Latest / Host Planet: Airbnb, Holiday Let, and Vacation Rental Insights / Stop Guessing Your Airbnb Price | Do This Instead

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Stop Guessing Your Airbnb Price | Do This Instead · Host Planet: Airbnb, Holiday Let, and Vacation Rental Insights

0:00
If your base price is wrong, no pricing tool can save you.
0:04
Set it too low and you leave thousands on the table.
0:07
Set it too high and your calendar sits empty.
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In this episode, we're going to show you a simple way to set
0:14
your base price quickly, The three warning signs yours is too
0:17
high or too low, and Zach Alley will share the one data point
0:21
most hosts completely ignore when pricing their short term
0:25
rental. This is STR Pricing Pulse.
0:32
Welcome to STR Pricing Pulse, a monthly series from Launch Base
0:36
Buy House Planet, where we cut through the noise and focus on
0:39
what the data is actually telling us about pricing and
0:43
demand. I'm James Varley, the founder of
0:45
Launch Base Buy House Planet, where we help short term rental
0:48
businesses improve their data and revenue management
0:51
knowledge. This series is powered by
0:53
Beyond, our exclusive data partners who provide the markets
0:57
and pricing insights behind every episode.
1:00
And joining me, as always, is revenue management guru Doctor
1:04
Zach Ali. How's it going, Zach?
1:06
It's going great. How are you?
1:08
Hi, I'm very, very well. I'm very excited to talk about
1:11
base prices. So let's start with the basics
1:15
then. So hosts hear the phrase base
1:19
price all the time. It's talks about a lot in the
1:21
industry, a lot of conferences, and they're going to hear it
1:23
especially when they start using dynamic pricing tools.
1:28
But I think a lot of people don't really understand exactly
1:30
what a base price is and what that means.
1:33
So let's start there. What exactly is a base price?
1:36
Yeah. I mean, first of all, it's a
1:38
fantastic subject to talk about, right?
1:40
I mean, there's a lot of uncertainty around base pricing,
1:43
if you like. People think it's just a price
1:45
point, but it's so far from the truth.
1:48
So yeah, absolutely, we can go a little bit more into it.
1:51
But just before I start, actually, well before I start
1:54
explaining what a base price is, I think it's really useful to
1:56
understand something about revenue management specifically.
2:01
And what I'm going to say probably is going to surprise
2:04
you and maybe come as a shock to you and the the listeners of
2:07
this podcast. But realistically, if you think
2:10
about it, revenue management isn't really about finding the
2:14
perfect price, right? Are you confused?
2:17
I'm still with you. I'm still, I'm still with you.
2:19
I'm waiting. I'm waiting for the punchline.
2:21
Yeah. So realistically, when I said
2:23
that, what I mean is it's about understanding how demand
2:26
actually responds to a price rather than trying to find what
2:31
the perfect price actually is. So when we look at base price,
2:35
it's basically or simply the starting point that allows a
2:39
pricing system, a revenue management system to do, to do
2:44
what they need to do, right. So a lot of hosts assume base
2:47
prices or a base price is the average price that they want to
2:51
charge for their property. But in revenue management terms,
2:55
base price isn't a target price. It's more of a calibration
2:59
point. And that's really how you should
3:01
see it. So in in reality, what it's
3:04
actually doing is it's helping the system understand where
3:08
normal demand tends to sit in the market.
3:11
And then from that reference point, the system can then move
3:15
prices higher. So when demand strengthens, for
3:18
example, when we have strong weekends or events or peak
3:22
season, for example, and also at the same time it can lower when
3:26
demand softens. So the goal isn't to guess what
3:30
the perfect Nike rate it is. The goal is to give the pricing
3:34
system a sensible reference point so that it can move prices
3:39
up when demand strengthens and down when demand softens.
3:44
And when the base price is calibrated well, pricing tends
3:49
to move naturally with the market rather than constantly
3:53
having to correct itself. Interesting.
3:56
I mean, I've kind of had it in my head for a while that a base
3:59
price is about what I think my property is worth and about what
4:05
I'd like. Am I in the right ballpark?
4:10
Here to to a certain degree, right, because you have to look
4:12
at lots of different factors and obviously we'll talk about it
4:14
more. But yeah, I mean worth or
4:18
valuation of property does form part of you calibrating your
4:22
base price. But it is.
