Summary
- We talk about the key decisions to make on setting up your property on Airbnb.
- There are trade-offs in areas of Pricing, Cancellation Policy and Booking strategy.
- The decisions you make should take into account the needs of your guests, which will likely differ from your regular vacation customers.
There are a few key decisions that you need to decide on before you put your property on Airbnb. We have made mistakes setting up our listings that cost us rentals and business. In this article we discuss these key decisions to help you before you put up that new listing. When you make the right decisions, you will be better able to take advantage of this marketing platform.
Airbnb has evolved over time and like any dynamic software system they have added features to meet the needs of the constantly evolving set of landlord parties as well as improving the offering. We will talk about many of the detail decisions you need to make in future articles. For this article, we will focus on a few key decision points that are important specifically to vacation property landlords who are starting out with the software. Based on our own experience, these decisions will help you avoid any surprises during your experience.
#1 – Marketing Strategy
When adding a new marketing channel, evaluate your overall strategy and how the channel fits into it. During your in-season rental period, not much marketing power is required by existing channels. With little fuss, local Realtors, many online vacation sites (such as the Homeaway.com family of properties), and maybe even your own website can fill your property with guests.
The tougher rental is the off season. That’s where an Airbnb can use its marketing power to get you more guests. This power comes at a high cost: 9-17.5% of gross rental income (this is a combination of the fees charged to guests and owners). Airbnb has quoted the high end of the rental fee as 12%, but in practice we have seen it go as high as 14.5% (the extra 3% quoted in the total above covers the credit card fee). This fee does not include a local property manager; you are on your own.
Airbnb is especially effective for your toughest rental: the deep out of season dates. This comes at a cost: the take-home pay will be among the lowest.
How you should use Airbnb depends on your circumstances. If you have an existing marketing channel such as a website, Airbnb can be used to enhance your traffic to it. If you have already invested in a software solution that has fulfillment and billing, there is little reason to actually encourage guests to book using Airbnb since they can book directly to you at a lower cost. The best opportunity to funnel these guests to your website is with the intro photo.
If you are a non-professional vacation landlord, Airbnb offers a billing and fulfillment marketing channel for your off season that is effective. If you need more off season guests, Airbnb can assist you there.
Given that Airbnb is the highest cost solution for in-season guests, we use it only during the off season. It doesn’t make sense to do otherwise since there are so many other less costly solutions for in-season rentals.
#2 – Booking Strategy
Airbnb offers the ability to book two ways: Instant Booking and Request Booking. Airbnb prefers that you offer Instant Booking; they will give your listing preferred search result treatment if you do. Airbnb also claims that they will give you better treatment for cancellations (ability to cancel a confirmed booking at will without penalty – the main one being blocking those dates from future booking opportunity). But from the looks of it this is just a promise and not a hard contract (it isn’t documented anywhere on the web site). Don’t trust it, if this concerns you.
When starting out, don’t activate Instant Booking until you have properly configured all your marketing calendars – stick with Request Booking. This will enable you to handle listing/pricing errors before the reservation occurs.
With an Instant Booking, no input is required from the landlord to obtain a booking. There are some minimal requirements for guests on Instant Booking (such as a photo). An owner can also require at least one previous positive owner review and also that the guest identity is verified. For Request booking, the guest cannot complete a booking; the landlord must approve the request (Accept/Deny) before the rental is booked.
In practice, you will need to work with both types of booking, even if you setup Instant Booking. The reason is that there is still organic growth in guests many of whom are first timers and they might not comply with the minimum requirements. The level of new Airbnb guests would also depend on your individual community, which may still be underserved. From our own experience we still see a lot of first timers.
If you are accustomed to personal interaction with your guests (either by yourself or your surrogates) before they rent, Instant Book may require getting used to. It’s more business-like. Whatever booking strategy you pick, it can’t be emphasized enough that you need to really get a handle on your calendar and booking requirements to make sure that you offer only what you are willing to rent.
If you choose Request booking only, there are very few reasons why should reject a booking request. A common reason why you might need to deny a request is to prevent a double booking (yes, we have been in a situation where a negotiation was going on for an offline booking while Airbnb snagged the same rental period). There are some websites that offer the ability to coordinate your bookings across online media platforms. They will prevent a double booking.
But this will not necessarily prevent conflicts with other partners you may have or especially your offline rentals. Use your judgment when in an offline negotiation or other situation. Under this scenario, it is prudent to block the listing online while the negotiation is going on. Lastly, your decision will also depend upon your ability to get your cleaning crew and house managers on board for potential last minute rentals. If you can get them on board to service the property quickly this will make a transition to Instant Book easier. If you need more lead time for your contractors before accepting any booking, you can configure booking lead time for up to 7 days. This means that guests won’t be able to request a stay less than 7 days from check-in.
So in summary, both types of booking you should consider as “hard” rentals. The added difficulty in Instant Booking is that it gives you less leeway to prevent a double booking. Below is a short video showing you how to configure Instant Booking and setting up minimum booking lead time.
#3 – Pricing Policy
There are three basic strategies to configure pricing on Airbnb:
- Option #1: Let Airbnb price days with their analytics (Smart Pricing)
- Option #2: Let Airbnb configure prices using Standardized Pricing rules (Standard Pricing)
- Option #3: The landlord configures prices (Custom Pricing).
These pricing options interact with each other and you must be careful how you mix them and the order in which you use them, as the table below describes.
