Why the Airbnb Calculator Sets Prices of Airbnb Listings Too Low

Airbnb-Pricing-Tips

Why the Airbnb Calculator Sets Prices of Airbnb Listings Too Low

Airbnb released a new tool to help their hosts improve their listings: the Airbnb calculator. Pricing is by far the most complicated aspect of Airbnb hosting. How do you know what the optimal price is?

Ideally, you want to set prices high when demand is high (in the high season, during special events for example) and low when demand is low. Problem is, how do you know what the demand is and how much should you adjust?

Up until today, the only option for Airbnb hosts to improve their pricing was to sign-up with automated pricing apps like Everbooked and Beyond Pricing. These apps connect directly to your listing and update prices on a daily base, according to estimated local demand.

Airlines and hotels have entire departments with mathematicians and data analysts to calculate the prices they charge. As an Airbnb host, you’re in the dark and most hosts end up setting the same price for every day of the year.

By doing so, they leave a lot of money on the table. Consequently, Airbnb loses out as well, as their fees are a percentage of the hosts’ revenue.

Hence it makes a lot of sense that Airbnb stepped up their efforts to help hosts set prices more optimally. Unfortunately, they don’t do a very good job at it. The Airbnb calculator (or Airbnb smart pricing as they now call it) consistently sets prices lower than optimal.

It’s not hard to understand why. Airbnb has the interest of both the host and the guest in mind when recommending prices. However, guests’ and hosts’ interests obviously aren’t aligned. Hosts want to make as much money as possible and guests want to pay the lowest price possible. In other words, it’s impossible for Airbnb to be a good advisor when it comes to prices and as a result they recommend prices that are too low.

How does the Airbnb calculator work?

When you go to your calendar, you’ll notice three things have changed: (1) you now see current reservations with a profile picture of your guest, (2) the nights that aren’t booked yet are highlighted and (3) the price has a color, either orange or green.

Airbnb fee Calculator

Here’s what the colors mean:

Green: you’re very likely to get booked at this price, you should increase it

Orange: you’re not very likely to get booked at this price, you should decrease it

Airbnb Calculator

If you click on any of the days that are still available in the calendar, you’ll see a box appear on the right side of your screen that shows the price that Airbnb recommends.

You can easily click the “set-this” button to adjust the price, or select another price by using the lever. You may wonder why Airbnb recommends this specific price. To find out, click the “why?” link. A box will pop-up with an explanation.

Airbnb price recommendation

Now go back to the original calendar screen. Notice on the right there is a box that shows travel trends for the upcoming months. Below it is the best feature of the Airbnb profit calculator.

Airbnb travel trends

When you press the “See price tips” button, Airbnb automatically adjusts all your prices to those that they recommend and with one click you can update your calendar with these prices. This way you don’t need to manually adjust all the prices one-by-one.

Would I use the price recommendations?

The short answer is: No. Hosts who use the Airbnb fee calculator leave money on the table by pricing too low. Another drawback of the Airbnb profit calculator is that you have to go into your calendar every day to update the prices, as Airbnb calculates them daily. That’s a hassle.

Everbooked and Beyond Pricing use many factors such as hotel prices, visitor stats, airline reservations and more to calculate optimal prices for your Airbnb listing.

Unlike Airbnb, they only have the interest of the host in mind when doing so and therefore I trust their prices more. In addition, their business model completely relies on providing the best prices, so it’s in their own interest to do a good job at it, they don’t have a hidden agenda.

Having said that, using Airbnb’s recommendations is definitely much better than setting the same price for each day, so I expect a lot of hosts will profit from using the Airbnb calculator. In addition, it’s free, where as other pricing apps charge 1% of revenue.

Conclusion

I think Airbnb made a good move introducing the Airbnb calculator. However, since Airbnb has the guests’ interest in mind in addition to the hosts’, they consistently underprice listings. Therefore, I’m sticking with Beyond Pricing. I think their price recommendations are better and also I don’t have to update the prices manually each day.

You may also be interested in:

Interview with David Ordal, CEO of Everbooked
Interview with Ian McHenry, CEO of Beyond Pricing

Special deals:

Sign-up with Everbooked and get the first 90-days for free (normally 30 days)
Sign-up with Beyond Pricing and get the first 30 days for free plus $60 worth of credit.

What are your thoughts on pricing your listing? Would you use the Airbnb calculator, set the prices yourself or use one of the automated pricing apps? Comment below!

4 Comments

  1. Jeanne says:

    I guess it’s a good tool (as are the others you mention) in markets with lots of competition and with lots of “similar listings”. But all three of the tools miss the many qualitative reasons a guest may be willing to pay more for a place — Great reviews, something that makes the place or the host more unique than others nearby, possibly proximity to an event or great restaurant or music venue, beach access, noise level, even the view! At minimum, I would think Airbnb could quantifiably measure the star ratings amongst the Airbnb listings in an area. But more importantly, I think, are the words used in a review, which of course aren’t measurable.

    I wonder too what guests would think of changing prices. If a guest was booked say for a week in June. And then later saw that the price for the next week was meaningfully lower might they ask for a discount? Is it fair to guests?

    • Jasper says:

      Some good points Jeanne, I’ve had a few guests ask about the pricing a few times when they booked a stay and the price fluctuated quite a bit even within their reservation. I explained that the price varies with demand. This didn’t prevent them from booking though.

      I think most people are aware that hotel prices and flight tickets change as well. Pretty much the price of everything that has limited availability changes with demand, so I think people do understand this concept. I also think it’s fair, guests can always book another listing if they wish.

  2. Thibault says:

    Hi Jasper,
    Great article. I’ve had a look at the price curve for my rental in St Barths (Caribbean): The demand prediction looks pretty accurate. I’ve decided to give it a try for my June prices updates and went along. I agree that tools like BeyondPricing are more sophisticated, though.

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