4:25
It is that starting point. Let's make it practical then.
4:29
A mistake we see quite often is how setting their base price
4:33
based on what they feel their property is worth.
4:36
But revenue management doesn't really work like that, as as
4:39
you've kind of been explaining. Give us a simple three-step
4:43
method. Then how do you set the correct
4:45
base price? OK, So a three-step method then
4:50
I guess the easiest way to think about it, if we look at 3 simple
4:53
steps, if you like. So Step 1 is going to be more
4:56
about understanding the market that you're competing in, you
4:59
know, because pricing only really makes sense in context.
5:03
So the first thing host property managers should do is look at a
5:07
competitive set. So properties that are genuinely
5:11
comparable, say for example in size, in quality, location, you
5:16
know, these kind of variables. And then also what you're trying
5:20
to understand is where pricing tends to sit during what you
5:24
call normal demand periods. Now that's really important for
5:28
you to actually understand because normal demand periods
5:31
doesn't mean peak weekends or major events is more kind of
5:37
like the middle of the demand cycle.
5:39
And that gives you a good sense of the price range that the
5:44
market is comfortable actually with.
5:47
So I guess in terms of step one, that's probably what Step 1
5:50
looks like. Move on to Step 2 then.
5:53
So what comes next is choosing where your property actually
5:57
sits within that range. So most accommodation markets,
6:02
there isn't a single perfect price and there never will be.
6:05
There's usually a range of prices that the market's
6:08
actually going to accept and that range, you know, it depends
6:13
on what the demand obviously is. So base price should normally
6:17
sit somewhere within that range if you like.
6:20
So obviously depending on how your property compares with
6:24
others. Now, naturally, if your listing
6:27
has stronger views, better design, better location, you
6:32
know, you might sit towards the top of that range.
6:35
However, if it's new to market, for example, or still building
6:39
on reputation, it might actually sit slightly lower, which is
6:43
absolutely fine and it's perfect, you know, in terms of
6:45
that entry point position. I think also what's what needs
6:49
to be clear here is that the goal isn't to pick a perfect
6:53
number, as I've said before, it's to position your property
6:58
realistically, if you like, within the market.
7:01
And that's really fundamental when you're actually trying to
7:03
understand where the base price range actually sits.
7:08
So that was 2 points. So in terms of my Third Point,
7:11
then it's probably going to be stress testing that base price
7:16
over time. And it's a really critical point
7:18
actually, which a lot of property managers and hosts tend
7:22
to forget to do because what you got to remember is once pricing
7:27
starts moving, you have to or you want to watch how the
7:31
market's actually going to respond to that.
7:33
So if your calendar consistently fills much earlier than your
7:38
comparable listings, and you know, that can sometimes mean
7:42
that base pricing is sitting, maybe, you know, slightly too
7:46
low, for example. Or if again, comparable
7:49
properties are booking while your calendar and it remains
7:53
open, then that can also suggest that the anchor might slightly
7:57
be too high. So it's, it's about constantly
8:00
understanding, you know, and watching how the market
8:02
responds. I think also what's probably
8:05
important to mention here is what you're really watching for
8:08
is how pricing behaves relative to the market.
8:12
Now of course, you know, this is exactly the kind of analysis
8:17
that you would get in a revenue management system like for
8:20
example, beyond. They tend to automate this.
8:24
What they tend to look at is they analyse a lot of large
8:27
amounts of market data, which obviously can be a little bit
8:30
tricky if you're not using technology.
8:34
But what's fundamental is it's continuously adjusting pricing
8:39
as demand signals change all the time.
8:42
So that's really where the advantage of having this
8:46
exercise conducted within a revenue management system comes
8:50
from. So, but again, I think just to
8:52
also conclude that, you know, the objective isn't really to
8:55
find a perfect number, it's to position the base price
8:59
somewhere that allows the system to move naturally within that
9:03
demand and that's fundamental in getting that range.
9:06
I've got a scenario for you. So somebody makes an investment
9:10
and they're looking at their numbers and they think, right, I
9:13
need to get £200 a night in order to cover all my costs and
9:21
you know, I'm going to reach the occupancy level I want and I'm
9:24
going to make sure that I make a profit.
9:26
And then they do a load of research with comparable
9:28
properties and they look at the data and it keeps consistently
9:32
telling them that their property is actually worth about £100 a
9:34
night. What do you do in that
9:36
situation? I mean, as much as it, I hate to
9:40
say, it might be, you know, that might be basically what it is.
