Smart Pricing and Price Tips
When you first setup your Airbnb listing, Airbnb offered you the option of setting your price to dynamically adjust to demand.
Airbnb introduced Smart Pricing to help hosts overcome their pricing ‘blind spots’. Smart Pricing enables you to set your prices to automatically go up or down to match demand in your market, but only within a price range you set.
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…
- A hotel in Tokyo knows it can charge a lot more for a room during the Olympic Games being hosted in Japan than it can when the Olympic Games are finished
- A hotel knows it has a longer timeframe to gradually reduce the price of un-booked nights six months out from today’s date than it does one week out from today
- A hotel knows how booked out they and other hotels in the local area are, and the availability of alternative accommodation options that exist for guests looking for somewhere to stay
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.
In recommending optimal nightly prices to charge for your place, Smart Pricing uses a trove of data like…
- Supply and demand in your local area
- Your amenities and listing's qualities
- Calendar availability and previous bookings
- Number of people viewing your listing
- Number and quality of your reviews
- How often you'd like to host
- Time left to book
- Room type
- Searches for listings like yours
Airbnb take all these factors into consideration to determine a nightly price that strikes the optimal balance between maximizing your number of bookings with charging an appropriate amount for each of those bookings.
In some instances, Airbnb may recommend charging less than you may think you’re able to charge. It will do so based on how often you’ve told Airbnb you want to host (“as often as possible” vs. “part-time”) and then reducing your rates in a way that best achieves those goals.
In other instances, it may recommend charging more for your Hawaiian beach villa during summer where demand is naturally going to be higher.
Either way, Smart Pricing is not without its critics. Is it your best option for maximizing your earning potential? Here’s the case both for and against…
The Case For...
Airbnb’s business model is premised on being brokers that facilitate short-term rentals and take a small cut from every reservation they facilitate.
The logic would be that the more reservations they facilitate, the more reservations they take a commission from. And similarly, the more you charge for each of those reservations, the greater the service fee Airbnb are able to take from each of those reservations too. Therefore, whether through maximizing bookings or your nightly rate – every time you make money as a host, so too will Airbnb.
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.
Airbnb state 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:
- Hosts - Keen to see Airbnb as a lucrative source of income; and
- Guests - Keen to see Airbnb as the go-to option for short-term rentals
There is a difference in the service fees Airbnb take from hosts and guests. 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 0-20% of the reservation subtotal.
There is therefore more for Airbnb to gain by recommending lower prices that keep guests happy and booking more frequently on Airbnb.
This 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).
Many seasoned Airbnb hosts have observed that the prices they’re able to command are frequently higher than the prices that Airbnb recommend they charge when using Smart Pricing.
Tips Lack Specificity to your Listing
Airbnb provide only generalized pricing recommendations for listings that are like yours as opposed to your specific listing.
Your two bedroom, one bathroom apartment in New York may be much nicer than other two bedroom, one bathroom apartments of inferior quality also in New York. If that’s the case, you deserve to command higher prices for your place in lieu of this fact. The opposite is also true too should your place be of inferior quality to other two bedroom, one bathroom apartments.
Airbnb’s Smart Pricing is not nuanced enough to address this limitation. It pigeonholes your listing amongst other listings using only a limited set of categorizing attributes.
Lacks Seasonal Variability
A few minutes of experimentation with Smart Pricing will reveal that Airbnb’s price tips lack variability from date-to-date. As an example, the price it recommends for a Tuesday in winter may be the exact same amount it recommends for a Saturday in summer.
Failing to provide pricing recommendations that change meaningfully at different times of the year can represent significant missed opportunities – especially for places that have wide variance in seasonal supply and demand.
Without true differentiation in prices across different dates and seasons, there’s good reason to remain skeptical about the extent to which the tool is truly optimizing your earning potential based on other dynamic factors that stand to benefit you too.
Activating Smart Pricing
If you wish to activate Smart Pricing and didn’t already do so when creating your Airbnb listing, you are still able to do so at any time after your listing has been published.
To activate Smart Pricing:
- Login to Airbnb
- In Hosting mode, select Listings from the top navigation bar
- Click on your listing
- Click on Pricing from your listing's menu
- Click the Edit button for the Nightly price section
- Turn Smart Pricing to “On”
- Enter your Minimum price and Maximum price
- Click the Save button
You’re similarly able to deactivate Smart Pricing any time after creating your listing too, by turning Smart Pricing to “Off” (replacing Step 6).
Airbnb also offer Price Tips for individual days, regardless of whether you’ve enabled Smart Pricing or not. These are determined using the same methods used by Smart Pricing.
To view your price tips:
- Login to Airbnb
- In Hosting mode, select Calendar from the top navigation bar
- Click on any individual upcoming date and note Airbnb’s price tip underneath the Price for the night input box
In the example below, Airbnb recommend charging $154 for Saturday 22nd September.
Clicking on the tip (in green, beneath the Nightly price input box) will automatically copy and paste the price tip amount into the input box for you. If you want to update your nightly price using Airbnb’s price tip, don’t forget to save changes.
In addition to offering nightly price tips for individual days on your calendar, Airbnb will also offer price tips for your base price as well as minimum and maximum nightly prices. They will also offer a tip in %-terms for length-of-stay discounts (i.e. weekly and monthly discounts).