Setting the correct prices for your property is the most crucial element of vacation rental revenue management. A lot goes into pricing your vacation rentals like market trends, events and holidays, amenities you provide, bedroom count, and much more. Setting a base price is the first decision you will take for your pricing strategy to determine your average nightly rate for the rest of the year.
What is the first step you can take to achieve this goal? Read on to learn how base price can set up your strategy for success.
Why should your vacation rental pricing be dynamic?
The vacation rental industry is a dynamic market that is very sensitive to fluctuations in supply and demand. The rates of your listing should be considerate of the ever-changing nature of the industry. Hence, dynamic pricing should be the core of your revenue management strategy. It considers the relationship between price and demand that helps you rent your property at the optimum price.
Adopting a dynamic pricing strategy for your vacation rental business can do wonders for your business. David Lee, Co-Founder of Felix Technology and Managing Director at Uptown Apartments, increased his revenue by 40% and reduced his operational time by 90% after adopting a data-backed dynamic pricing strategy with PriceLabs.
Some advantages of dynamic pricing tools include:
1. Dynamic pricing software automatically adjusts your rates during special events, market trends, and seasonality. It facilitates you to assess your competitors’ prices and set yours accordingly.
2. Dynamic pricing tools automate your minimum night stay rules if a vacancy between two bookings is shorter than your minimum night requirement. It helps maximize your occupancy without you needing to make the changes manually.
Several factors affect the optimal nightly rate that you can set for your property. For instance, lower rates can fill your calendar with bookings and increase your occupancy. However, you might not be earning to the highest potential. There are other factors you need to consider when calculating your nightly cost, like the recurrent costs inclusive of maintenance, service fee, cleaning fee, etc.
A guest’s willingness to pay more will also be affected by the booking window and seasonality.
Why is setting a base price so important?
In the simplest terms, the base price is the nightly price you think your listing is worth. It is also the average rate of your listing for the next 365 days.
Your base price does not mean that your prices will always be that exact figure. Instead, the base price acts as a median figure. The base price is used as a starting price for your vacation rental listing, and all market factors, demand patterns, and customizations are applied, resulting in higher or lower rates.
How to set up a base price for your Vacation Rental?
Whatever the inputs or factors you consider in your pricing, you have to start somewhere; a number you think is a reasonable base rate for a listing should be specific to a listing. Broadly speaking, a base rate is a target ADR.
You can establish a base price based on market data, your listing’s portfolio data, and the data derived from the portfolio of a similar listing.
1. Market Data
The best practice for establishing a base rate with market data is to identify your unit’s classification (i.e. house with 2 bedrooms, 1 bathroom) and see the average daily rate charged by your competitors hosting similar listings in your area. You can manually check the pricing of properties in your segment on OTAs such as Airbnb, Booking.com, and Vrbo.
You can also set your base price based on the market data using PriceLabs. I have talked more about this in the section below.
The key to establishing a base rate with market data is considering all factors that constitute your market and localizing your market as much as possible. For example, a unit in Queens will have different rates than one in Manhattan. Similarly, proximity to transport hubs and tourist attractions in your area will affect the value of your listing.
2. Listing historical data
If you have been hosting for a while, you can also look at the data from your own listing. This data will include the listing’s ADR, occupancy, and performance during different seasons.
3. Similar listing’s portfolio
If you are considering the base price for a new listing, you can also draw data from your inventory of similar listings you have hosted. Other listings that offer similar amenities and are situated in the same location will give you a good idea of what will work for your new listing. The rate can vary hugely from market to market, so it is essential to be market-specific.
Other things to consider while setting a base price
1. Property’s aesthetics and amenities
While market data is the most accurate and most effective way of pricing your listing competitively, it still has limitations. It can not analyze things like the floor your listing is on in an apartment block, the views your property boasts, or the price and quality of your furniture.
You will see different versions of 2-bed apartments with 1 bathroom when booking a vacation rental. For example, a 2 bedroom apartment may be luxurious, offering several desirable amenities. On the contrary, 2 bedroom apartments offer the most basic amenities and may not be aesthetically pleasing.