9:43
You've got to when you're looking at base pricing, you
9:47
have to remove the emotion, right?
9:49
You have to remove your emotion from what you believe your
9:53
property is. You know it is valued at the.
9:57
Ultimately, the customer will decide what the property is
10:00
valued at. Yeah, You can put all the fancy
10:04
amenities and make it to a certain level, which is within
10:09
your control to do so. But ultimately you've got to
10:12
understand what the value proposition looks like and that
10:15
comes from the customer point of view.
10:18
And if your property is constantly converting at those
10:21
lower price points and you have got it at a higher price point,
10:24
then there's masses of missed opportunity there and you'll
10:27
never really fully maximize on your opportunity if you are
10:32
consistently over anchoring or over setting your base price.
10:37
And I'm going to tell you about what I did at the start of my
10:40
journey, which when I look back now, I kind of cringe a little
10:43
bit at. But when I got my first
10:45
property, I was living out in Qatar and I was only just
10:50
concerned really about the property covering its costs and
10:53
being there in the UK when I wanted to use it.
10:56
So I charged a very low rate because I wanted to get high
11:00
occupancy and make sure that, you know, the costs were all
11:02
covered, the mortgage was covered and all that kind of
11:04
thing. Unsurprisingly, got lots of
11:07
bookings, occupancy very, very high.
11:09
And then after about a year, I heard of this thing called
11:11
dynamic pricing and implemented it and saw that I was charging
11:16
way too little compared to competitors and the standard of
11:19
the property and all that kind of thing.
11:20
So to people who might be starting out and they're
11:23
thinking, oh, I'm just going to charge a really low amount
11:26
because I want to get people through the door, Where might
11:30
they be going wrong and how much value are they going to get by
11:34
using a tool like Beyond? So I think if somebody launches
11:40
their property, you know, in terms of what you've said there,
11:45
the instinct is naturally going to be what you you've talked
11:48
about in terms of what you've done.
11:49
So drop the price immediately, right?
11:52
But I think that's usually, well, that should usually be the
11:55
last step rather than the first step.
11:57
So if you are starting out and bookings are slower than
12:00
expected, for example, the smarter approach is going to be
12:05
to diagnose what's actually driving having that slow down,
12:08
right? So the first thing I think you'd
12:09
probably need to understand and the one piece of advice I would
12:12
have given you if you'd asked me at the time is whether demand
12:17
actually exists there yet or not, right?
12:21
So in most accommodation markets, we know that booking
12:25
doesn't, bookings don't really arrive evenly.
12:28
So demand tends to build as dates get closer and more
12:33
travellers start making more decisions.
12:35
So sometimes what looks like a slow booking is simply just the
12:40
market not having reached that part of the booking window yet.
12:45
I think that that's probably the first thing I would say you need
12:48
to look at before getting your touch price.
12:50
Then I would probably say you need to look at how the
12:53
competitive listing is overall or how competitive your listing
12:58
is overall. So remember guests are not just
13:01
comparing price, right? They're comparing views, they're
13:04
comparing photos, amenities, location, what else overall
13:09
presentation. So if comparable listings our
13:12
booking whilst you know yours is not, then it's worth asking
13:17
whether the difference is actually really price or whether
13:19
the listing itself needs improving.
13:22
So I'd probably look at that. And then also in addition to
13:25
that, I would look at where your price sits within your
13:28
competitive set. So creating that competitive set
13:33
is going to be super duper important and it should be
13:35
consistently monitored and reviewed.
13:37
But if similar properties are priced, you know, above yours
13:41
and are still booking, it's unlikely that price is the
13:45
issue. If comparable listings are
13:47
consistently priced below you and filling up, then obviously
13:51
that can indicate that market may be more a little a little
13:55
bit more price sensitive than you actually expect, right?
13:58
So I think again, looking at competitive set in conjunction
14:01
to everything else, it's going to be super important.
14:04
Again, before you actually touch price.
14:06
One of the thoughts that just come to my mind actually, which
14:09
I think probably would be a fourth thing for you to look at
14:12
is if you're still relatively far from the stay day, it might
14:17
just simply be too early for demand to actually start to
14:20
appear, right? So in addition to everything
14:23
else, everything else that I've said, what's really fundamental
14:28
is having a look at your properties, search activity,
14:31
visibility and also conversion and what that looks like from a
14:34
distribution point of view, especially if you are using
14:36
third party distribution channels.
