Although Airbnb has gone from a startup to a household name in only a few short years, the dynamics of the supply and demand for its units are constantly changing.
In our podcast below, our special guest Ian McHenry of Beyond Pricing explains how supply and demand works on Airbnb pricing and the three BIGGEST determinants of demand in your market.
Below is a quick summary of some key takeaways from our talk with Ian.
What is Dynamic Airbnb Pricing?
Dynamic Airbnb pricing is simply changing the price of your Airbnb unit as the supply AND demand for Airbnb units in your market changes. And boy do they change.
Demand changes for various reasons–seasonality, special events going on, etc…
Supply is changing mostly from having more Airbnb units being added to the markets, meaning greater competition and less pricing power over time. Within one year, San Francisco has nearly DOUBLED the amount of Airbnb units available to guests…that’s double the supply!
Seriously…If you do not have dynamic pricing, you’re leaving money on the table.
The Big Three Determinants of Local Demand
Demand by guests for Airbnb units in any particular city is sensitive to three major factors:
The demand for Airbnb units is not constant throughout the year and in almost all markets, there will be a high and low season.
In the example below with San Francisco Airbnb occupancy rates in 2014, you’ll see that demand is generally much higher in the summer months from July to September compared to the winter months from December to February.
The specific highs and lows for each market will be different. Touristy locations will have a greater disparity between the high and low tourism seasons where as more business districts will see flatter demand throughout the year.
And even within the same city, different neighborhoods could have very different seasonalities (e.g. beaches will have higher demand during summers than downtown areas). Having an accurate assessment of the right seasonality of your peers in your area is a starting point for determining the right baseline prices throughout the year.
Day of the Week
Is your area attracting more business travelers or leisure travelers?
If it’s mostly business travelers, you may actually see higher demand for spaces during the week days instead of the weekends. But this demand is hyper-local, meaning it is very dependent on the specific reasons of why someone would want to stay in your neighborhood rather than the greater city. Just like seasonality, this will vary from city to city and even within cities.
Learn more about finding the target rental audience for your unit
But also, you’ll notice that there are sharp jumps in demand throughout there year–these are typically special events like big conventions happening in town that push demand up for a short period of time.
However, these events will only affect the units within a certain radius since attendees will generally want to be as close to the events as possible.
Notice above what the special events in San Francisco did to demand. Some of these events drew over 100,000 visitors. With only about 30,000 hotel units in the city, you can imagine what that did to demand for Airbnb units.
During some events, hosts were able to charge 2-3x their regular rates! But just knowing when an event will be in your area is not enough for you to determine HOW MUCH you should adjust your Airbnb pricing. Keep reading to see how to find that out.
Static (Flat) Pricing Leaves Money On the Table
Many Airbnb hosts, particularly new and less experienced ones, will set a baseline price for their unit and then just forget about it. This is a perfect way to miss out on bookings and leave profits on the table.
Let’s look the example below with three different hosts, each holding a flat pricing throughout the year.
Host #1 will have full occupancy throughout the year and will probably be booked out months in advance all year. An inexperienced host might think they’re doing great but in reality, they’re leaving a lot of money on the table because they could have charge much higher rates in the summer.
Host #3 will have a great summer, charging a premium rate and be fully booked during those high season months. However, he will be empty during the rest of the year because they’re over pricing the unit during those times, thus leading to very low occupancies during those off season times.
Host #2 will have moderate occupancy throughout the year, but again will be missing out on bookings during the down season but also leave money on the table during high season.
NONE of these hosts are going to get the most out of their Airbnb units. In order to do that, you’ll need to adapt your pricing dynamically throughout the year AND account for hyper-local impacts like specific day of the week and special events.
So…How Much Could You Gain By Using Dynamic Pricing?
The short answer is A LOT.
According to data from Beyond Pricing, someone with a FLAT pricing plan can stand to gain as much as 43% on revenues. Even very experienced hosts who keep diligent market data and track competitive pricing regularly can expect to gain at least 10% to their revenues.
It’s not easy to price your Airbnb unit on your own and it takes up quite a bit of time and effort that you might not have.
Having a partner like Beyond Pricing that can automatically track all the relevant data for you and adjust your pricing optimally to get you more profits is worth considering if you want more bookings during low season and higher booking rates during high season.
To learn more about these topics and what Beyond Pricing can do for your Airbnb unit, watch our talk:
Great article. Finding the right pricing for your Airbnb is really difficult and, looking forward, can set the stage for your hosting career. If you stick to dynamic pricing, you can move with market trends and set yourself up to consistently succeed with your short-term rental business. Thanks for showing us how 🙂
Great post – we’re big fans of Ian McHenry and Beyond Pricing as well.
We found Beyond Pricing a very helpful tool for our Airbnb listing – nice to learn about the scope of the program
Sorry! It may sound great but it is stupid. I’ve been in sales for 30+ years and nothing irritates a customer, and puts off a sale, more than changed prices!
I have been looking for a room for 2 days, just reviewing all my options. Et voila! Bnb algorithims tell the host that there’s a lot of demand. But not. I have been given a wuote of almost double what was shown on the bnb website. I, of course, will not take that room nor will I take any other with a nge. i’ll go to a hotel.