8 things to weigh up on short-term rental pricing

What to take away

Short-term rental pricing has eight moving parts. A single nightly rate is only one of them.

Why no page can give you a number

Nightly rates depend on the market, the season, the property, the competition on the street and what the guest is coming for. Two properties on the same block can price differently for reasons neither owner controls.

What is transferable is the structure of the calculation and the two levers most operators never pull. Below is the arithmetic in named variables. Use your own figures.

The derivation

Take a period, a season or a month, and define it for one property.

Let A be the available nights in the period. Let O be occupancy, the fraction of A that is booked. Let R be the average rate actually achieved per booked night, after discounts and after whatever the channel takes. Let L be the average length of stay in nights.

Booked nights are A times O. The number of separate stays is A times O divided by L. That second number matters most, because every stay costs a turnover whether it lasted two nights or nine.

Let T be the full cost of one turnover: cleaning labor, linen, consumables, drive time between properties, inspection. Typical T in most U.S. markets runs about $60 to $200 per stay for a one- or two-bedroom unit. Size, cleaning wage and drive distance move it.

Let V be the variable cost per booked night: utilities tracking occupancy, amenity use, and anything else that happens only when someone stays. Typical V runs about $8 to $25 per booked night, driven by utility rates and amenity use.

Let F be the fixed cost for the period, which continues whether or not anyone books. Insurance, base utilities, association fees, software subscriptions and compliance sit in F. Typical software runs about $20 to $100 per listing per month. Insurance and local fees vary widely.

Read the third term again. Turnover cost is divided by length of stay. A property averaging two-night stays carries roughly twice the turnover cost per booked night of one averaging four, at the same occupancy and the same rate.

What that means in practice

The third term is why two operators with identical occupancy and identical rates can have very different years.

Dropping a minimum stay lifts O, which lifts the first term. It also shortens L, which inflates the third term. Whether the change helps depends on the size of T relative to R. You can settle it in an afternoon with your own numbers rather than arguing about it.

The same arithmetic explains why a discount aimed at filling midweek gaps often loses money twice. It lowers R. Because gap-fillers are short, it lowers L as well. Both terms move against you at once.

Turnover cost deserves more attention than its size suggests. T is the number most operators estimate and never measure. Measure it once, door to door, including the drive, and the whole model changes shape.

The labor half of T is checkable, not guessable. The Bureau of Labor Statistics publishes employment and wage estimates by area and occupation.

Use that as a defensible starting point for what cleaning and maintenance work pays where you operate. Then add your loading for travel, supervision, and the cost of a substitute on a bad Saturday.

The eight things to weigh up, side by side

Every row has a cost in another column. That is the whole of pricing in this trade: there is no lever that only helps.

What a cancellation policy actually trades

A flexible policy gets you more bookings. It also gets you bookings that cancel, and a cancellation is only a problem if it arrives too late to resell.

So the question is not whether to be generous. It is how long your resale window is: how many days before arrival a released night in your market can realistically be rebooked. In most markets, a 14-day window is tight for peak dates and generous for a Tuesday in the shoulder. Use your own booking data.

In a market that books far ahead, a late cancellation is close to a lost night. In a market that books at short notice, the same cancellation is an inconvenience.

Work out that window from your own booking data, then set the policy so that the point at which a cancellation becomes costly to you is the point at which it becomes costly to the guest. That is a defensible policy, and it is one you can explain to a guest without embarrassment.

Two things to avoid. A policy stricter than the market that you then waive whenever anyone complains, which gives you the bad reviews of a strict policy and the economics of a loose one. And a policy that differs between channels for no reason you could state, which produces exactly the double standard a guest eventually notices.

Whatever the policy is, it has to be stated where a guest sees it before paying, and stated the same way everywhere. What you may claim, and how conditions on an advertised price have to be disclosed, is set out plainly in the Federal Trade Commission's advertising guidance for small businesses.

Rate across channels, and the one that is yours

Most operators sell on more than one channel. Each takes a different share and each attracts a different guest, so R is not one number, it is an average of several.

Airbnb, Vrbo and Booking.com are the common channels. Airbnb host-only fee commonly runs 14% to 16% of the booking subtotal; simplified pricing is about 3% plus a guest fee. Booking.com commission is typically around 15%. Vrbo pay-per-booking is typically around 5%, or an annual subscription.

Keep a per-channel view of R net of what the channel takes, and of L, because they differ more than people expect. A channel with a lower headline rate and longer stays can outperform a higher one, for the reason set out above.

PriceLabs and Wheelhouse are revenue management tools that can move rates daily. Plans typically start around $20 to $50 per listing per month. They do not know your T, so set a floor from your own arithmetic.

Direct bookings are the only channel where R is fully yours and the guest relationship survives the stay. They are also the channel where you carry the payment risk and the support burden yourself. Treat that trade as a real one rather than assuming direct is always better.

Where fixed cost comes from, and why it matters here

F is the term that punishes a bad season, and it contains more than rent.

Insurance, base utilities, association fees, software subscriptions and the cost of being compliant sit in F. Compliance is not trivial and not evenly spread across properties. Registrations, renewals and local requirements attach per property and per jurisdiction.

Typical fixed costs in many U.S. markets: short-term rental insurance runs $1,000 to $3,000 per year. Property management software runs $20 to $100 per listing per month. Local registration or licensing fees often run $50 to $500 per year.

Establishing what applies to you is the subject of the licensing and compliance guide. The figures belong in F rather than as a line on a guest's invoice.

Divide F by A honestly, using available nights rather than optimistic ones. A property you took off the market for two weeks of works still carried its fixed cost.

Proving the price after the season

A price is a hypothesis and the booking record is the test.

Record per stay: the channel, the rate achieved net of fees, the nights, the turnover cost actually incurred, and any refund or discount given. At the end of the month, compute the four terms and compare them with what you assumed. The one that will surprise you is the third.

Those are the same records a tax authority expects you to keep. The Internal Revenue Service sets out what records a business is expected to hold, and one well-kept file serves both purposes rather than two half-kept ones.

If you would like someone to argue with your assumptions before you commit a season to them, the Small Business Administration's counseling and guidance pages list local advisers who do this at no charge.

Owners whose numbers come out badly should check the market before the rate. R, L, and the length of the quiet season are properties of where you chose to operate. That decision is made with the screens in the site selection and location guide.

Owners managing for other people rather than for themselves are pricing a different thing entirely, settled in the startup and market guide.

Common questions

What occupancy should I target?

None, on its own. Occupancy is one term of four and it can be bought with rate. Target contribution per available night and let occupancy land where it lands.

Should I use automated pricing?

A tool can move rates faster than you can. PriceLabs and Wheelhouse are common choices, with plans typically starting around $20 to $50 per listing per month. A tool cannot know your turnover cost, so it optimizes the first term and ignores the third. Feed it a floor derived from your own arithmetic.

Is a cleaning fee better than a higher rate?

It depends which bookings you want. A fee falls hardest on short stays, which is either the point or a mistake, depending on your T and L. Typical cleaning fees run $50 to $150 in many U.S. markets.

How often should I re-price?

Whenever labor, insurance or fixed costs move, and before each season. Re-pricing mid-season with a backlog booked at the old rate only reaches the nights you have not sold.

Why is my profit worse than last year at the same occupancy?

Check L before anything else. A shorter average stay at identical occupancy raises the turnover term without touching the number you were watching.