This is where you need to consider the amenities you offer and the aesthetics of your rental. For example, if your property offers a better quality of living and more pleasing aesthetics than your competitors, guests will likely pay more for the property.
2. Added Costs
Finally, you must have a handle on the costs associated with your listing. The maintenance and cleaning costs will increase if you primarily host people for shorter stays. You need to consider your minimum night stay restrictions to understand your costs better.
Other costs might include various fees, PMS or dynamic pricing percentages, and online and practical operations costs such as checking in and maintenance and may extend to running costs. You can factor this in to establish profit margins with some idea of what a reservation costs you. Whether you take a cut of booking revenue as a management fee or keep the lot, as a manager, you need to ensure that your minimum nightly rate will at least cover your costs.
Establishing a Base Rate with Market Data for New Listings
Once you have a base rate you are comfortable with, there is one very important qualification – start lower for a new listing. Think of the base you have determined as the target average once your listing is established rather than the amount it should make off the bat.
Remember that ratings and reviews are critical to bookings and correlate with your guest’s willingness to book your rental. Your new listing will not yet have ratings or reviews, decreasing your property’s overall value in your guests’ eyes as compared to your competitors. If you price according to your competitors with more reviews while still being a new listing, you will potentially lose bookings and affect the health of your listing.
On the contrary, capitalize on the increased visibility associated with a new listing. Keep the momentum by initially pricing underneath your potential, encouraging clicks, and booking conversions early. You will reap the benefits of maintaining that visibility and performance as your listing steadily commands a higher perceived value and rate.
Look out for the ‘Help me choose a base price’ option in your Dynamic Pricing dashboard to get started with this.
When to Adjust Your Base Price?
Once you set your base price, see how your prices compare to other listings in your neighborhood. Adjust the base price up or down to fluctuate within the 25-75th percentile depending on the desirability of the listing.
You should reconsider your base prices if something happens that changes the market drastically. This may include another lockdown or a change in local vacation rental guidelines or laws. Your prices won’t reflect that change if you keep them static.
Hosts using the dynamic option won’t have to manage this process as the pricing engine will automatically alter daily prices according to the market health, booking pace, surges in bookings, and associated market fluctuations.
However, it is still recommended that you revisit your base price once a week for the first 4 weeks and then check on it monthly or quarterly to adjust it according to your performance.
If you’ve been using a base price for more than a few weeks and want to make an adjustment, opt for small incremental changes (5-10%) from your current base price over time rather than a large one-time change. This helps to determine the impact on your revenue safely.
How to Use PriceLabs to Adjust Your Base Price?
You can start with setting your base price using PriceLabs.
If you are unsure what base price to set, you can use our Base Price Help tool. It will suggest an optimal base price based on factors like bedroom count, market data, and more. There are three types of the suggested base price for maximum control:
- PriceLabs’ recommended base price
- Market-based base price
- Custom base price
1. Recommended base price:
If the listing has been synchronizing prices in PriceLabs for at least 10 days, we’ll recommend a base price based on the performance of the listing. This is with respect to its market, the listing’s occupancy, and its past base prices.
Imported base price
If the listing is newly imported, we do not recommend a base price directly. Instead, we show an ‘imported’ option based on the prices that the listing had before Pricelabs. This may or may not be a reasonable estimate, so for almost all users, we recommend setting the base price based on the market data instead of the listing’s own previous data.
2. Market Based:
Set your base price based on the market data.
- Market Level: Select the price level you want your listing to be positioned, namely Low, Medium, and High, which correspond to 25th, 50th, and 75th percentile prices.
- Bedroom Categories: Select the bedroom categories to fine-tune the market data used to calculate the market-based price. Select the size of the listings that you consider to your competitors.
3. Custom base price:
Click on the ‘Custom’ button to manually input a base price.
By now, you must know about vacation rental base price and how to choose one. It is not as complicated if you know what data to look for and what results you want to achieve from this task. Also, using a dynamic pricing tool like PriceLabs makes it even easier for you to handle your vacation rental pricing.