COVID-19 UPDATE: How can dynamic pricing tools help you navigate the crisis and prepare for recovery? Read our new article with tips from experts.
Getting vacation rental pricing right is an art. Ask for too much, and you might end up with more gaps in your calendar than you’d like to see. Ask for too little, and you risk leaving money on the table.
Technology has made the lives of property managers easier in countless ways, and setting rates is no exception. Using dynamic pricing tools to generate automatic rates is a great way to get ahead of the competition, boost your revenue and maximise your occupancy.
Let’s look at the best dynamic pricing solutions on the market and how you can add them to your revenue management toolbox.
Jump to: The limitations of manually setting your rates | How does dynamic pricing work? |How the world’s most successful property managers use dynamic pricing | How can you implement dynamic pricing solutions? | Top 5 dynamic pricing tools for vacation rentals
The limitations of manually setting your rates
Demand is extremely volatile – it can plummet or skyrocket unexpectedly at any given time.
Up until a few years ago, property managers used to rely on fixed prices that didn’t take into account changes in market demand, save for seasonality. This approach doesn’t work anymore.
If all you had to take into account were the differences between high season and low season, setting rates for your vacation rentals would be a simple matter. What makes it difficult is that demand within those periods fluctuates drastically.
You can tinker with your pricing manually to a certain extent. Maybe you’re aware that there’s usually a spike in demand during a holiday or a local event. You might even have historical data to back up your assumptions.
However, demand is extremely volatile – it can plummet or skyrocket unexpectedly at any given time. There’s no guarantee that this year will be the same as last year.
If you’re basing your predictions solely on experience, unforeseeable changes in demand can quickly render them worthless. And you can end up setting your prices too high or too low.
Then there’s the question of mapping your rates against your competitions’. It’s not impossible to do the research manually – but doing it multiple times a year, trying to cover your entire competitive set is very time-consuming.
Enter dynamic pricing.
How does dynamic pricing work?
Dynamic pricing is a response to dynamic demand.
Dynamic pricing solutions allow you to optimise your rental’s performance by frequently adjusting your nightly or weekly rate based on real-time market data.
The price adjustments are automatically generated by algorithms that leverage machine learning to understand fluctuations in supply and demand.
This data-driven approach takes into account multiple factors that help to determine the perfect pricing for your vacation rental, analysing your competition as well as real-time demand, occupancy, performance, etc.
Think of it this way: dynamic pricing is a response to dynamic demand.
Using dynamic pricing software to adjust your rates can significantly boost your revenue. Leading dynamic pricing providers claim that their data-driven solution can increase your revenue by as much as 40%.
Implementing automatic pricing based on real-time market data is also a great way to avoid low occupancy rates. The more competitive your prices are, the more likely it is that someone will book your rental.
How the world’s most successful property managers use dynamic pricing
Some property managers build their own pricing solutions in-house. Others use external tools integrated into their main software.
In the vacation rental industry, technology gives you a competitive edge. And using sophisticated tech solutions to take care of your pricing and revenue management is no exception.
According to the Short-Term Rental Tech Report 2020, one-third of all property managers use some kind of yield management or dynamic pricing software.
And it’s not just the biggest players. In fact, 25% of property managers with 1-99 rentals use pricing and yield management tools, only a trifle less than property managers with more than 100 units (32%).
Some property managers choose to build their own pricing and revenue management solutions in-house. Others, who don’t have a large enough tech team or simply choose to focus their efforts elsewhere, use external tools integrated into their main software.
We’ve seen examples of property managers acquiring dynamic pricing providers and making them a part of their business to be able to take full advantage of their solutions.
In 2018, Evolve Vacation Rental purchased Everbooked and brought their dynamic pricing platform in-house.
In a similar strategic move in mid-2019, City Relay acquired Outswitch – which continues to operate as a separate brand while also providing City Relay with a bespoke yield management system.
As for property managers who build their own solutions from scratch, Sykes Holiday Cottages is a great example.
As CEO Graham Donoghue told us in a Secret Sauce interview, Sykes’s yield management system currently makes around 2.5 million automatic price changes a year across the company’s 17,500 properties. But it didn’t start out that way.
A few years ago, Sykes was still using a printed-out, 52-week pricing brochure to manually adjust their prices. Since then, they’ve built their own yield management model.
And today, Sykes’s team of 14 people handles all the work involved in optimising prices with the help of their bespoke software.
After seeing these examples to aspire to, you may be wondering: how can you start your dynamic pricing journey?
There are two ways to start automatically adjusting your prices today, and we’ll cover both in the next section.
