Dynamic pricing is a pricing strategy that takes into account multiple factors to adjust price continuously. This is different from more traditional pricing strategies that take into account only one or two factors, such as competitor-based pricing or time-based pricing. Because of the complexity involved in factoring a multitude of factors as they fluctuate through time to provide an ever-adjusting rate, dynamic pricing is performed by algorithms.
Dynamic pricing is known to be very effective for growing occupancy and revenue and is used widely by property managers in the vacation rental industry.
Vacation rental revenue management is the total of strategies utilized to drive profits, reduce costs, and grow the business. It involves the use of data and analytics as well as human experience and intuition.
Dynamic pricing, on the other hand, is a pricing strategy that sees rates adjusted with changes in supply and demand. It is a key aspect of vacation rental revenue management.
So, while dynamic pricing falls under the larger category of revenue management, it does not mean the two terms can be used interchangeably.
Even if you have access to real-time pricing data in your market, trying to factor in the different influences on your pricing to come up with the most accurate price for your listing that you update daily is a superhuman task. That’s what dynamic pricing algorithms do for you and why traditional manual pricing sees you leaving money on the table by pricing too low or too high.
Unlike hotel rooms, vacation rentals are not cookie-cutter replicas of each other. Each property has its own unique offering. Dynamic pricing algorithms take into account individual factors such as amenities, reviews, and historical performance to ensure the pricing matches the specific offering of your Airbnb rental.
Because dynamic pricing eschews flat pricing in favor of demand based pricing that includes your competitors’ pricing and occupancy, you can not only capitalize on market fluctuations but offer competitive pricing that makes your listing more attractive.
Pricing is a major factor considered by the Airbnb search algorithm when determining search ranking results. This is the same for search on Vrbo and Booking.com too. Because dynamic pricing ensures you are priced competitively, it is likely to lead to a higher search ranking.
Dynamic pricing algorithms aim to achieve maximum possible occupancy at the best competitive rates including filling in orphan days and low seasons and attracting last-minute bookings to fill in gaps, increasing the year-round occupancy of your booking calendar.
Dynamic pricing tools work within the parameters you set – such as minimum rate and minimum night policy – to achieve the sweet spot of maximizing profits and occupancy. With accurate and incentivized pricing based on supply and demand, you are ensured of earning the maximum revenue possible.
By eliminating the painstaking and time-consuming process of pricing your vacation rental from your list of tasks, it gives you more time to spend on other areas of your Airbnb business, like improving guest experience.
According to Beyond, vacation rental managers that utilize dynamic pricing grew their listings by an average of 24% year on year. Thus using a dynamic pricing tool can also help you grow your portfolio and scale your business faster.
Putting a dynamic and proactive pricing strategy in place optimizes profits, enables faster growth, and gives property managers the freedom to focus on more human-centered tasks like creating a fantastic vacation rental space for guests, the relationship between owner and manager will blossom and can even lead to new owner acquisitions.
Dynamic pricing takes into account multiple factors in order to provide the best price for your Airbnb vacation rental at the time. These include:
The basic principle of dynamic pricing, this means lowering prices during times of lower demand and increasing prices during times of higher demand.
Dynamic pricing continuously takes into account competitor pricing to ensure you are priced better and therefore more attractive to prospective guests.
If your competitors are fully booked but demand still exists, you can charge higher rates. However, when competitors are also experiencing lower rates then it makes sense to lower rates to remain competitively priced.
Demand for accommodation can vary depending on the day of the week. For example, weekend vs weekday or Monday vs Thursday. This will depend on your market. For example, city-based vacation rentals are more likely to see higher demand for weekdays while more leisure-based markets will experience higher demand for weekends.
This is the length of time in advance that your vacation rental is booked. For example, it may make sense to decrease prices to attract last-minute reservations to fill in gaps or for advance bookings towards ensuring maximum possible occupancy.
Season has always played a role in vacation rental and hotel pricing, but in the modern market the understanding of seasonality is more nuanced. For example, if July-August is your high season, it may make more sense to gradually increase prices until you hit the peak days of the season before tapering off as it comes to a close rather than have a fixed rate for the entire period.
Whether national events like the Fourth of July in the U.S. or local events like the British Firework Championships in Plymouth or the Winter Carnival in Whitefish, special events are times of higher demand and dynamic pricing tools adjust pricing accordingly.
These are the gap days of zero occupancy in your booking calendar. Dynamic pricing incentivizes filling these in by making prices more attractive to ensure maximum possible occupancy.
Dynamic pricing takes into account your minimum nights policy when determining the best pricing for your Airbnb vacation rental.
While travel trends are ever-evolving, there is still room to take into account the performance of your Airbnb vacation rental during previous months and years.
The amenities you offer are a key factor in determining your pricing and dynamic pricing tools also take these into consideration.
Better reviews allow for higher rates. Dynamic pricing tools take the quality of your reviews into account when determining the best pricing.
You are free to set the minimum and maximum rates for your vacation rental acceptable to you. The dynamic pricing algorithm will take these into account when determining the best rate for your Airbnb rental.