14:39
Because we know that sometimes bookings are slow and not
14:43
necessarily because of price, but because guests are not
14:46
choosing that listing when they see it or search traffic might
14:49
also be a little bit lower as well.
14:51
I think after you've looked at all those signals together, it
14:54
gives you a little bit more clarity in terms of whether
14:58
pricing actually needs adjusting.
15:01
And I think the key idea is not reacting immediately, but
15:04
understanding whether the signals actually coming from
15:08
said demand, from your listing itself or even from pricing.
15:12
And that's really when then you decide, OK, now I need to go
15:14
ahead and make some changes. One thing I do know is that if
15:18
I'd have had Beyond from day one, I'd have I'd have made a
15:22
bit more money and and this is a good time to mention a quick
15:26
note before we continue then the series is powered by Beyond who
15:30
provide the market data behind every episode.
15:33
If you want real time market trends for your area and want to
15:35
stop pricing your property based on guesswork, scan the QR code
15:40
on screen. If you're watching on YouTube or
15:43
hit the link in the show notes, it could help to boost your
15:46
revenue by 20%. All right then, Zach, let's get
15:50
back to it. So once someone sets a base
15:52
price, we know that it shouldn't necessarily stay the same
15:57
forever. We know that markets change,
15:59
demand changes, competition changes.
16:02
As to how often should hosts be reviewing and adjusting their
16:05
base price. Yeah.
16:07
So I mean, I've been asked this question a number of times and a
16:11
lot of people assume base price is something that you just set
16:14
once, maybe once a year and then well once and then review it
16:19
every year. But I think in reality and as
16:22
you just mentioned there, it's better to think about it as
16:25
something that basically evolves as the market changes, right.
16:30
So we know that accommodation markets aren't static, right?
16:34
So new listings enter the market all the time and drop off for
16:38
that matter as well. You know, demand patterns shift
16:41
also get behaviour changes over time.
16:45
So I think the the real trigger for reviewing base price isn't
16:49
really a fixed timeline, but it's more generally around when
16:54
you see a change in market conditions.
16:57
So for example, if a large number of comparables listings
17:01
suddenly appear in your area, then the competitive landscape
17:05
that you've been trading in previously has changed and the
17:09
price range that you were working with previously where
17:13
bookings tend to happen may actually shift slightly or
17:18
dramatically. So I think if you in addition to
17:22
that actually, I should say is if you make significant
17:25
improvements to your property, you know, perhaps through
17:28
renovations, even stronger reviews or even weaker reviews,
17:32
you know, if something's happened and the reviews have
17:34
fallen, your position within the market will change higher or
17:39
lower. So in both situations, the brace
17:42
price calibration, which we've talked about previously will
17:47
need adjusting so it still reflects where the property
17:50
actually is going to sit. And for that reason, I think a
17:55
more frequent calibration actually needs to happen.
17:58
I like to give, well, I like the simplest way to think about it
18:04
from a calibration point of view is it's like buttoning a shirt,
18:08
right? So if you get the first button
18:10
wrong, everything else looks slightly off right and you end
18:13
up having to undo the whole thing and start again.
18:16
And I think pricing works in a similar way.
18:19
You know, if the base price isn't calibrated properly, the
18:23
pricing system that you're working with spends a lot of
18:26
time correcting rather than naturally reacting to demand,
18:29
which is basically what it should do.
18:31
So base price isn't a fixed number.
18:34
It's a reference point that should evolve as a market
18:37
environment changes. I mean, everything else evolves,
18:39
so so should you base price. And for someone watching right
18:43
now who isn't sure whether their base price is correct, what are
18:47
the warning signs it might be too high or too low?
18:52
I think there's a few signals property managers can watch out
18:56
for, you know, And I think in terms of the 1st signal, if you
18:59
like, it comes back to market positioning.
19:01
So if your comparable listings in your area are regularly
19:05
charging more than your property and still booking, that can
19:09
sometimes indicate that the base price may be still sitting too
19:14
low. But it's also important to
19:15
remember that pricing isn't the only factor that influences the
19:18
bookings, reviews, photos, amenities, all those factors,
19:24
guest perception in terms of value for money, all those play
19:27
a part. So when you are comparing your
19:29
property with the market, the real question isn't simply who's
19:33
going to be cheaper or who is cheaper.