How can you implement dynamic pricing solutions?
1. Use a PMS with a revenue management module
While there is no all-in-one vacation rental software solution on the market that could cover 100% of a professional property manager’s tech needs, there are quite a few hybrid platforms that combine a variety of different features.
For example, some of the top property management systems (PMS) have built-in revenue management modules that you can use to automatically adjust your prices.
So if you’re not ready to commit to a dedicated dynamic pricing tool, check whether your PMS has a pricing feature with advanced capabilities.
In our ebook, the Who’s Who of Property Management Systems, you’ll find 19 PMS providers along with everything you need to know about them, including a list of their built-in features and the tools they integrate with.
If you don’t use a PMS yet or you’re planning to make a switch, this ebook will help you find the perfect software with dynamic pricing and yield management capabilities.
2. Use an external dynamic pricing tool
The other option is to work with a company that specialises in dynamic pricing.
There are several dynamic pricing platforms on the market that integrate with other vacation rental software – top PMSs and Channel Managers – as well as listing sites.
These companies have been doing outstandingly well in the past few years, continuously improving their product and growing their customer base.
Some of the leading providers have sparked the interest of investors, with Beyond Pricing raising $42 million in funding in September 2019.
Let’s take a look at the best dynamic pricing solutions out there.
1. Beyond Pricing
Beyond Pricing has built an advanced dynamic pricing solution that accounts for changes in demand on a daily basis to help you maximise revenue and occupancy.
The software assigns a pricing Health Score to your properties to make sure you’re always aware of opportunities for optimisation.
You get detailed insights with every price recommendation, so you don’t need to wonder why prices are going up or down in your area on a given day. The tool also helps you plan ahead by providing a preview of pricing recommendations for the next year.
The Beyond Pricing platform connects seamlessly to the most popular property management systems as well as the Rentals United Channel Manager.
In mid-2017, Beyond Pricing acquired competitor Smart Host to leverage their technology and bring more sophistication to pricing in the vacation rental market.
Pricing: 1-1.25% of total revenue. 30-day free trial available.
Learn how to connect Beyond Pricing with the Rentals United Channel Manager.
2. PriceLabs
PriceLabs offers customisable data-driven pricing to help boost your vacation rental revenue. Their price recommendations take into account market supply and demand, seasonal and day-of-week trends, special events/holidays and lead time.
They pinpoint dates that are in high demand by looking at data from nearby listings and hotels, track seasonality based on historical data and analyse your listings’ performance to suggest pricing tweaks.
Customisation options include setting dynamic minimum stays, enabling occupancy-based adjustments and more.
PriceLabs connects directly to over 30 PMSs and Channel Managers, including Rentals United.
Pricing: Starts at $19.99/month in the US, Canada and Europe and $9.99/month in other countries (for 1 vacation rental property). 30-day free trial available.
Learn how to connect PriceLabs with the Rentals United Channel Manager.
3. Outswitch
Outswitch is a dynamic pricing tool that was built with the needs of professional property managers in mind.
It helps you optimise your prices to match market demand, maximise your occupancy and insure against gaps in your calendar, as well as control your length of stay and incorporate longer bookings into your strategy for more revenue.
The platform is all about giving you control. Outsiwtch’s approach to automatic pricing is based on smart rules, which allow you to configure your own pricing parameters and combine your knowledge of your local market with their intelligent algorithm.
Outswitch seamlessly integrates with tools that you likely already use – like the Rentals United Channel Manager – so there’s no need to migrate or manually enter your data.
Pricing: Starts at $50/month (for 1 vacation rental property). 30-day free trial available.
Learn how to connect Outswitch with the Rentals United Channel Manager.
4. Wheelhouse
Wheelhouse helps Airbnb hosts, vacation rental owners and property managers run their business more efficiently with tools like dynamic pricing, powerful data insights and a personalised revenue management strategy.
They help you stay competitive throughout the year with more than 240 unique rates per year.
Wheelhouse’s team of PhD Data Scientists has built a software solution that can help you harness the power of real-time data insights to understand pricing once and for all.
Advanced settings help you control how aggressive you want your pricing strategy to be and align it with your overall business goals.
Wheelhouse integrates with several popular PMS providers.
Pricing: 0.75-1% of total revenue. 30-day free trial available.
5. AirDNA Recommended Rates (Beta)
Leading vacation rental data company AirDNA has developed its own dynamic pricing tool called Recommended Rates. The tool is currently in beta mode and can be used free of charge by all AirDNA MarketMinder subscribers.
With this tool, AirDNA has taken its Market Rates calendar, which allows users to filter daily prices of similar rentals, a step further.
