Have you ever wondered what demand based or dynamic pricing is, how it works and why it might be beneficial for you as a short term rental owner?

Read on.

We invited Doug Ross of Everbooked.com—a dynamic rates engine—to share a few facts and tidbits about demand based pricing with you, our BookingSync audience.

Enjoy.

1. Demand Based Pricing Is Available to the VR World 

Demand based pricing is available for you as a vacation rental host.

More and more services are cropping up to help you price your short term rental.  Everbooked.com for example, is available to Airbnb hosts in major metros in the U.S. and will be expanding both globally and to other platforms like HomeAway and FlipKey in future.

2. There Is More to Pricing than Seasonality

There are more than two or even four indicators for demand in a year.

The reason most people use seasonal pricing is because demand typically changes a lot with the changing seasons.  So seasonality has played a role as an indicator for demand.  If you have a summer house in Maine - demand is going to be higher in summer and therefore you should price your place higher in that season.  So if you are applying seasonal pricing for your property, you are already using a form of demand based pricing.

If you think of seasons as (rough) proxies for demand, it is not hard then to think of other proxies for demand as well such as weekends vs weekdays or holidays vs regular days.  

Instead of proxies, wouldn’t it be better to track actual demand?  For example is demand on Monday, July 27th the same as for Monday, August, 10th?  If you’re using a blunt seasonality approach, all Mondays and maybe all weekdays, may be priced the same within a season.  And that could mean you’re missing some opportunities to price in sync with demand and to therefore make more money.

3. Smart Algorithms behind the Scenes 

Data forms the backbone of a good demand based pricing application

At Everbooked, we track multiple sources of data including: demand for similar short term rentals near your listing, hotel prices, general travel demand data, day of week patterns and more when pricing our clients’ places.

Once those giga-bytes of data are gathered daily, we apply our algorithm to your listing and update prices to your calendar.  For periods of low demand, we start lowering your price to help you gain bookings.

4. Democratization of Technology

Demand based pricing has been made possible to individual short term rental owners because of dramatic changes in technology.

In the past, the power to do pricing resided with the big players.  Hotels could afford to buy sophisticated revenue management software and hire the staff to implement it.  They had lots of data coming in, such as inquiry and booking levels for their own properties, and through syndication, the inventory of other hotels.  Property managers on the vacation side could do this because they had current and historical data from hundreds or more of their own properties.  They also tended to work on a commission basis so their interests were aligned with owners in making more money.

Today, the individual property manager can benefit from the kind of revenue management approach of hotels because of technology and the economics of technology.  Sparing you the nitty gritty, the key elements in this fortunate situation are:

• access to massive amounts of data through programming interfaces and the ‘scraping’ of publicly available sources

• low cost ability to gather, store and analyze that data

• data science techniques, algorithm development and machine learning to make all this data meaningful at the individual property owner level

5. The Bottom Line

You can make more money.

By having your prices set based on shifts in demand and booking rates for similar properties around you, you can make more money.  When demand is higher, your place is priced higher so you earn more on a per night or stay basis.  When demand is lower, your prices are lowered toward a minimum or floor price so you gain more bookings.  Bookings made at your floor price brings revenue you otherwise would not have in your pocket had you missed those bookings due prices being set too high.

In summary, demand based or dynamic pricing has come to the vacation rental market.  There is more to life than a high and low season, so take advantage of the data driven services out there to help you price your vacation property, and in the process make yourself a higher return on your investment.