19:36
It should be more around how does my property actually
19:38
compare in the overall value relative to similar listings
19:42
that you are comparing against. I think pricing also works
19:46
better when it reflects where your property sits in the
19:49
market, not just what you actually want to charge or would
19:51
like to charge. I think in addition to that you,
19:55
you know, demand often reveals what you call price sensitivity
20:00
and price sensitivity through when guests decide to book.
20:04
So if your property consistently books much earlier than your
20:09
comparable listings, it can sometimes mean that the price
20:13
was attractive. Probably earlier than it
20:16
necessarily should have been. And then on the other hand, if
20:19
comparable listings are filling while your calendar remains
20:23
open, that can also suggest that maybe you're sitting slightly
20:28
above where the market is actually comfortable, therefore
20:30
it's impacting your conversion. So, you know, actually another
20:35
thing I'd probably say is how, how pricing behaves around the
20:39
base price over time as well. So when the base price is
20:43
calibrated well, pricing tends to move naturally with demand.
20:48
So some dates price above the base price whilst you know
20:53
demand strengthens and other others price below it when
20:56
demand softens, which is naturally how it should work.
20:59
But if pricing frequently has to drop below the base price just
21:05
to generate bookings, that can sometimes indicate that the base
21:09
price itself might be anchored slightly too high.
21:13
So pricing generally should move smoothly with demand rather than
21:17
constantly having to correct itself.
21:20
Makes sense. If you could give hosts and
21:22
property managers one piece of advice then about base price or
21:26
pricing strategy that they rarely hear, what would it be?
21:31
But they're rarely here. OK, let's put me on the spot,
21:33
James. So, OK, so one piece of advice I
21:37
would give to host and property managers is most pricing
21:41
mistakes, in my own understanding experience, don't
21:45
actually happen when demand is actually weak.
21:47
They actually happen when demand is strong.
21:50
Now, when the booking starts coming in quickly, the instinct
21:54
is to feel relieved that the property is actually selling
21:57
right. So it's a great feeling that OK,
22:01
I'm getting bookings coming in. But I think for somebody who's
22:03
managing revenue or for the property managers managing
22:07
pricing, you know, that often is the moment to become more
22:11
cautious, not less. Because if nights are selling
22:15
too easily or too early, it can sometimes mean that the market
22:21
was actually willing to pay more and you've simply sold the
22:25
inventory before demand has actually fully revealed itself.
22:29
Now, I know some people might listen to me and say, yeah, but
22:32
I we're an amazing property. You know, it's better than
22:34
everybody else out there. And why wouldn't it sell easily
22:38
or, or or convert better? Yeah, you might have a better
22:42
product out there. But then again, what I'm saying
22:44
is, you know, if the market is willing to pay more and you've
22:49
sold that inventory before that demand has actually come to your
22:52
door, there might be missed opportunity there.
22:55
You know, I think in other words, if you like.
22:57
So the the real skill in pricing isn't just filling the calendar.
23:01
And I think that's really important to understand.
23:03
It's more of, of an understanding of when demand is
23:06
still developing and, and allowing price to move with the
23:10
market rather than locking in bookings too early.
23:13
So good pricing isn't just about reacting to slow demand.
23:18
It's also about recognizing when strong demand is telling you
23:22
that the price might actually need to move higher.
23:26
Yeah, it's about filling the calendar at the right time, not
23:29
just as early as possible. Those property managers, we all
23:32
want to see those bookings. Zach, it's been a pleasure as
23:35
ever. Thank you for sharing your
23:36
wisdom on this episode of STR Pricing Pulse.
23:39
Been great. Thanks for having me James.
23:41
See you next time. All right, we'd love to hear
23:43
from you. If you're watching on YouTube,
23:45
drop a comment and tell us. Do you know what your base price
23:48
is and how did you set it? We read every single comment.
23:53
If you found this useful, hit like and subscribe wherever you
23:56
watch or listen. New episodes of STR pricing
23:59
pulse drop every single month. And if there's a topic you'd
24:02
like us to cover, leave a comment or e-mail James at
24:05
launch base dot club. This is STR pricing pulse from
24:09
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Until next time, happy hosting.