Smart pricing on Airbnb: What is it?

December 2024

Just how smart is smart pricing on Airbnb? Some holiday rental landlords love this tool, which uses algorithms to give their property a dynamic price. Others hate it. Which camp do you fall into? If you’re not sure yet, read on to learn all about smart pricing and decide for yourself.

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What is smart pricing on Airbnb?

Smart pricing is a dynamic pricing tool. If you turn it on, it will automatically change your nightly price based on demand. The goal of smart pricing is to minimise vacancies, giving you the best possible earnings from your property.

In order to optimise earnings, this Airbnb pricing tool uses a unique algorithm. Airbnb claims that it takes hundreds of factors into account. These include:

• Your property’s location. In a large city, this can precisely focus on your specific neighbourhood.
• The type of property – is it a house, flat, spare room, villa etc?
• The amenities that you offer in your property.
• Reviews from previous travellers. This includes both the number of reviews and your average scores.
• Search activity in your area. This also takes dates into account, so it will charge more when more people are searching.
• Bookings in your area. In particular, the algorithm focuses on properties with similar characteristics to yours.

Using all this data and more, the tool will automatically adjust your Airbnb price per night. Smart pricing is dynamic, so it might charge more during periods of high demand and less in the low season. If you enable smart pricing, there’s no need for you to do anything else – the algorithm will take care of everything.

Should you use smart pricing on Airbnb?

Smart pricing is a quick and easy way to let the computer deal with your Airbnb rates – but not everyone is a fan. Before you sign up to use this Airbnb price tool, consider the pros and cons.

Here are the advantages of smart pricing:

• It responds to real-time metrics. If there’s a sudden exciting event in your area, the Airbnb algorithm can adjust prices quickly.
• It is designed to give you a competitive edge in your area. If you want to maximise occupancy, it can really help.
• The more bookings you get, the more reviews you’ll get. This means that smart pricing can be particularly useful when you’re just starting out and need to build that valuable review base.
• You still have some control over your Airbnb pricing. You can set a minimum and maximum price and the tool will never exceed these.

However, there are some disadvantages:

• Many hosts complain that it tends to set prices too low. As such, you earn less per booking than you otherwise would.
• This is a real-time Airbnb pricing tool, so it responds to market fluctuations as they happen. This means that it can’t anticipate things far in advance. If, say, there’s a festival in your city several months away, early guests can snap your property up at a ridiculously low price before most people start booking.
• It only works on Airbnb. If you advertise your holiday home on other holiday rental websites, you might be showing vastly different prices across platforms. This can lead guests to feel like they’ve been ripped off.
• The algorithm takes a lot of things into account – but it can’t cover everything. If you’re offering special, personal experiences or something unique in your property, the algorithm has no way of realising that.
• It prioritises occupancy above all else. Experienced hosts know that you can often make more money from fewer guests paying more, rather than guests staying every single day for a lower price — particularly when you take wear and tear into account. The algorithm can’t adjust for maintenance costs.

Many hosts use smart pricing to get started, as it’s an easy way to attract guests to rent their holiday flat when it’s brand new. Once the property is established and has enough reviews, you might find that smart pricing is no longer working well for you.

How to set up Airbnb smart pricing

If you’re curious about this tool for different Airbnb pricing, it’s very easy to set up. Simply go into your host profile and select it. Be sure to set a minimum (and possibly maximum) price, or you risk the algorithm listing your property for extremely low prices.

You can turn off smart pricing at any time, and turn it back on just as easily. You may also want to disable it on certain dates, such as the peak season; be sure to do this very early, as once guests have booked those dates, you can’t change the prices.

Keep in mind that the minimum price you set does not take into account any deals and discounts. If you offer discounts, such as early bird booking, on your property, then guests may actually pay less than the minimum smart pricing cost. However, if you have set up your property for long-term stays, these will override smart pricing. You can set a separate Airbnb price per week, and smart pricing will not affect it.

Alternatives to Airbnb smart pricing

If you don’t think that smart pricing is right for you, you still have some options. Consider setting prices in these ways:

Manually choosing a price

This may seem straightforward, but it can be hard to choose the perfect price. Firstly, you’ll need enough time to conduct market research – and make sure that’s ongoing, as prices tend to fluctuate seasonally. You’ll want to keep checking competitors’ prices as you try to encourage people to rent your house for holidays.

You can still do some dynamic pricing, even manually. For example, many landlords charge more for guests who stay over the weekend, or during peak season. This will require time and effort, though. One major advantage is that you can react quickly to special events in your area which computerised systems do not know about.

Using dynamic pricing applications

There are several tools that will help you set a price for your rental property. Dynamic pricing applications may be more effective than Airbnb smart pricing, as they take numerous platforms into account. What’s more, the most powerful have the ability to forecast, setting prices well in advance of peak seasons, while Airbnb smart pricing can only respond in real time. However, they will not know about special events such as concerts or festivals, and may undercharge during these periods.

If you’re using a dynamic pricing application, make sure to set it so it covers all the holiday rental portals you advertise on. This way, your price will remain consistent across every platform.

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