In the busy world of self-managed short-term rentals, your success often hinges on a delicate balance of factors: location, amenities, and guest experience, to name a few. Yet, amidst the flurry of responsibilities, there's one crucial element that often slips through the cracks—the pricing strategy. 

Far too often, I've witnessed self-managed STR property owners overlook this vital aspect, only to grapple with fluctuating occupancy rates and missed revenue opportunities. 

Meet Maxine, the driving force behind Lakeview Cottage, a charming four-bedroom retreat nestled amidst picturesque scenery. With Maxine at the helm, this self-managed short-term rental embodies the epitome of hospitality, where guests feel like cherished members of the family instead of just visitors. From pristine cleanliness to personalized touches, Maxine's commitment to excellence is unmistakable.

Yet, beneath the surface of this idyllic setting lies a common dilemma faced by many self-managed rental property owners—the absence of a coherent pricing strategy. As reservations roll in, each presenting unique guest demographics and stay durations, Maxine struggles with pricing decisions that could significantly impact her bottom line.

Take, for instance, Reservation 1: a cosy getaway for two adults and a little one, spanning four nights in May. 

Then there's Reservation 2, a fortnight-long retreat in July, accommodating four adults and their furry companions. 

Finally, Reservation 3 beckons with a festive staycation for six adults and two children for nine nights over the holiday season.

Despite the potential for substantial earnings, Maxine maintains a flat nightly rate of $250, regardless of the number of guests, the season, or any additions. 

Maxine's business risks losing profit without a robust pricing strategy. 

She needs a pricing strategy based on dynamic pricing to increase her revenue potential and ensure her business is financially sustainable. 

So, let's delve into what it takes to ensure that Lakeview Cottage is, not only, a sanctuary for guests but also a profitable business for its dedicated host.

Dynamic pricing: the foundation of a successful pricing strategy

Dynamic pricing is the foundation of crafting a successful pricing strategy for your short-term rental property. This entails allowing the nightly rate to fluctuate within a predefined range, based on several key factors:

• Seasonality: You need to know the high and low tourist seasons for your local area, and stay on top of national holiday dates that influence demand.
• Local Demand: Stay up-to-date on local events and festivals that could drive interest in your accommodation.
• Competition: Search Google Travel, Airbnb, Booking.com and Vrbo to identify comparable short-term rental properties in your area. This research will serve as a benchmark for setting your nightly rate. 

Investing in dynamic pricing software could streamline the process by automatically adjusting rates based on market conditions. Although using software comes with a cost, their efficiency offsets the investment and you'll see the benefits quickly. 

How to set your base price and your minimum price (and the difference between the two)

In dynamic pricing, the terms "base price" and "minimum price" refer to different aspects of pricing strategies:

Base Price: The base price is the initial nightly price you will set for your STR before any adjustments are made based on dynamic pricing factors. It serves as the foundation upon which dynamic pricing algorithms or strategies operate. The base price may be determined by various factors such as market demand, competition, and desired profit margins.

Minimum Price: The minimum price is the lowest price you accept for a night at your property, regardless of dynamic pricing fluctuations. It acts as a safeguard to ensure that prices do not drop below a certain threshold, which could result in selling at a loss. 
While the base price serves as the starting point for dynamic pricing adjustments, the minimum price acts as a protective measure to prevent prices from dropping below it.

Both your "base price" and "minimum price" should be established for accommodating two guests initially, with costs increasing incrementally for each additional guest per night, such as $50 per guest per night. This approach ensures that your property remains affordable for smaller bookings while maintaining profitability for larger groups.

Avoid this mistake with your cleaning fee

Including your cleaning fee as part of your pricing strategy is essential. When I see hosts who set their cleaning fee higher than their nightly rate, it shows an imbalance in their overall pricing strategy. It feels unprofessional and guests may also sense this discrepancy, which could put them off booking.

To work out your cleaning fee, calculate the average time needed to clean your property multiplied by the hourly cleaning rate. Add an extra 10% to cover laundry costs, cleaning products, and unexpected expenses. 

For example, if the local cleaning rate is $18 per hour and it takes 6 hours to clean your property thoroughly, your rate should be $108 plus 10%, totalling $118.

Your cash cows: justifiable extra income

It took me a long time to realise that charging for the extra that guests often request does not make me an ungenerous host, it makes me a smart business owner. 

Of course, generosity and hospitality are essential to hosting. However, it's important to distinguish between what guests are willing to pay for and what they expect to be included for free.

Let me ask you a question: what do pets and babies have in common?

They are cute, and snuggly and not often charged for by short-term rental hosts. 

But when you think about the extra wear and tear, laundry and cleaning that comes with hosting both pets and babies it makes perfect sense to charge for them. 

You could either charge a fixed pet fee per stay or a nightly rate of $10 per pet. However you decide to set your pet fee, it should be cheaper than boarding the dogs which can be over $30 per night for 1 dog.  Providing amenities such as a food and water bowl, a dog bed, and even a treat can enhance the guest experience with generosity. 

Charge a nominal fee for a "Baby Pack" for guests travelling with children under two years old who require a travel cot and highchair. This package may include essential items like a travel cot, highchair, baby bath, a small selection of toys, wet wipes, and a few diapers. Recognize that while infants stay for free, they can still contribute to additional cleaning and wear and tear. Offering this pack as an added convenience can delight tired parents and ensure a smoother stay for all guests while ensuring that your costs are covered. 

Want to talk about your pricing strategy? Email me at hello@hosthouse.online.