How to Perfect Your Airbnb Revenue Management Strategy

Revenue management – it’s more complicated than it sounds. When an Airbnb host examines their balance sheet at the end of the month, they’re too often faced with poor financial returns. By integrating advanced revenue management systems into your business model, you’ll learn how to effectively balance pricing and revenue management.

This article is designed to equip you with the knowledge and tools necessary to maximize revenue, ensuring your Airbnb venture is not only successful but also financially rewarding. Through our expert advice on revenue management strategies, you’ll discover the key to unlocking the full potential of your Airbnb property and will be able to improve your Airbnb revenue management skills.

What is Revenue Management?

In this context, revenue management is not the management of your business revenue. Confusing, right? In the hospitality industry, revenue management is more about predicting customer behavior. Similar to yield management, revenue management involves finding the right listing, for the right client, at the right time, for the right price. 

Revenue management requires the application of detailed analytics in order to optimize product availability and price to maximize general revenue growth. These analytics serve to better predict customer and market behavior to optimize sales and associated revenue. This approach can spark business growth, which is sustained over a longer period of time. 

How Does Revenue Management Apply to Airbnb?

Airbnb may not function as a traditional hotel business structure, but it does demand price optimization. Airbnb users choose Airbnb over traditional hotel structures because they see the inherent value in the organization, and in the experience that it sells. This gives hosts a niche in which to operate. 

Any business can benefit from a decided revenue management strategy. It by no means only applies to businesses in the hospitality industry. 

Airbnb hosts need to understand revenue management and learn how to use it to their advantage. How does a regular Airbnb host gain access to the kind of insights that they need to perfect their revenue management strategy?

Steps to Better Revenue Management

Step 1: Optimize with Dynamic Pricing

The first step for any aspiring revenue manager is to optimize prices with a dynamic pricing tool, a cornerstone of effective revenue management. Among the plethora of options available, DPGO stands out as a comprehensive revenue management system.

At DPGO, we offer users in-depth insights integral to pricing and revenue management. These insights, derived from historical data, encompass competitor data, market trends, booking rates, and more. Such data is crucial for demand forecasting and understanding different customer segments.

As Big Data experts, we specialize in the collection and analysis of data, a fundamental aspect of revenue management techniques. This helps us create incredibly accurate pricing strategies, maximizing revenue by incorporating aspects of Yield Management into our pricing tool. Our users benefit enormously as we can predict market demand and the behavior of their target audience.

We also automatically update your prices daily, a vital revenue management strategy, to ensure that you never miss out on valuable income or a booking. This aligns your listings with market booking trends, leading to higher booking rates and generated income, and is a key part of our revenue management system.

To enhance your revenue management, using dynamic pricing will enable you to optimize prices according to trends in your local market. Understanding and reacting to these trends is essential in reaching the ideal revenue management strategy and in maximizing revenue through key performance indicators.

Step 2: Be Clear on Cost and Offer Discounts

As of November 2020, Airbnb has streamlined the process for hosts to view the end price their customers will be paying, enhancing the efficiency of revenue management. This clarity in pricing is crucial for hosts to understand their guests’ total price, thereby optimizing their listing’s market demand and maximizing revenue.

With these improvements, hosts can now focus more effectively on revenue management. By offering discounts, hosts can not only enhance their listing’s appeal but also strategically drive business, a key aspect of successful revenue management. Discounts, when used judiciously, can significantly boost a listing’s attractiveness to different customer segments on Airbnb.

Importantly, most discounts on Airbnb qualify for their merchandising options, with exceptions like last-minute promotions. When a discount is offered, the listing is tagged with “good price” or “new lower price”, drawing more visitors to the listing profile. This strategy is an integral part of revenue management systems, where understanding the ideal customer profile and adapting pricing structures accordingly is essential.

In the realm of revenue management, DPGO offers valuable tools for revenue managers. Users can tailor their discount policy and set pricing limits within their revenue management system, ensuring that the price of their Airbnb listing aligns with their gross operating profit goals and key performance indicators. This feature is pivotal in maximizing revenue and optimizing the listing within the framework of demand forecasting and historical data analysis.

DPGO Pricing Strategies

DPGO users can set discounts with ease via the Discounts tab in their Dynamic Pricing Setting menu. For last-minute discounts, you can choose between four strategy options:

Recommended – Drop prices within 14 days of check-in by a market trend-determined percentage. 

Aggressive – Drop prices within 7 days of check-in by a market trend-determined percentage. 

Conservative – Drop prices within 21 days of check-in by a market trend-determined percentage. 

Custom – You determine the percentage discount, and the number of days before check-in that you want to offer this discount. 

Users can also set Long-Term discounts. There is an opportunity to enter your desired discount percentage for both weekly and monthly stays. 

Step 3: Offer Non-Refundable Pricing

In October 2019, Airbnb launched a pilot program to test the effectiveness of an optional cancellation policy add-on, marking a significant step in the revenue management process for hosts. This innovation allows hosts to move beyond a Strict cancellation policy by choosing Flexible or Moderate options, coupled with a non-refundable booking that offers a 10% discount. This flexibility is a key aspect of an effective revenue management system.

By offering guests this greater choice, hosts can significantly enhance their revenue management strategies. This option not only increases guest freedom but also aims to maximize revenue by generating more interest, higher views, and, ideally, more bookings.

According to an Airbnb press release, hosts who adopted this pricing strategy, offering the 10% discount non-refundable booking option, observed a 5% increase in revenue. This outcome highlights the potential benefits of integrating flexible, innovative approaches into your revenue management system. It serves as an example of how adapting and refining your revenue management strategies can effectively attract a higher volume of bookings and optimize your overall approach to revenue management.

To sign up for dynamic pricing with DPGO, visit www.dpgo.com. We’re so confident that you’ll love DPGO that we’re offering a free 30-day trial. 

Check out a few of our other posts! We’ve written a guide for Airbnb hosts on how to increase their occupancy rate throughout the year. You should also have a look at the Travel Trends for 2021!