices are not lowered during the low season, 
• The prices are not raised in the peak season
• Not setting different pricing strategies for different platforms
• Not setting prices for weekends and holidays

These practices will directly affect the income of short-term rentals, some hosts are not sure how much they should increase or reduce their prices, they are worried that if the price is too high, guests will not purchase, and if the price is too low, they may lose money, so they just simply make one size fits all; many other hosts are just lazy, indeed, when managing several listings in several platforms at the same time, changing the price is a very tedious task.

These mistakes can be made by anyone, but if you want to maximize your short-term rental income, you need to be able to realize the problem faster, find the causes and solutions, and not repeat the same mistakes.

Best pricing method for vacation rentals

The dynamic pricing method for plane tickets and hotels is very mature, and it also works for short-term rentals.

In simple terms, this is a so-called “price discrimination strategy”, because people who buy tickets late (business customers) tend to care more about time flexibility than those who buy tickets early (leisure customers), so they have to pay a higher price for it.

Normally, this relation also exists for consumer demand for short-term rentals, the closer to weekends and holidays, the faster the availability of rooms decreases, i.e. the greater the demand, the more expensive the price to pay.

So what we need to do now is to implement dynamic pricing based on changes in demand, with respect to time.

A simple way to do this is to generate a price vs. demand function, and demand vs. time function from the historical data of bookings, and then integrate these two functions to finally obtain a price vs. time function.

This theory seems complicated and difficult to work with, right?

It’s actually quite simple, so let’s take an example.

By analyzing the operating statistics, come up with the average occupancy rate you need when you can basically break even, let’s assume it’s 60%; then check your current order data and adopt different pricing strategies based on different booking rates for different time periods.

Note that this chart is for reference only, you can adjust the price increase and decrease according to your actual situation and make a more detailed pricing strategy.

Efficient Tool for Vacation Rental Pricing

The Dynamic Pricing method is simple and effective, but the biggest problem a host may face in reality is: “With such granular pricing, does it mean that you have to change the price every day; how is this possible if there are multiple listings online in multiple channels?”

Yes, it would be an “impossible task” to change it all manually, but with the right methods and tools, the operation can be completed with a single click. 

Hostex, the short-term rental property management system, has made it possible to modify the price of cross-platform properties in bulk with one click. You can choose the object for any modification according to your plan.

1. Any selection of multiple rooms or room types
2. Any selection of multiple dates, by intervals/holidays
3. Change flat price with one click, or set different prices for different channels
4. Change the price according to the difference, or by percentage

With Hostex, you can also set up automated price changes.

If the room is not yet booked for the day, you can give the lowest discount directly to get a higher occupancy rate.

Both landlords and short-term rental managers need to understand one thing – Pricing is a process that requires continuous optimization, and it is only through continuous experimentation and accumulation that you will find a more suitable solution to generate higher revenue.