The Recommended Rates calendar uses artificial intelligence to analyse a rental’s past performance with local market dynamics to generate price recommendations.
The team is currently live testing the already sophisticated algorithm to allow them to further optimise it.
Pricing: MarketMinder subscriptions range from $19.95/month to $99.95/month.
Editor’s note: This post was originally published in March 2016 and has been updated for accuracy, depth and comprehensiveness.
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FAQs
What are dynamic pricing tools? ›
What is a dynamic pricing tool? A dynamic pricing tool is a powerful solution that suggests prices for your products based on a set of rules and parameters. Define the requirements for your products and adjust more competitive prices.
Does vrbo do dynamic pricing? ›Demand for your Airbnb, HomeAway, or VRBO listing varies daily, so your pricing strategy must be dynamic to capitalize on these fluctuations.
What is the best search engine for vacation rentals? ›- 12 Of The Best Vacation Rental Websites.
- Airbnb. Airbnb is the top trusted vacation rental site and one of the most recognizable vacation rental brands. ...
- VRBO. ...
- Booking.com. ...
- TripAdvisor. ...
- Expedia. ...
- HomeToGo. ...
- Tripping.
Dynamic pricing is a pricing strategy in which businesses set flexible prices for products or services based on current market demands. With short term rental and Airbnb pricing, this may mean having pricing specific to seasonality, day of week trends, and even actual sales in the market.
What are the 5 types of dynamic pricing? ›- Dynamic pricing based on groups.
- Dynamic pricing based on time.
- Cost-plus pricing.
- Competitor-based pricing.
- Value-based pricing (price elasticity)
- Price skimming.
- Bundle pricing.
- Penetration pricing.
- Clear your cookies before you book.
- Use a different computer/device.
- Use a different browser.
- Use Incognito Mode.
With dynamic pricing, you are able to adjust your nightly rate to optimize your overall revenue in the long run, for example, if your calendar shows many 3-day weekend bookings, you could drop prices on Wednesday to encourage longer stays.
How do you do dynamic pricing on Vrbo? ›- Log in to your account.
- Select the listing you want to edit.
- Select Calendar.
- Select Settings, then select Base rates and discounts, and enter your rates requirement.
- Select Save.
Booking.com. With a whopping 400 million monthly visitors, Booking.com's web traffic dwarfs that of Vrbo/HomeAway. In fact, Booking.com is the most popular accommodation website in the world!
What is one of the biggest vacation rental apps in the world? ›Airbnb. Airbnb is one of the most popular property-renting apps out there, and they claim to have the most listings.
How can I maximize my vacation rental? ›
- Update your description and photos. ...
- Exponentially increase your marketing reach. ...
- Focus on amenities that guests are willing to pay for. ...
- Change your rates and adjust for seasonality. ...
- Take an honest look at your processes and optimize them. ...
- Automate everything you can.
Dynamic pricing — also known as surge pricing, demand pricing, or time-based pricing — is a strategy where businesses adjust the prices of their offerings to account for changing demand. For instance, an airline will shift seat prices based on seat type, number of remaining seats, and time until the flight.
Is dynamic pricing fair? ›Dynamic pricing can be controversial, as it can be perceived as unfair or exploitative. However, dynamic pricing can also be a win-win for businesses and consumers, as it can help businesses optimize their profits and customers to find the best deals.
What is dynamic pricing explain with two examples? ›Prices of everyday goods, such as toilet paper and hand sanitisers increased dramatically based on demand. Among other common examples of dynamic pricing, we can find happy hours at a local bar, airline pricing based on seasonality, and ride-hail surge pricing.
What is the biggest concern with dynamic pricing? ›The Challenges Behind Dynamic Pricing
But perhaps the largest barrier is consumer resistance. While expectations have changed (even some grocery stores are dynamically priced), in some industries, consumers and laws are rigidly against dynamic pricing.
- Use Accurate Competitor Data. ...
- Test Your Prices. ...
- Be Dynamic, Not Discriminatory. ...
- Try segmented pricing. ...
- Use peak pricing. ...
- Lastly, take you time.
In the hotel industry, dynamic pricing refers to the continual, real-time tweaking of room prices based on algorithms. These algorithms take into account the fluctuations in data of consumer demands, competitor pricing, seasonality, current occupancy, and other external factors to increase hotel revenue.
What are the 4 major pricing strategies? ›What are the 4 major pricing strategies? Value-based, competition-based, cost-plus, and dynamic pricing are all models that are used frequently, depending on the industry and business model in question.
