Written by: Jorge Contreras, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
An automated Airbnb business with a great pricing strategy makes an amazing combination. After all, it’s a passive source of income that can potentially give you 6-figure earnings when done right. However, while many people already have an idea of how to automate their operations, many others still don’t know how to price their Airbnb correctly. And this can lead to lesser revenue which you’ll discover why as you read the article further.
Pricing strategy tips
Two things can happen when you don’t have a solid pricing strategy. First, you can end up overcharging it, which can lead to lesser bookings since people will naturally choose cheaper Airbnbs with the same services as you.
And second, you can undercharge it and lose out on potential added revenue. Undercharging is selling yourself short and can attract the wrong guests who are only looking for alternatives to motels. So in every listing, you need to find the perfect balance. But how do you do it? Well, here’s a simple step-by-step guide to finding the best rate for your property:
Step 1. Find your minimum nightly rate by calculating your daily expenses.
Your expenses keep your Airbnb running. Some examples are your rent or mortgage, utilities, and furniture. Now you need to get a daily average of these expenditures to know how much you have to earn to break even. To do this, just add up your expenses for the month and divide them by 30.
Once you’ve calculated your daily expenses, you can now decide how much you’re topping it up for the profit. Make sure that it’ll cover your time and effort so you can pay yourself too. However, you also need to remember not to overcharge or undercharge your listing. To verify, take the next step and do market research.
Step 2. Research and study similar Airbnb prices.
On your Airbnb app, search for listings in your area that are similar to yours in terms of the number of guests they can accommodate, their number of beds and baths, and even the amenities they offer. These are your direct competitors and you need to take note of how they price their Airbnbs. Get their average nightly rate and use it to guide how much you can charge on your property.
Step 3. Adjust your prices accordingly.
Now that you have an idea of the average amount you can ask for your listing, you are almost ready to name your final price. But once you get to a certain number, don’t use it every day of the year. You also need to adjust your prices accordingly based on supply and demand.
For example, if a popular concert is happening in your area, there’s a high possibility that more tourists will be visiting. When this happens, you need to change your prices so you can optimize and make a bigger profit out of the demand for Airbnbs near you. If you only stick to a single rate – during peak seasons, holidays, and weekends – you’ll lose out on bigger profits.
Step 4. Try using Smart Pricing
Worried about having to manually adjust your prices all the time? Use Airbnb’s Smart Pricing. This in-app tool is useful for updating your listings' prices to automatically match current market trends and demand.
And you don’t have to worry about Airbnb pricing your listing below your desired base amount. Just set a minimum nightly rate and Airbnb will not override your settings. You can also turn the Smart Pricing Tool on and off anytime.
Now, if you don’t want to go through the trouble of doing all these, here’s a quick trick that I use on my listings: Take your rent or mortgage, double it, and divide the number by 20 – this is your nightly rate.
For example, if you rent your property for $3,000 a month, your goal is to get $6,000. Divide this by 20 days and it’s $300 per night. Use this as the base rate for your Airbnb and see if it works for your listing.
More tips to maximize profitability
Now that you have an idea of how to find the best price for your Airbnb, let’s talk about how to further increase your profitability. If you’re a new host or still planning to get started, the following tips will be useful for you.
1. Go for larger properties.
When you go for bigger properties, it also allows you to attract and market to larger groups. The reason for this is that most Airbnbs only host 4 or fewer people. So if you can accommodate 8 or more, you’ll have less market competition and you can charge a much higher nightly rate.
If a guest opens their app and looks for Airbnb in your area that can host 4 people and you can host 8 to 10, you and a lot of others will show up in their search results. But if they’re looking for a place that can accommodate 6 or more, you’ll remain in the results while others will disappear. This is one of the practical reasons why you need to consider going for larger properties when starting.
2. Get free rent on your first two weeks of Subleasing
If you’re Subleasing, or renting a property from a landlord to use it as an Airbnb rental – sign a lease agreement but delay the start of the lease until after you
have furnished and started the Airbnb business. This is how you get free rent for the first two weeks on the property.
Let’s say you’re planning to officially launch your property on February 1st and you have to prepare everything before this date. Of course, you must speak to the landlord, sign a lease agreement, and pay for the 1st month and the deposit first, preferably around January 15th.
Now if you sign and pay for the first month on January 15th and launch on February 1st, this means that you’ve already used 2 weeks of your rent just to prepare your property, and you only have 2 weeks left to get it back for the month.
Instead, you can talk to your landlord on January 15th and say, “Hey, I do need a couple of weeks to furnish my property, so can I sign and pay for my rent today but have my lease begin on February 1st?” If the landlord agrees, you’re technically getting 2 free weeks from January 15th to February 1st to prepare for the launch.
3. Start accepting pre-booking and reservations.
Here’s a follow-up tip on the last strategy: As soon as you sign the lease on January 15th or even on the 16th, ask the landlord if it’s possible to get the keys to the property so you can begin setting it up and go live as soon as possible. In my experience, most landlords are okay with this.
Now when you get the key, start preparing your property and make it a goal to go live on Airbnb by January 22nd. But don’t accept bookings yet. You still haven’t started your lease as per the agreement. What you do instead is start pre-booking reservations for February 1st onward so that on February 1st your calendar is already booked and you’re already making a profit on day one of your Airbnb launching. Smart, right?
Conclusion
Any business can flourish with the right pricing strategy and Airbnb is no exception. The tips you see here are just some of what I accumulated in over 10 years of operating my own Airbnbs. So make sure to check them out and use them to maximize your Airbnb profit. Want to know how to use the Subleasing strategy we mentioned in this article? Download and check out our free training guide today.
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Jorge Contreras, Executive Contributor Brainz Magazine
From poverty to a million-dollar business, Jorge Contreras is a real estate investor and coach. He started his real estate journey over 10 years ago, and he launched his Airbnb business 5 years ago. Before that, Jorge was overworked and underpaid. He barely had time to spend with his family, and his business wasn't exactly thriving. Once he got into real estate, he realized the potential, especially with Airbnb and short-term rentals. When he became a millionaire before the age of 30, he decided to share his knowledge with all the people who have the need to spend more time with their families and less time working. Jorge has already helped over 3000+ people reach their goals with Airbnb.
