Overview
What are static and dynamic pricing? In the hospitality industry, a room night is a perishable asset. If the room goes unsold on any given day, it cannot be sold again and is lost revenue. This principle is especially true for vacation rental owners with a single property. Not renting your property on any given day is a 100% loss of that day’s potential revenue.
As a short-term rental host, and hopefully a Superhost, one of the most important decisions you will make is how to price your property. There are two main options to consider: static pricing and dynamic pricing. Each approach has its own advantages and disadvantages, and choosing the right one depends on your specific goals and needs.
Static Pricing
Static pricing involves setting a fixed price for your rental that remains the same all year round, regardless of demand or seasonality.
Benefits
- Simplicity – Static pricing is easy to understand and implement, and does not require any special tools or software.
- Predictability – With static pricing, you can be sure that your rental will generate a consistent income based on your occupancy, which can be helpful for budgeting and planning purposes.
- Repeat business – By offering a consistent price, you can attract repeat business from guests who know what to expect from your rental.
Drawbacks
- Missed opportunities – If demand for your rental is high, you may miss out on higher rates that you could have charged if you used dynamic pricing.
- Reduced occupancy – If demand for your rental is low, you may struggle to fill your rental or unexpectedly have to accept lower rates.
Dynamic Pricing
Dynamic pricing can be most simply described as factoring in the concept of supply and demand into your pricing strategy. Charge more when demand is high, and charge less when demand is low. It’s a balancing act of finding the right guest, at the right time, at the right price.
Benefits
- Increased revenue – Dynamic pricing can help you maximize your revenue by charging higher rates when demand is high, and lower rates when demand is low.
- Occupancy optimization – By adjusting your rates based on demand, you can optimize your occupancy and avoid having your rental sit empty.
- Increased competitiveness – By using dynamic pricing, you can stay competitive with other short-term rental properties in your area.
Drawbacks
- Complexity – Dynamic pricing will be more complex and time-consuming than static pricing. You’ll have to monitor the demand over time or use specialty software to assist.
- Unpredictability – With dynamic pricing, your income can be more unpredictable, as you may not know what your rental rate will be until demand is known.
- Guest dissatisfaction – Guests may be unhappy if they see that your rental rate has changed significantly since their last booking, especially if they feel that they have been charged a higher rate for the same rental.
Real world
Large rental companies, like Lodgify & Guesty, use dedicated revenue managers and complex algorithms to set rates for their listings. Unless you use a full-service management company, you’ll need to know the basics of revenue management. While completely static and completely dynamic pricing are the ends of the spectrum, you’ll likely find yourself somewhere in the middle. Unless this is your full-time job, it’s rarely possible for you to be watching the market and adjusting rates daily. Airbnb allows you to set a base rate, a weekend rate, and create easy pricing rules that can be applied to larger seasons. You’ll also use length-of-stay discounts and other restrictions to get the optimal bookings for your property.
Smart pricing
You’ll notice the Smart Pricing feature when looking at your pricing and availability settings on Airbnb. Toggling this on allows Airbnb to set your rates automatically based on their pricing algorithm. I’ve never been a fan of this feature because it tends to lower the prices significantly under what I think my rentals are worth. Personally, I’d rather have a good amount of quality bookings than a full calendar of bargain rates that often lead to more wear and tear. Every situation is different but I choose to keep this feature turned off.
Recap
The choice between static and dynamic pricing for short-term rental revenue management depends on your specific goals and needs. Static pricing is simpler and offers more predictability, but may miss out on higher rates during peak demand. Dynamic pricing is more complex but offers the potential for increased revenue and occupancy optimization. Consider your own priorities and weigh the pros and cons of each approach before making a decision.
