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How Helpful is Airbnb Smart Pricing?

Some may remember growing up and watching “The Price is Right” on television.  No matter who the contestants were or where they were from, they loved getting the “right price,” usually because it meant they won a prize.  There’s a prize for getting the “right price” in short term rental as well, and one that doesn’t go away after one visit to a game show: more income.

Price Matters

The right price matters, not just because it determines how much you’ll make in a given night, month, or year, but because it also offers a standard by which your competition can judge you.  Individual pricing changes lead to entire shifts in the pricing of a marketplace.  

One of the ways that Airbnb has approached this issue has been to create a feature called “Smart Pricing.”  These smart prices are powered by an absolute treasure trove of information that Airbnb, and only Airbnb, has access to:

  • Current supply and demand
  • Historical supply and demand (especially relevant after the 2020 Covid-affected year)
  • The amenities of your listing(s), as well as
    • The quality and quantity of your reviews
    • The number of people viewing your listing
    • Pricing of comparable listings in relation to yours
  • Time left to book

You are not obliged to use Smart Pricing as an Airbnb host, and even if you do, you can choose to override/turn it off for specific dates.  You can also set a “minimum price” so that the tool never drops your listing’s price below that level.

Incentives Not Aligned

Keep in mind that Airbnb’s goal is to take on every booking possible, as they take a 3% service fee from hosts.  What might mean a big change for you, say $10 less a night, is almost negligible for them.  On the other side, the service fees to guests can be as much as 20% for them, so a lower price is also cheaper for the end user.

Smart Pricing also doesn’t really know about upcoming major events, like a convention or sporting event, which can lead to missed opportunities for more aggressive pricing.

However, Airbnb argues that the statistics support the case for Smart Pricing.  One tool that was the precursor for Smart Pricing, Price Tips, increased average revenue earnings by 13%.

Alternatives

There are paid alternatives to Airbnb’s Smart Pricing in the form of Beyond and Wheelhouse.  You can also choose to set the pricing yourself.  After all, you probably know the state of your listing and the marketplace in general better than most.  But, if you choose this route, you will need to constantly tinker, for some of the reasons we mentioned above, like special events, and then some:

  • Seasonality (different seasons may bring different levels of demand…and appropriate pricing)
  • Day of the week (the classic division is business travelers come during the week and leisure travelers on the weekends, though Covid has muddied those waters considerably, as we’ve mentioned in previous newsletters)
  • Comparables (how does your competition stack up in pricing and amenities?)

Ultimately, we do consider Airbnb Smart Pricing both “smart” and helpful, but it will depend on how you manage your listing(s) and what your financial and occupancy goals are that will determine how much you use it, if at all.

This content originally appeared in our twice-monthly Guest Book newsletter.

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