How Dynamic Pricing Can Increase Occupancy Rates in Short-Term Rentals

If you manage a short-term rental, you know that maximizing occupancy rates is critical to generating revenue. One strategy that can help you achieve this goal is dynamic pricing. This article will explain dynamic pricing and how it can benefit your short-term rental.

What is Dynamic Pricing?

Dynamic pricing can be an incredibly powerful tool for vacation and short-term rental owners. It takes real-time inventory data and adjusts rental rates accordingly so that you don't overbook or underbook a space.

This method ensures that even during peak season when demand is high, your prices will adjust to meet what people are willing to pay for the service.

The key to successful dynamic pricing lies in setting up the right system. You want to find a balance between maximizing occupancy and minimizing vacancy rates; charging too much could mean fewer bookings, while not charging enough might lead to poor performance and low occupancy rates.

With good market research and data analytics, you should get a handle on what works best for your rental space in terms of optimal price points. There are multiple tools to choose from, each with its own features and benefits.

You'll need to sift through them to find the best fit for your property, but one thing's certain. Any dynamic pricing tool is better than trying to keep up by manually adjusting rates.

Benefits of Dynamic Pricing

Dynamic pricing brings several benefits to short-term rental owners. Let's explore a few.

Increased revenue

By adjusting prices in real-time based on market demand and other factors, you can charge more during peak periods and fill empty nights during slower times.

With dynamic pricing, you can adjust nightly rates to better fit demand. When there is a high demand for three-day weekend stays or other extended bookings, you can drop prices on Wednesdays and Thursdays to encourage longer stays.

In this case, the guest may not have been planning on staying the additional days, but when they see the discounted rate, they may choose to add it in, considering a great deal on the extra days.

In most markets, Wednesday is one of the more difficult-to-book days. It's a win for the guest and the property owner.

Of course, one day here and there doesn't change much, but as these minor price tweaks add up over time, they can lead to a much more significant increase in profits.

Reduced vacancy

In addition to the increased revenue strategy above, a dynamic smart pricing strategy can maximize occupancy and the average length of stay.

Smart pricing allows you to fill the gaps between reservations, which helps you achieve higher occupancy rates over time. You can also use dynamic minimum stay techniques to increase the length of each booking and secure more consistent revenue streams.

Plus, dynamic pricing ensures you get the best rate possible for each booking. All these factors combine to help you maximize occupancy rates and length of stay in your vacation rental.

Ultimately, dynamic pricing is essential for any short-term rental owner or property manager who wants to ensure maximum occupancy and revenue.

Improved competitiveness

You can stay competitive in a crowded market by staying on top of market trends and adjusting prices accordingly. Gone are the days of manually searching your favorite STR platform for comps and rates.

Depending on the tool you use (more on that below), you'll have multiple options and strategies to choose from. None should start with manual pricing (but many will allow you to set manual boundaries.)

Factors to Consider When Implementing Dynamic Pricing

When implementing dynamic pricing, there are several factors to keep in mind. You'll be assisted by AI, algorithms, and emerging data tech, but ultimately, you still need to understand the software and system you choose.

Consider these factors when using a dynamic pricing tool:

Market demand

You can charge more if demand for short-term rentals is high in your area. If demand is low, you'll need to lower prices to fill empty nights. Easy Enough. Keep on top of what's happening in your market on a seasonal basis so that you can spot any issues or inconsistencies.

Competitors' prices

Keeping an eye on your competitors' prices on a daily basis can be a thing of the past. But, you should still be aware of the range of fluctuations. Your dynamic pricing tool is like an assistant that runs extremely efficiently - but you need to know what a mistake looks like, just in case.

Time of year/seasonality

Prices tend to be higher during peak periods like holidays and summer and lower during off-seasons. Your tool should be able to identify and adjust for these fluctuations in demand.

Events happening in the area

If there's a big event happening nearby, you can charge more to capitalize on increased demand. Your dynamic pricing tool should be able to identify these events and adjust prices accordingly.

Length of stay

Longer stays may warrant lower nightly rates to encourage longer bookings. Your dynamic pricing tool should be able to identify and adjust for longer stays at the initial booking stage.

How Do Dynamic Pricing Tools Work?

Dynamic pricing tools for short-term rentals use your average base rate as a starting point to determine the best price for your property. These tools will analyze historical trends of vacation rentals and hotels in your region to adjust the prices based on seasonal demand.

From there, they adjust the prices according to the day of the week: higher prices during weekends and lower prices during weekdays. This allows you to maximize occupancy rates and revenue for your property all year round.

Some tools will allow you to set rules at the start and use competitor rates to build a strategy.

Other tools will use tens of thousands of data points from thousands of cities around the globe, using algorithms to create rules based on statistics and expectations drawn from data.

Now that you've got a handle on the basics let's look at a couple of popular tools.

Which Dynamic Pricing Tool is Best?

The answer to this is the same as it is for most things in real estate - it depends. Here are three popular options to check out - but you may need to do some additional research, depending on your specific needs.

DPGO

DPGO uses an AI-driven algorithm that draws insights from real-time market data. Their system allows for flexible adjustments and personal input, so you'll never feel like you're subject to the whim of the algorithm without any control or input. With charting capabilities and a 52-week pricing overview, you'll be on top of the current market trends and constantly aware of what's coming next. You can review all the features at dpgo.com

PriceLabs

Pricelabs offers most of the popular dynamic pricing options and products for niche investments. In addition to short-term rentals, they provide products and solutions for:

• mid term rentals
• villas
• mobile home parks

They also offer visual dashboards, portfolio analytics, and a 30-day free trial. hello.pricelabs.co

Beyond

Beyond is our third and final tool to look at here. They offer dynamic pricing as part of an integrated revenue management platform. They'll help you with a direct booking website, analytics, and actionable insights to help you grow your STR portfolio. beyondpricing.com

Conclusion

So there it is - dynamic pricing in a nutshell. Whether you're just starting with short-term rentals or already have an established portfolio, implementing a dynamic pricing strategy can help you maximize occupancy rates and revenue all year long.

We've highlighted three popular tools to help get you started, but by no means is this an exhaustive list. Do some research, weigh the benefits of each, and find out which platform works best for your individual needs.

It's time to start taking advantage of dynamic pricing in your short-term rental business so that you can get the most out of your investments.