What are the 4 types of pricing methods? ›There are many different pricing strategies, but Competitive Pricing, Cost-plus Pricing, Markup Pricing and Demand Pricing are four common methods for small business owners to use.
What companies do dynamic pricing? ›- Airlines.
- Hospitality.
- e-Commerce.
- Car rental.
- Retail.
- Utility (e.g. electricity, water)
What is united dynamic pricing? ›
But dynamic pricing takes the process a step further. It prices the tickets according to what the airline knows about you, including your ability to pay more — or less — for the ticket.
Does clearing cookies help airline prices? ›Searches don't affect prices
There's a persistent myth out there that you need to clear your cookies or search in incognito mode when looking for flights. If you don't, the thinking goes, the airlines will see that you're interested in a certain flight or route and then jack up the prices so you pay more.
It's not about how you're searching: It's about where you're searching from. Some flight search platforms and even individual airlines can charge drastically different amounts based upon the point-of-sale – or at least where the website thinks you're buying a ticket.
Does Airdna do dynamic pricing? ›The #1 way to price your vacation rentals just got easier
Hosts and property managers who dynamically price rentals according to demand and seasonality consistently outperform the competition. That's why we built Smart Rates, the industry's most accurate tool for vacation rental pricing.
Vacation rental owners should look to make no less than a 10% return on their investment. That means your income minus expenses (net operating costs including any mortgage payment) should be no less than 10% of your initial investment per year.
What is dynamic value based pricing? ›Value-based pricing is a dynamic pricing method based on the economic principles of demand and shows the best results in additional sales and total margin. As the true value of products is difficult to uncover, consumers' willingness-to-pay functions as a proxy for the perceived value.
Can I sync pricing between Airbnb and VRBO? ›Use a Channel Manager
A multi-channel distribution strategy absolutely requires you to use a channel manager which syncs and automates repetitive aspects of managing your vacation rental across platforms. This includes syncing and updating your prices across Airbnb, VRBO, and any other booking channel you may use.
A step-by-step guide on connecting your PriceLabs account to Hospitable. The integration between Hospitable and PriceLabs allows you to use PriceLabs's dynamic pricing on all properties seen on Hospitable which can include VRBO, Airbnb, and Booking.com listings.
Does beyond pricing work with VRBO? ›Beyond Pricing gives host with Airbnb, VRBO, and HomeAway the same type capabilities.
Do Vrbo owners make money? ›Yes, listing your vacation home on Vrbo is a good way to make money. Not only is it one of the most popular vacation rental sites in the world (attracting 15.9 million visitors each month), Vrbo also cross posts its properties to fellow Expedia-owned sites.
How does Airbnb beat Vrbo? ›
- Vrbo offers stand-alone vacation homes only. ...
- Airbnb offers stand-alone vacation homes as well as shared spaces and even hotel rooms.
VRBO: Compared to Airbnb's 5.6 million listings, VRBO boasts over 2 million rentals worldwide. Keep in mind, however, that while VRBO offers fewer rentals, they only list whole houses, condos, or apartments. Users can rest assured that they will not be sharing space with the homeowner or other guests.
What is the best app for short term rentals? ›- Airbnb. We all know what Airbnb is and what it does. ...
- Vrbo. Vrbo [Vacation rentals by owner] is a part of the Expedia group, which offers stand-alone vacation homes. ...
- Booking.com. Booking.com was founded in 1996 in Amsterdam. ...
- Flipkey. ...
- Expedia.
My number one go-to travel app is Google Maps. On the ground, it shows you where you are and how to get to where you need to go, whether by foot, public transit, car, or bicycle. Google Maps is equally helpful when you want to explore what's around, including hotels, restaurants, and gas stations.
What website has the most rental properties? ›Zillow has the most rental listings and receives the most web traffic.
How do I optimize my short term rental? ›- Ten Ways to Maximize Your Vacation Rental Income.
- Create an appealing and accurate description.
- Use photography that sells.
- Get more reviews on Airbnb and VRBO.
- Automate your rental tasks.
- Be your own property manager.
- Price your listing right (and adjust it often)
- Rent your property short term. ...
- Handle your rentals yourself. ...
- Tax deductions. ...
- Buy your vacation home with your IRA or retirement account. ...
- Rent seasonally or long term instead of short term. ...
- Trade for services.
You should consider dynamic pricing when there's perishable fixed inventory or capacity constraint and a varied willingness to pay among your customers. Just think of the airline industry. There is a fixed capacity in terms of seats available on a flight as well as varying willingness to pay.
