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The best vacation rental listing is the one that gets rented. Not surprisingly, how much you charge for a property will have a big impact on how often it gets booked. But how do you know what to charge?
If you are starting a vacation rental business, you are probably excited to make a profit. Still, one of the most complex parts of marketing your rental is deciding how to price it competitively while still making as many gains as possible.
To price your vacation rental to make the most money:
- Calculate your minimum operating cost.
- Start with low rates.
- Check out the competition with AirDNA/AllTheRooms.
- Keep your base rate low.
- Adjust your prices seasonally.
- Upcharge on weekends.
- Use add-on services.
- Use Beyond for optimal rates.
So, let’s go through all of the steps you will need to take to get the most profit out of your vacation rental. I’ll share some pro tips with you and explain the details so that you can always get the most significant returns from your growing business.
Table of Contents
1. Calculate Your Minimum Operating Cost
They say you have to spend money to make money. This is especially true when it comes to vacation rentals, but how much do you need to be able to pay your bills? It’s important for a successful vacation rental business that you are covering all of your costs and making some profit on top of them.
When renting out your property, if your rates are too low, you won’t make a profit and in some instances wont even cover your expenses. Before you determine how much to charge for a night’s stay, you need to determine how much you spend to maintain the property.
To determine your minimum rental price, you need to list all of the rental property’s monthly expenses. These include things like:
- Rent or mortgage payments
- Electricity, water, internet, and cable
- Heating and cooling
- Cleaning and maintenance costs
- Lawn work or gardening costs
- Association fees
- Taxes
Once you’ve calculated these monthly costs and any extra ones you might have, divide them by 30 (the average number of days in a month) to determine how much you are paying every day to keep your property running.
This number should be your minimum rate, and you should never go below this price for one night’s stay unless the booking is within 24-48 hours.
However, it’s extremely important to pay attention to what the nightly market rate is in your area and make sure your minimum operating costs are well below this at 60% occupancy.
2. Start With Low Rates
Keeping your rates low when you are just starting out is a great way to attract new customers who will leave you reviews that will boost your business.
People are usually more likely to stay at a vacation rental that has plenty of positive reviews. So if you don’t have reviews, you might want to lower your costs until you get at least eight positive reviews for your rental.
Once you have a good track record, you can push your prices up slowly, and people will be more willing to pay for your property since they know what to expect.
But you don’t want to lower your prices so much that you only break even. To make sure that you are making a profit, no matter how low your rates are, you should have at least 15% – 20% profit coming in for every booking when you start up a new property.
After you gain a good reputation, you can switch to a 30% profit and above.
3. Check Out the Competition
Having competitive rates is essential if you want to keep getting bookings. That means that you should always keep an eye on your competitors’ rates and adjust yours so that people know they’re getting a great deal with your rental.
To investigate the competition:
- Search your area for at least 10 other properties that can host the same number of people as your rental does.
- Also in your search, include at least 5 properties that list common amenities.
- Take note of the difference between their weekday and weekend rates, and see how the cost changes during peak tourist seasons.
- If possible, review your competition’s calendar to see how their rates will change over the next year.
Use these properties as a baseline for your pricing.
Generally, try to price your properties 10% to 15% lower than properties similar to yours to ensure that you get the most bookings.
If you want a helpful tools that do this for you automatically, I recommend short-term rental analytics software like AirDNA and AllTheRooms Analytics.
AirDNA
AirDNA is better for people who want to make their vacation rental business an actual enterprise (check out our AirDNA review).
It works with tons of data to help you compare your rental to other properties in your city, and it also factors in times of the year when you should upcharge or lower your rates. AirDNA will tell you more about your competitors, showing how long they have been hosting, their total revenue, monthly revenue, and how many bookings they get every month.
However, the main con of AirDNA is that it can be a bit pricey. The software costs more depending on how much money you will make from your vacation rental, which can be frustrating.
AllTheRooms Analytics
Much like AirDNA, AllTheRooms Analytics lets you spy on your competitors by tracking how much revenue properties are generating in a given area. It also works with a ton of data directly from Airbnb, and it is more affordable than AirDNA for the average property.
This is especially useful for investors looking to purchase new properties to see how much profit potential exists in a different area, or for hosts looking to optimize their occupancy by comparing their performance with their competition.
4. Keep Your Base Rate Low
When you search for a vacation rental on Google, Airbnb, Vrbo, or other platforms, the rate most often displayed is the base rate, which is the advertised rate of your Airbnb.
