Airbnb is a web-based platform that serves to connect travelers and local hosts. It enables people to list an available property and create income in the form of rent. Airbnb also enables guests to book unique accommodations from local hosts, saving money and providing an opportunity to interact on a local level. Geared toward the on-demand travel industry, Airbnb has participant properties in over 191 countries all over the world.
So how does Airbnb make money?
Airbnb provides free listings to participant property owners, enabling consumers to browse the listed accommodations, and choose a booking which will suit their needs. The business model of Airbnb is based upon bookings and financial transactions being conducted on Airbnb’s platform.
But just because you can list your property on Airbnb doesn’t mean the entire experience is free. Airbnb has to earn money in order to continue operating. The key is in the way it charges hosts and guests when a property is actually booked. Airbnb is free to begin using but it costs money if you follow through on booking or renting a property.
Airbnb’s Revenue Model
The company earns revenue from two different sources: commission from property owners, and transactions fees from guests. Airbnb charges a 10 percent commission from hosts, with each booking completed through the platform. Airbnb also charges 3 to 5 percent of the total booking cost as a transaction fee to the consumer, each time a booking is completed.
Airbnb Host Fee
Airbnb also charges the Host a fee for listing a property or event. This commission is taken once the listing is completed. There is also a 20 percent service fee on hosts who offer experiences with their bookings, such as kayak tours or wine tasting.
This is one of the ways how does Airbnb makes money.
Guest Service Fees – Another Host-Side Revenue Stream
In addition to earning money from what a host is paid to rent his or her property, Airbnb also makes money off of what guests pay to stay at a property.
Guest Service Fees range from 0 to 20 percent. This is the fee a guest is required to pay for using the Airbnb platform. This includes reservation fees, cleaning fees, occupancy, extra guest fees, currency exchange fees, VAT/Local taxes, etc.
Airbnb’s guests are the main source of the company’s revenue. Airbnb has expanded to 4 million listings, in 191 countries globally. Airbnb attracts new hosts and potential guests by advertising on the internet, social media, offering discount promotions, refer to earn models, and of course, word of mouth.
If you delve into what actually makes Airbnb’s business model unique, you will notice that it is aggressive, particularly when compared to the business model of a typical large hotel company. When you compare them, it is perceptible that the big changes Airbnb has made in the hospitality industry have enabled it to customize hospitality in a way that other hotels lack the capacity for.
If you’ve listed a property on Airbnb, you’ve probably already noticed that the price a potential guest sees on the listing and what he or she ultimately ends up paying is not what you listed as your rental rate. And if you are a guest, you can be assured the amount you are paying is not all going into the pocket of the property owner. In addition to the usual overhead expenses of all businesses, Airbnb marks up what guests pay based on what the property owner has listed the property for.
This means that if you are a host, you should take the amount the guest will actually be paying into account. You shouldn’t short your rental price. It’s only fair that if you are putting in the work and renting your space to someone, you receive a fair amount of money for it.
It’s very hard to overcharge versus your competition
Let’s say you do the research needed to choose a fair pricing strategy in your area. You compile a list of what hotel’s, bed & breakfasts, and other short-term rentals in your area are charging. You know you have a great property with fantastic amenities and you offer excellent customer service. You might be tempted to take the highest rental rate you found and charge that or charge more than that.
The trouble is guests will be charged an even higher rate than that. So if you based your rate on a nearby five start luxury hotel and listed your property in the ballpark of that rate, in the end, guests will be able to stay at that hotel for a decent amount less than what they’d pay to stay with you. This might not take into account any additional fees the hotel charges, so you really need to dig deep when doing pricing research. You need to figure out exactly what a guest would pay to stay at a competitor’s property and what they will really be paying to stay with you once all is said and one and Airbnb marks up the rate.
This is the only way you’ll know how to be competitive in your area’s short-term rental market.
Airbnb is a Business, But It Still Offers Plenty of Benefits for Guests and Hosts
Airbnb fills the niche market, meeting a need for a larger demographic of travelers. Simply put, Airbnb’s business model is created for a mass market, and connects demographics in an exceptional way (travelers, hosts, and experience providers). With its rating system and capacity to customize experiences, Airbnb has created a fanbase amongst travelers.
Moreover, Airbnb uses a completely digital platform. Nobody is dealing with a travel agent or being greeted and assisted by someone at a front desk when they check in. (Although hosts are often there to greet guests upon checkin.) The consumer searches for and makes reservations and/or manages listings and experiences using the app or searching online.
Airbnb has a remarkable ability to meet demand, and continue to increase capacity on an ongoing basis. Airbnb has set up procedures that enable it to move rapidly into to new markets in a way that hotel companies have not achieved.