In the competitive world of vacation rentals, maximizing bookings and profitability is crucial for property owners and managers. An effective strategy to achieve this balance is the implementation of dynamic pricing or smart pricing.

Dynamic pricing allows adjust rental rates in real time in response to demand, competition and other market factors. In this article, we will explore the advantages of dynamic pricing, the factors that influence increasing revenue, and we will present several tools that facilitate this strategy.

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‍What is dynamic pricing and how to use it‍

Smart pricing, also known as variable pricing, is a pricing strategy in which rates change according to demand, local supply, seasonality, upcoming events, trends in bookings, competition, costs, reviews, history or depending on the channel through which the guest arrives, among others.

This technique, commonly used in the hotel industry and airlines, is becoming increasingly popular among vacation rental owners. Through the use of advanced algorithms and data analysis, dynamic pricing allows you to adjust rental rates to maximize bookings or adjust prices.

If we are facing a period of low demand, dynamic pricing tools can be used to offer other, more competitive rates to maintain high occupancy. This will help provide a greater stability and predictability of revenues.‍

Thanks to the use of dynamic pricing provided by new technologies such as Big Data or Business Intelligence, you can get maximizing revenues, reduction of times of management and higher profitability in the business.

Let's look at it with a couple of examples of pricing strategies:

Very high occupancy with a low price during the year:‍

Typically, this strategy occurs among hosts who focus on achieving and maintaining a very high occupancy rate throughout the year. However, having the property reserved for the long term means that the pricing strategy is too low, unless you do so with a price much higher than your regular rate.

Keep in mind that guests who don't want to spend too much money on their vacations book in advance, since they know that this is the way to find the best prices.

On the other hand, those guests who don't care too much about the budget, they can even book on the same day, since they know that booking later leads to an increase in price.

For this reason, an owner who has the same price per night all year round, and who reserves well in advance, loses the opportunity to take advantage of the pull of those guests who leave it for later or, in addition, the pull of an event that takes place in the municipality or in the area. In this way, leave an occupancy margin available for those reservations that are made without too much notice by applying a dynamic pricing strategy, allows the prices of vacation properties to be adjusted and higher revenues can be generated at the end of the year. ‍

Irregular occupancy with a high price during the year:‍

On the other hand, a host who has a high price all year round may earn more money in times of high demand, but compared to an owner of a temporary rental with dynamic prices, they have reduced benefits at the end of the year due to those months of low demand.

Just as there are guests who pay more for a reservation without too much notice, there are peak seasons with greater demand depending on the seasonality of the year. An example of this are those real estate assets that are closer to the beach, so the peak season of demand for these properties will be during the summer period. This indicates that the owner or manager of the property will need to increase the price of the reservation during the summer months and compensate for those other lower seasons of the year.

By not establishing a fixed price throughout the year and applying a dynamic pricing strategy, it allows us to adapt to seasonal demand and generate higher revenues at the end of the year.

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‍Factors that influence smart pricing and help increase vacation rental revenue‍‍

Demand and supply:

• Seasonality: as we saw in the example above, the different seasons of the year significantly affect demand. Beach destinations have the highest demand for vacation rentals in summer, while ski resorts are more popular in winter. It also influences the day of the week of the reservation or the orphan days (those days when vacation rentals don't receive any reservations that are left between reservations and that usually have automatic discounts).
• Local events: Concerts, festivals, conferences, and other local events may increase the demand for temporary rentals, justifying an increase in prices.
• Vacations: Holidays and holiday periods tend to increase demand.

Competitor analysis:

• Prices for similar properties: Comparing the prices of similar properties in the same area helps to adjust prices competitively. Dynamic pricing tools often analyze this information in real time.
• Occupation of the competition: If the competition has high occupancy, this is a sign of high demand and allows prices to be adjusted upwards.

Economic Factors:

• Inflation and operating costs: Increases in operating costs, such as utilities, security, maintenance, cleaning and supplies (electricity, water, gas, telecommunications, Internet) may be reflected in prices.
• General economic conditions: Overall economic health can influence the willingness of travelers to pay certain prices for a vacation rental. In times of recession, prices may need downward adjustments.

Owner conditions:

• Revenue Objectives: Homeowners can adjust prices to achieve specific income goals, sometimes prioritizing occupancy over the price per night.
• Available Inventory: The number of properties available for rent at any given time can also influence prices. Lower supply may justify higher prices.

Booking Trends:

• Anticipation of the reservation: Prices may vary depending on the time remaining until the date of the stay. Last-minute vacation rental bookings may have higher prices if demand is high, or lower if you're looking to fill vacancies.
• Length of stay: Longer stays often receive discounts, while short stays may have a higher price per night to cover cleaning and administration costs.