PriceLabs creates a base price for each listing by analyzing historic and future performance. Adjustments are then made to the base price as a percentage change. Price Labs takes into account factors such as seasonality, day of week trends, lead time, and holidays and events.
Users can set their own rules to govern minimum prices, last minute adjustments, orphan day prices, day of the week pricing and occupancy-based adjustments. Dynamic rules can also be set for weekend vs weekday minimum stay restrictions, last minute stays, far out stays, and orphan gap fillers. Users are also free to change prices at any time. PriceLabs also allows bulk-adjustment of prices for portfolios of several listings.
PriceLabs is generally considered best for property managers with a portfolio of several listings. Because of its integration with a large number of PMSs it is also more compatible.
Built by a team of PhD data scientists, Wheelhouse claims to provide an increase in earnings of up to 40%. It offers tailored plans for part-time hosts, professional hosts, and property management companies.
Users can opt for a conservative or aggressive pricing strategy over the recommended pricing and preview the pricing before deciding on it. Or they can choose to fully customize each setting, from base price, minimum price, custom rates, last-minute and long-term discounts, minimum night stays, weekend and seasonal adjustments as well as far-future pricing. Users can also make use of free market data.
Wheelhouse has a loyal customer base who love its flexible pricing, features, and customer-support.
Beyond claims to increase revenue by up to 40% by analyzing a billion data points of hyper-local market factors to set the best price. It provides years of historical data and primarily takes into account seasonality, local demand, and day of the week.
It also provides free, wide-ranging insights into market and competitors, tracking of performance and trends, and market data. It also assigns a health score on pricing to each property to make sure users are aware of what they can do better.
Because of its direct integrations with OTAs, Beyond is a great option for those who don’t use a PMS but still allows for optimizing pricing on multiple booking channels.
A free pricing tool for Airbnb hosts, Smart Pricing automatically updates rates for your listing based on factors such as demand, location, type of listing, seasonality, and number of positive reviews. Hosts can set rules based on trip length, lead time, and others as well as minimum and maximum price.
Smart Pricing also includes insights which provides information on past, present, and forecasted future performance across a number of metrics as well as allow you to compare your listing to similar ones in the area.
Despite its many features however, many hosts avoid Smart Pricing altogether because Airbnb is more interested in getting listings booked rather than making hosts a profit. Many users feel prices set by Airbnb are far lower than they would like. Some others have complained they don’t feel it takes into account seasonality or even upcoming events until it’s too late.
MarketMaker is a pricing comparison tool made available free of charge by Vrbo to its hosts with the exclusion of those in Singapore and Japan. It draws data from within the platform and integrated property management systems to provide a competitive set of data. i.e. of properties considered to be similar to your own based on factors such as amenities and market (the location most often searched by guests to find and book your property.
MarketMaker mines the data to analyze real-time supply and demand, competitive rates of booked vs unbooked properties, local events affecting travel area, forecasted occupancy data, average rates of similar properties, booking lead times, search data from this year and last, and historical listing performance.
Once you’ve set up your rate strategy on Vrbo, MarketMaker sends you alerts on pricing opportunities. It is up to the hosts to utilize the recommendations or not. While MarketMaker is quite different to Airbnb’s tool, many reviews suggest that its recommendations can usually be higher (during high demand) and lower (during low demand) that is best suited. Ideally, hosts would use Vrbo’s MarketMaker as a useful gauge to set their own rates as well as track their performance.
Rev+ is the free pricing tool provided by Expedia to the properties hosted on its platform. It draws from Expedia’s global data and combines it with each listing’s customized competitive set to provide insights and optimal price recommendations. Insights include forecasts for up to 12 months ahead of market rates, occupancy rates, and search demand.
Users can track the performance of their listings against key metrics and even export the data made available to them to combine with other sources for greater understanding.
Unlike Airbnb Smart Pricing and Vrbo MarketMaker however Rev+ does not directly integrate with many PMSs.
Whether you operate one or ten listings, dynamic pricing tools provide immense value to your business. Choosing the best-fit tool for your Airbnb business however will depend on your vacation rental offering, your requirements, and your goals.
Here are some things to consider when choosing the right dynamic pricing application for you:
Make sure the dynamic pricing tool of your choice directly integrates with your property management system. Many PMSs and channel managers are only compatible with one service. Hostaway, home to the largest marketplace, however is compatible with many.
If you do not use a PMS, make sure the tool you pick integrates with the OTAs you list on.
Make a list of all the features that are most important to you in a dynamic pricing tool including which ones you can’t compromise on. Then find out which tools best fit your needs.
As die-hard Apple and Android phone users will tell you, what is user-friendly to one person can be difficult for another. Would you prefer a detailed dashboard with lots of options for customization or a simple dashboard that only showcases the essentials?
The best way to find out what interface works best for you is to sign up for a product demo or free trial and explore it yourself.
How much you are willing to pay and think its worth will depend on the revenue you make, the number of listings you have, your goals, etc. For example, does it make sense to pay a percentage of every booking or is it better for you to pay a fixed fee every month or year? Would it still make sense once you scale?