Airbnb Pricing Options
The three Airbnb pricing options are summarized| Secondary Pricing Setup | Smart Pricing | Standard Pricing | Custom Pricing | |
|---|---|---|---|---|
| Primary Pricing Setup | ||||
| Smart Pricing | N/A | Not available to configure | OK, adds custom prices on top. | |
| Standard Pricing | Overrides your standard pricing and makes it invalid | N/A | OK, adds custom prices on top. | |
| Custom Pricing | This is OK, but overrides your custom pricing - do it over. | Weekend charge setting can reset some custom prices. Weekly/monthly custom prices are overridden by standard discounts. | N/A |
Airbnb is not especially effective at determining good pricing and the Standard Pricing comes with unintended effects that can occur with other configuration details. We suggest that you enter all your prices manually – Custom Pricing.
Smart Pricing might be suitable for very dense cities with many thousands of similar bookings to analyze to get a sense of the market pricing over time. If you are located in one of the many thousands of vacation areas around the world, it very well could be that there simply isn’t enough data in your area to adequately judge market pricing. There is no better demonstration of this than to look at what Airbnb recommends for pricing for in-season weeks. Airbnb doesn’t know what the pricing is for other channels, only its own channel. We have found that Airbnb under prices these weeks by at least 30% (after factoring in fees).
We recommend that use Smart Pricing as an analytics source to help you determine pricing, but don’t actually configure it. It is most effective in the off-season weeks. It is possible that Smart Pricing could work for you if you only rent in the off-season. The Airbnb pricing in the off-season more likely will represent the pricing available in your area in other channels because your vacation real estate doesn’t have any special value during this time.
If you are willing to put in the work required you can get better pricing by marketing to specific customers that are willing to pay more in your area. Smart Pricing doesn’t do this; it aggregates pricing for all guests, whatever their need is and current demand. We will talk about how to determine who these customers are in future articles.
Option #2 is used to configure Standardized Pricing rules throughout your rental weeks. Standard Pricing could go something like this: there is a standard daily price (with a configurable surcharge for weekend days), a discounted weekly price, and a discounted monthly price. The reason why this might not work well is that this pricing is not sensitive to your local market dynamic around the vacation season. The price you charge for, say, a stay adjacent to the in-season will very likely be different than the pricing for 2 months out. There is no way around it, you need to configure it yourself because your own market knowledge and experience can judge it better.
Option #3 is configuring the pricing yourself using Custom Pricing. Custom pricing consists of specifying a price to each specific day what you want its daily rate to be. Additionally, you can set a additional specific weekly rate (for each of the 52 weeks in the year) or monthly rate (for each of the 12 months in the year).
Custom pricing interacts with Standard pricing, if you have it configured.If you flip the ‘Weekend Charge’ on or off, you will need to redo any custom prices for weekend days you already configured. Also, if you have specified monthly/weekly discounts, these will override the incremental daily rates specified in your custom monthly/weekly pricing.
To better understand lets use an example. Let’s say you have a custom week price of $3000 for 01-01-2018 to 01-08-2018. If the guest books 01-04-2018 to 01-11-2018 (which runs outside the custom window), what will be the daily price for the days after 01-08-2018? If you have no standard weekly discount setup, you will get the implied daily rate from your weekly custom setting. If a standard weekly discount rate has been setup, this discounted rate will apply for those days.
#4 – Cancellation Policy
Consider carefully how you configure your cancellation policy. These are the cancellation options in Airbnb for most owners, this is found in the Cancellation entry in your listing menu.
If you select either Flexible or Moderate, a guest can get a full refund. Only the Strict policy offers what would is essentially similar to a traditional deposit loss for the guest.
Your current cancellation strategy probably works something like this: your guests reserve the property 6-12 months in advance with a hard contract with a deposit. If a guest wants to cancel, you will try to re-book the stay if possible and subject the first guest with a penalty if this fails. If given enough lead time, a booking for an in-season week can usually be filled quickly, so no one will typically lose out. The above cancellation policy is for guests who are renting your property for typically traditional reasons: a vacation. These guests already know that the supply/demand dynamic is on the landlord’s side, so they reserve well in advance.
If you are using Airbnb for out of season or “tough to book” weeks, we suggest a lenient Cancellation Policy. These guest very likely are not as sticky as in-season guest. They expect to be able to cancel easily.
For Airbnb guests, the dynamic can be also described by this traditional booking, but you will most certainly also get non-traditional guests. These guests may not have ever come to your vacation town and they may want to rent for some reason that is not even vacation related. And, they might seek your accommodation last minute. Many of these guests view a reservation like they do a hotel reservation; they expect the same ability to cancel virtually any time.
So what should you do to configure your Airbnb cancellation policy, should it be strict or loose? There is no right or wrong answer, but make a thoughtful decision one way or another. The main reason why you would want a loose cancellation policy is to accommodate guests in the off-season that often times are not very committed to a booking. They might be new Airbnb users who are on the fence as to where they will actually commit their booking.
They might not even be totally sold on using Airbnb yet. It is a good practice to give these guests an out. This might not sound like a good business approach, and you might resist it. However, in actual practice, we have found that the vast majority of bookings keep their commitment anyway. A moderate cancellation policy has enabled a few guests with “buyer’s remorse” to exit quickly. The downside to this policy is during the in-season weeks. If you offer a loose cancellation policy, a guest could cancel their booking a week before their stay and you are left high and dry for a prime rental period. The only loss for the guest is their reservation fee.
The strategy we employ is to use other marketing channels during the in-season weeks that have strict contracts. In the off-season we configure weeks in Airbnb with a medium cancellation policy. This hybrid approach has worked well for us.
