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What is dynamic pricing for short-term rentals and how does it work?

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Vacation rental owners have seasonally priced their properties for decades. But today, there are a number of digital dynamic pricing tools available to property owners that automatically change prices on properties based on a variety of market factors at play at any given time.

But what factors go into dynamic pricing exactly? And which companies offer reliable dynamic pricing services? Here’s the lowdown.

How dynamic pricing works

Landing on the right price for a short-term rental property is important and challenging. The price needs to be reasonable enough to be competitive with other similar properties on the market, but also high enough that a property owner can yield a profit. This is something property owners stress over too — 50 percent of property owners and managers worry they aren’t pricing their property appropriately, according to a recent survey conducted by short-term rental revenue management platform Beyond.

Dynamic pricing tools help property owners with this by analyzing historical and current market data to provide automatic pricing recommendations. By using algorithms, pricing tools calculate and adjust prices in real time, often in response to things like current market demand, seasonality, holidays, day of the week, and more. This means that if competitor short-term rental prices go up or down, dynamic pricing tools will also adjust your short-term rental prices accordingly.

“Our pricing … is a real-time automated pricing algorithm that changes your prices based on our observations of a couple things,” Julie Brinkman, Beyond Pricing CEO told Inman. “One is demand, so we are understanding any sort of demand changes in your very hyper local market and adjusting your prices as such. We’ll also look at seasonality as well as day of week to make sure you’re able to capture not just the highest prices, but also capture demand in lower and not just having sort of a falsified minimum because you think that’s where you need your property to book at.”

These tools can also be set up to automatically change rates on property listings as the market changes through an integration with short-term rental sites (which is available for many of these pricing tools), or merely provide suggested price changes to a property owner through their rental management system, who can then manually make the price change. Property owners can also set restrictions on property reservations when using these tools like designating minimum rates or minimum stay lengths so that rates stay aligned with a property manager’s goals for their rental.

The pricing practice has largely become a mainstay in the industry, with 75 percent of short-term rental owners using dynamic pricing on their properties, according to Beyond’s data. It’s no surprise either, since, according to data from Beyond, implementing this pricing method can increase occupancy rates by up to 22 percent, and boost revenue by as much as 40 percent.

What companies provide dynamic pricing tools?

There are a number of dynamic pricing tools out there available to short-term rental owners, and many short-term rental listing sites or OTAs [online travel agencies] already have these tools integrated into their platforms. Airbnb, for instance, has its own dynamic pricing automation system integrated within the platform, which uses over 70 different factors to adjust pricing. Vrbo also has its own dynamic rates tool within its platform called MarketMaker, which is free for individuals who list with Vrbo.

Credit: MarketMaker / Vrbo

Apart from dynamic pricing tools already integrated within short-term rental management platforms, there are three major dynamic pricing tools consistently recommended by people in the industry: Beyond Pricing, PriceLabs and Wheelhouse.

Beyond Pricing

Beyond Pricing’s website states that there are “thousands of factors” the company uses to determine rental prices on any particular day, but the top three factors the company takes into consideration are local demand, seasonality and day of the week. The tool automatically adjusts prices on listings based on many factors and even generates a “Market-Based Health Score” to rank a short-term rental property against competitor listings in the market. It integrates with Airbnb, Vrbo and Booking.com, and also can create custom property management software integrations.

The company’s pricing structure is a flexible rate on a listing’s total booking amount, which varies by listing. So, Beyond will take a higher percentage on bookings that earn more revenue and a lower percentage on ones that earn less revenue. If a booking is canceled, they won’t charge an owner any fee on that booking.

PriceLabs

PriceLabs also integrates with Airbnb, as well as a number of property management systems. Users can set parameters for minimum, maximum and a preferred base rate on listings, and the company’s software will recommend prices based on current market trends, and can automatically update rates daily. The tool has a number of customization options so that property owners can dictate parameters for how they want pricing to be addressed on things like last-minute bookings and orphan bookings (open days in between bookings).

PriceLabs has a flat monthly subscription fee structure. In the U.S., users with one short-term rental property will pay $19.99 per month for that property. If they add the pricing tool to an additional two properties, those next two properties will cost $14.99 each per month. After the fifth listing, that monthly price declines even further.

Wheelhouse

Like the previously mentioned tools, Wheelhouse also analyzes a variety of market factors (over 10 billion data points, according to the company’s website) to generate dynamic prices, and will integrate with a number of major OTAs and property management platforms.

The pricing tool also allows owners to change and set rates based on what a specific owner’s goals are for a property. For instance, if an owner wants the property to be occupied above all else, Wheelhouse will set a more conservative price for the booking. However, if an owner’s goal is to earn the highest rate possible for a listing, Wheelhouse will adjust the daily rate to fall within a higher price point in the market. The tool can also price somewhere in between these two options for its recommended, more balanced approach to pricing.

Owners have the option of paying for the service as a percentage of revenue earned on listings (1 percent), or at a base monthly fee of $19.99 per month, which decreases to a lower rate once users add at least 10 listings.

All of these tools have free trial options too, so that property owners can test them out before committing.

Email Lillian Dickerson