You can specify your advertised rate, and it doesn’t always have to be accurate.
Although you shouldn’t lie about your rates to get more views, you should always ensure that your base rate is the lowest cost you can charge for one night year-round. Your base rate changes based on peak season, so you can use these changes to your advantage without lying about your property.
To explain, naturally, people are more likely to click on properties that have lower base rates.
So, by keeping your property cheaper than the other rentals in your local area, even if that lower rate is just for Mondays or Tuesdays in the off-season, you can get more people to look at your vacation rental on the internet, which in turn boosts your position in the search results.
This method gives people more incentive to look at your vacation rental, and it could help them choose the property, even before seeing the actual rates for the days they are planning to visit.
5. Adjust Your Prices Seasonally
Like any product or service, the market for vacation rentals is based on supply and demand. Adjusting your prices based on demand will help you keep your rates competitive and give you the most gains from your business.
When you price your vacation rental property, keep in mind the unique seasonal attractions in your area and the prime vacation times.
You may want to upcharge your rental during:
- Peak Vacation times
- School vacations like summer, spring, fall, and winter break.
- Social events like music festivals, sporting events, large concerts, and other special events in your area.
For the best results, make a list of the 15 events in your area or holidays that can make a significant impact on your profits for the year.
Then, set the prices for those weeks far in advance so that you don’t lose out on the premium pricing from people who like to plan their accommodations ahead of time.
If you are in doubt about how much to charge during these events, take a look at other vacation rentals or hotels. Calculate how much these other businesses increase their prices during local events and replicate that percentage increase in your prices. You can do this by searching the properties in your area with those specific dates.
Usually, the increase is between 10% and 30% of the normal rate.
Raising your rates during these special events can make a huge difference in your profits, so you should always stay informed about what people want to see and do in your area.
6. Upcharge on Weekends
Weekends are the most popular times for people to stay at vacation rentals, so if you want to take advantage of the massive influx of tourists every Friday, boost your weekend prices.
Most vacation rentals will increase their rates by 10% or more on weekends even if there is no festival or other event that heightens demand, so check to see what other local vacation rentals charge on weekends to keep your rate competitive.
You can also check how much hotels charge for the same dates if you want to be more specific.
For a more accurate picture of how much prices change on weekends, take a look at how popular your property is on Saturdays and Sundays compared to Fridays. After all, if there are already many people staying at your rental on Friday night, you may not want to upcharge so high.
If your rental is consistently booked on Fridays, Saturdays, and Sundays throughout the year, increase your weekend price by an extra 10% or 15%.
This will help keep your rental from being full before this prime time even comes around, making it easier to upcharge for the busy dates.
7. Use Add-On Services
One of the many secrets to maximizing profits in the short term rental industry is to incorporate additional services outside of your base rental rate. If you want to make the most profit, charging for additional services can add a lot to the value of a night’s stay at your vacation rental.
Adding an extra cost on top of the nightly or weekly rate will allow you to raise your rates without charging too much more than what guests are used to paying, keeping them interested and booking your property.
Consider charging for add-ons like:
- Cleaning fee
- Pet fee
- Late check-out or check-in fees
- Breakfast or dinner fees
- Costs for beverages or other specialty foodstuffs
- Rollaway bed fee
8. Use Beyond for Optimal Rates
Dynamic pricing tools are one of the best ways to guarantee that you are always charge the right nightly rate for your property.
The more data dynamic pricing tools have on how much guests are willing to pay, how many times people want to stay at your rental, how often you get booked, and how specific dates affect rates, the easier it will be to set accurate prices.
Beyond is one such tool that uses AI to help you automatically change your rental rates.
It does all of the price comparison and rate adjusting for you, and will even detect sudden surges in demand from a local event and adjust your prices accordingly.
When you start with Beyond, you connect your Airbnb/VRBO account and set your base price. Then the software will suggest specific dates that you may want to raise or lower your price. It will also consider how competitively you want to price your rental, making it easy to adjust costs however you want to.
Also, Beyond only charges 1%-1.25% of your rental revenue every month, making it more affordable.
Final Thoughts
As long as you consider the right factors while pricing your vacation rental, you should see profits.
Always keep in mind your minimum price, your competition, and times that you can reasonably charge more for your rental property to ensure that you get the most out of your role as a host.
You should also always be active as you adjust your rates and keep all of the factors that might affect your guests in mind to make them feel like you are providing the best deal.
