PRICING YOUR PLACE
When you first setup your Airbnb listing, Airbnb offered you the option of setting your price to dynamically adjust to demand.
Airbnb introduced the Smart Pricing tool to help hosts overcome their pricing “blind spots”. Smart Pricing lets you set your prices to automatically go up or down to match demand in your market, but only within the price range you choose.
The Airbnb Smart Pricing tool uses a trove of data like local demand, your amenities, previous bookings, the number of people who view your listing, and how often you’d like to host, to recommend optimal nightly prices you’re able to charge for your place.
The easiest way to think about how the Smart Pricing tool (and Price Tips) works is to think about how hotels charge different prices for different nights…
Smart Pricing and Price Tips work in the same way.
Airbnb have far greater visibility than individual hosts over all the factors that indicate current levels of supply and demand, as well as the relationship of these variables to listings such as yours.
Airbnb do not release the specific algorithm they use to calculate their price tip recommendations. They have however released general information on some of the factors they will consider:
Either way, the Smart Pricing tool is not without its critics. Is it your best option for maximizing your Airbnb earning potential? Here’s the case both for and against…
The Case For…
Airbnb further claim that when a host selects a price that’s within 5% of their price tip recommendations, those hosts are nearly 4x more likely to get booked, in comparison to hosts whose prices are more than 5% off from Airbnb’s recommendations. They also claim that hosts that have followed their pricing recommendations have lifted their earnings by an average of 13%.
The Case Against…
Guest Discounts vs. Host Profitability
Some critics point out that this simple overview fails to recognize a small, but important distinction: The difference in service fees that Airbnb take from hosts versus guests.
Airbnb aim to keep two distinct user groups happy:
These two objectives are in direct competition with one another.
Airbnb charge a flat service fee of 3% from hosts for all reservations, irrespective of size or duration. In contrast, service fees for guests range between 6-12%.
From a purely financial perspective (3% host service fees vs. 6-12% guest service fees), there is more for Airbnb to gain by recommending lower prices that keep guests happy (and booking more frequently on Airbnb).
Keeping guests “happy” (with lower prices) inevitably comes at the expense of hosts’ abilities to charge more for their places, since it requires more reservations at lower prices (rather than less reservations at higher prices).
This dynamic is supported by anecdotal evidence from seasoned Airbnb hosts who’ve observed that the prices they’re able to command from their listings are above the prices that Airbnb recommend they charge when using the Smart Pricing tool.
Tips Lack Specificity to your Listing
Lacking in Seasonal Variability
Activating Smart Pricing
Airbnb use a color code for their price tips. This is helpful when looking at your calendar to get a high-level “feel” for how accurately you’re pricing compared to what Airbnb suggest you should be pricing at:
In the example below, you can see that for the month of September, Airbnb’s price tips indicate that for the available dates, the prices that have been manually set are, according to Airbnb, less or least likely to get booked…
When you select a date range (i.e. more than just a single night) on your calendar, Airbnb also provide a View price tips option that enables you to see what prices it would recommend instead:
Once the price tips have been displayed, Airbnb also provide a button to save Airbnb’s proposed recommendations should you wish.