Rating and reviews:

• Quality of reviews: Properties with better reviews and higher scores may justify higher prices due to the perception of greater value by potential guests.
• Occupancy history: A consistent history of high occupancy may allow prices to be adjusted upward, while a history of low occupancy may indicate the need for more competitive pricing.

Global events and travel trends:

• Pandemics or natural disasters: It has been seen how COVID-19 dramatically affected demand, and with it prices. Significant adjustments to the pricing strategy are required when any type of pandemic or natural disaster occurs.
• Travel Trends: Changes in traveler preferences, such as an increase in the popularity of domestic travel, longer stays or van tourism, for example, can influence the prices of a vacation rental.

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Dynamic pricing tools for vacation rentals‍

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To effectively implement a dynamic pricing strategy, it's essential to use specialized tools and technologies that can automate and optimize the process, so that in the long term they help to optimize management times.

However, they require initial learning time to take full advantage of each of the online tools and achieve all the associated benefits. Using them is as simple as connecting them to the digital software account used to manage vacation rental reservations.

Here are some of the most popular tools on the market:

Beyond Pricing

Beyond Pricing is one of the most recognized smart pricing tools in the sector created for vacation rental owners and agencies. It uses advanced algorithms to analyze a variety of factors, including local demand, upcoming events, seasonality, and market trends. Some of its advantages are:

• Automation: It automates the process of adjusting prices optimized with artificial intelligence, saving owners time.
• Data analysis: It provides detailed analysis and price recommendations.
• Integration: It easily integrates with popular platforms such as Airbnb or Booking.

Pricelabs

Pricelabs is another powerful tool for dynamic price management that works with Airbnb, VRBO, vacation rentals, BnB, aparthotels and serviced apartments. It offers a wide range of features designed to optimize rental rates efficiently:

• Customization: It allows for a high degree of customization in pricing strategies.
• Demand predictions: It uses demand forecasts based on historical data and current trends.
• Reports: It provides detailed reports on price performance and occupancy.

Turbosuite

Turbosuite is a comprehensive dynamic pricing solution, developed by Property Managers for Property Managers, that combines market analysis with personalized recommendations to optimize vacation rental rates.

• Analysis: It provides a comprehensive analysis of the competition and the market.
• Personalized recommendations: It offers customized pricing recommendations based on property performance.
• Automation and flexibility: It automates price adjustments and allows manual adjustments for greater flexibility.

Listing OK

Listing OK is an emerging tool in the dynamic pricing market, which offers robust features for Property Managers or vacation rental owners, optimizing prices, as well as strategically positioning their businesses to increase profitability and presence on Airbnb and Booking.

• Ease of Use: Intuitive and easy to use interface, ideal for beginners.
• Customer Help: Excellent customer support for resolving questions and problems.
• Cost: It offers competitively priced plans compared to other tools.

In the explanatory video below you can see how the ListingOK software for managing properties on Airbnb works:

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Finally, some time ago Airbnb also offers its own dynamic pricing tool.

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Steps for effective implementation of dynamic pricing tools

To take full advantage of the benefits of dynamic pricing, it's crucial to follow a series of best practices. Although digital tools analyze the data and solve the problem automatically, It is necessary for each owner of a vacation rental to know how it works and how it can improve their results with a few basic steps:‍

1. Analyzing and understanding the market is essential:

‍Knowing periods of high and low demand, as well as local events that may affect bookings, will help to forecast prices correctly. In addition, it's important to keep abreast of competitors' rates because it helps ensure that prices are competitive among vacation rentals. Smart pricing tools often include this functionality.‍

2. Analyze historical data and adapt to periods of demand:

‍Dynamic pricing requires frequent adjustments to be effective, so taking advantage of historical reservation and price data can provide a solid basis for predicting future demand and adjusting rates accordingly.‍

3. Analyze the strategies implemented:

The previous phase brings us to this third phase, since it is essential to regularly evaluate the results of the dynamic pricing strategy that have been implemented. Analyzing occupancy, revenue and customer satisfaction helps to continue with the implemented strategy or to redefine and continuously improve it if necessary.

With careful implementation and constant monitoring, dynamic pricing can help to the management of a vacation rental is more efficient, significantly increasing revenues.

To ensure that revenues generate maximum returns, the costs associated with managing short-term rental housing must be taken care of. Only the basic supplies, such as electricity, water, gas, internet, etc., can reduce these revenues by 40% and, if we add services such as cleaning and maintenance, it can reach 80%, leaving a return or margin of 20% of revenues. To this end, solutions such as Polaroo help to control the consumption and expenditure of supplies, without increasing the workload of the equipment.

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