Which advantages do dynamic pricing tools offer? ›Dynamic pricing helps provide indirect control over the inventory – allows you to provide discounts for overstocked products to reduce their numbers or have a higher price on higher demand items to maintain the supply chain while earning more revenue.
What is dynamic pricing in simple words? ›Dynamic pricing, also called real-time pricing, is an approach to setting the cost for a product or service that is highly flexible. The goal of dynamic pricing is to allow a company that sells goods or services over the Internet to adjust prices on the fly in response to market demands.
Is dynamic pricing illegal? ›
It's perfectly legal to charge different customers different prices in most instances. Websites can even track their customers' habits and change their prices accordingly.
What is the one benefit of dynamic pricing? ›Advantages of Dynamic Revenue Pricing Business Strategy
2. Dynamic pricing allows companies to better understand and predict when to increase or decrease prices. Consequently, it makes it much quicker for businesses to capture the margin upside, or lower prices, to avoid volume losses.
Both dynamic pricing (based on market factors like supply and demand), and personalized pricing (based on individual behaviour) pose significant ethical challenges, especially around consumer privacy.
What is dynamic pricing in Airbnb? ›Dynamic pricing is a pricing strategy in which businesses set flexible prices for products or services based on current market demands. With short term rental and Airbnb pricing, this may mean having pricing specific to seasonality, day of week trends, and even actual sales in the market.
What factors affect dynamic pricing? ›The factors that affect dynamic pricing include customer and market characteristics, the market structure, product demand, perception of product value, and availability of the product.
What are dynamic pricing strategies? ›Dynamic pricing — also known as surge pricing, demand pricing, or time-based pricing — is a strategy where businesses adjust the prices of their offerings to account for changing demand. For instance, an airline will shift seat prices based on seat type, number of remaining seats, and time until the flight.
What is dynamic pricing explain with two examples? ›Prices of everyday goods, such as toilet paper and hand sanitisers increased dramatically based on demand. Among other common examples of dynamic pricing, we can find happy hours at a local bar, airline pricing based on seasonality, and ride-hail surge pricing.
Which advantages do dynamic pricing tools offer? ›Dynamic pricing helps provide indirect control over the inventory – allows you to provide discounts for overstocked products to reduce their numbers or have a higher price on higher demand items to maintain the supply chain while earning more revenue.
Is dynamic pricing fair? ›Dynamic pricing can be controversial, as it can be perceived as unfair or exploitative. However, dynamic pricing can also be a win-win for businesses and consumers, as it can help businesses optimize their profits and customers to find the best deals.
How can dynamic pricing be improved? ›- Use Accurate Competitor Data. ...
- Test Your Prices. ...
- Be Dynamic, Not Discriminatory. ...
- Try segmented pricing. ...
- Use peak pricing. ...
- Lastly, take you time.
Should I use dynamic pricing? ›
You should consider dynamic pricing when there's perishable fixed inventory or capacity constraint and a varied willingness to pay among your customers. Just think of the airline industry. There is a fixed capacity in terms of seats available on a flight as well as varying willingness to pay.
What is the biggest concern with dynamic pricing? ›The Challenges Behind Dynamic Pricing
But perhaps the largest barrier is consumer resistance. While expectations have changed (even some grocery stores are dynamically priced), in some industries, consumers and laws are rigidly against dynamic pricing.
Dynamic pricing, also called real-time pricing, is an approach to setting the cost for a product or service that is highly flexible. The goal of dynamic pricing is to allow a company that sells goods or services over the Internet to adjust prices on the fly in response to market demands.
What factors affect dynamic pricing? ›The factors that affect dynamic pricing include customer and market characteristics, the market structure, product demand, perception of product value, and availability of the product.
What companies do dynamic pricing? ›- Airlines.
- Hospitality.
- e-Commerce.
- Car rental.
- Retail.
- Utility (e.g. electricity, water)
Advantages of Dynamic Revenue Pricing Business Strategy
2. Dynamic pricing allows companies to better understand and predict when to increase or decrease prices. Consequently, it makes it much quicker for businesses to capture the margin upside, or lower prices, to avoid volume losses.
If competitors are offering goods or services at a substantially higher price, then a dynamic pricing strategy can be used to maximise profits. You can adjust the price of items based on the shopping patterns of potential customers. Take for example a customer wants to purchase a pen.
Why is dynamic pricing so much more effective than fixed pricing? ›Pricing strategies are also influenced by external factors like consumer demand, competitor pricing, and overall market conditions and economic trends. Dynamic pricing is one of the most effective ways of increasing market share because it adjusts prices based on the willingness of customers to make purchases.