Since changing your prices dynamically on Airbnb is critical to stay competitive and maximize your earnings, it may not seem like a bad idea to use a feature like Airbnb’s Smart Pricing tool to adapt your prices to changes in demand.
Smart Pricing allows you to change your prices automatically based on criteria like location of your listing, local demand and other factors. This all sounds great because it saves you the headaches of knowing how to adjust your pricing strategy, but as we’ll explain in this article this feature also comes with important limitations.
Indeed, it seems that many hosts have expressed dissatisfaction with Airbnb Smart Pricing tool. Most commonly, hosts appear to complain that Airbnb generally underestimates demand, prices listings at minimum price which are too low and fails to account for off-events that are a great opportunity to capitalize on higher prices.
One important factor to take into account is that Airbnb competes on prices with other OTAs such as Booking.com or Vrbo as well as hotel rooms. While lower prices might come at the expense of the hosts, this is in fact a great marketing tool for Airbnb to attract more bookings on its platform and increase guest satisfaction.
Our experiments have shown that there is generally very little difference between listings using Smart Pricing and those that have fixed rates set manually adjusted only seasonally. Listings using Smart Pricing generally tend to have 5-10% more bookings, but at prices 10-15% lower thus not making a real difference.
How Does Airbnb Smart Pricing work?
The Smart Pricing feature on Airbnb uses an algorithm that analyzes property-related metrics to provide price suggestions. After evaluating the data, it suggests an optimal price. Once hosts decide to activate Smart Pricing, they’ll have to set a price range, and the system adjusts the nightly rate based on factors such as base price, cleaning fees, competitor rates, etc.
What Data Is Used To Determine Prices?
1. Local Demand In Your Area
When properties in your area are frequently booked, Airbnb perceives it as a sought-after location and raises your prices accordingly. Conversely, during low seasons or in less frequented areas, Airbnb adjusts rates downwards to increase the appeal of your rental.
2. Amenities And Listing Quality
The amenities and features provided in your space can impact the price suggestions from Airbnb. Offering more amenities leads to higher calculated rates. However, even with limited amenities, you can still influence the algorithm positively by creating a detailed listing. Airbnb considers the quality and thoroughness of your listing when making calculations.
Helio Hospitality offers services that let’s you optimize your listing descriptions which also enhances your Airbnb search ranking.
3. Room Type
The type of room and its amenities influence how Airbnb’s Smart Pricing software rates your listing. Features like an ensuite bathroom or a balcony with a garden view are considered in the algorithm. If your room lacks standout features, you can enhance its appeal by adding simple amenities like air conditioning, a larger bed (if space permits), and a smart TV.
4. Calendar Availability
Increasing the availability of your listing on your calendar improves your market data rate. Airbnb favors hosts who accept more guests as they earn a commission from booking fees. For this reason,, they incentivize more frequent hosting with higher price tips.
5. The Number Of People Viewing Your Listing
The number of clicks and views your listings receive also influences the price suggestions. A higher click rate leads to better calculated price tips. To improve listing visibility, aim to reach a broader audience. Promoting your listings on platforms like Instagram and Pinterest can attract additional views.
6. The Number And Average Rating Of Your Reviews
To positively influence your suggested rates, focus on accumulating as many 5-star reviews as possible. Airbnb’s Smart Pricing considers both the quantity and quality of reviews from guests. Ensure a top-notch guest experience from the beginning, and after checkout, encourage guests to leave a review by writing one for them first.
7. Searches For Listings Like Yours
Airbnb also considers the frequency of searches for listings similar to yours. This reflects the popularity and demand for your type of property, which in turn influences the recommended price.
What Are The Pros And Cons Of Using Airbnb Smart Pricing?
While some hosts have found success with Airbnb Smart Pricing, others remain critical. The ability to automate rate changes and attract bookings is certainly a nice feature to have but critics worry it might lower revenue by setting rates too low. Ultimately, hosts should experiment and monitor results to decide if Smart Pricing fits their needs. It’s a trade-off between automation and control, with hosts needing to consider their property’s unique appeal and target market.
Pros:
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- Provides real-time metrics-based price suggestions for market competitiveness.
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- You can retain control by ensuring your price won’t drop below your chosen minimum price.
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- You have the flexibility to turn on and off the feature as needed.
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- Smart Pricing is in-built in the Airbnb platform and comes free of charge.
Cons:
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- Using Airbnb Smart Pricing may result in lower prices and so lower earnings per reservation than what you would otherwise be charging.
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- Determining minimum and maximum prices can be challenging if you lack a predefined pricing strategy.
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- Some hosts feel the tool prioritizes bookings over host income due to Airbnb’s commission.
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- Lacks specificity, often recommending similar prices for comparable listings regardless of unique features.
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- Despite claims of considering seasonality, hosts report receiving very similar rate updates for high and low seasons.
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- Many hosts report that Airbnb fails to account for upcoming events with more than 3-4 months of anticipation leading to lost opportunities to maximize revenues
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- Airbnb Smart Pricing does not work with other platforms such as Vrbo or Booking.com thus resulting in pricing mismatch on other channels
Conclusion
Using dynamic pricing is generally a good idea as it helps the competitiveness of your listings and can optimize your revenues.
To this end, Airbnb Smart Pricing can be a good start for homeowners who have limited understanding of revenue management strategies or do not have the time to manage their pricings actively.
However, it is clear that for property managers or homeowners with larger portfolios using Airbnb Smart Pricing is not an optimal strategy and would lead to forgone revenues.
For those who want to spend the time learning about revenue management and like a hands-on approach, there are specialized pricing softwares such as Pricelab, Wheelhouse or Beyond, which would generally lead to much better results (we will explore the benefit of those pricing tools in another article).
As powerful as those pricing softwares can be, they are challenging to understand and to use effectively, and this is why many property managers and homeowners find it beneficial to work with an outsourced revenue manager like Helio Hospitality.
By working with a company that specializes in leveraging those pricing tools with revenue management strategies you will not only increase your revenues, you will also have more time to focus on guest experience – the core of your business.
