Over the last five years, the short-term rental market has grown by almost twenty-five percent. Other players in the travel industry, however, have seen meager, single-digit growth. Even before the pandemic hit, big chain hotels and airlines were struggling while the demand for short-term places kept growing and growing.

While the unique conditions of 2020 played a major role in this growth, we believe that the market for short-term rentals has fundamentally and permanently expanded. Millions of travelers were forced to try short-term rentals for the first time, and for the most part, they seem to have liked it.

That is not to say, however, that it will be all smooth sailing for this market. It is still a relatively small piece of the hospitality landscape that's dominated by multi-billion dollar hotel and hospitality organizations. They've been operating for decades using cutting-edge systems and technology.  

The best and most effective way short-term rental properties can compete for those precious traveler dollars is to have an effective revenue management strategy, and the key component to that strategy is dynamic pricing.

How Dynamic Pricing Works

Dynamic pricing is the ability to automatically understand and respond to not just historical data but real-time supply and demand changes on a daily basis. At its simplest, it means being able to automatically charge higher rates when there is greater demand and charging lower rates when there is less demand.

Without a dynamic pricing tool, you’re almost certainly leaving money on the table by not charging enough when the demand climbs, while at other times your occupancy rates are lower than they should be because you didn’t drop your prices quickly or low enough.

Source: Beyond Data

The chart above is an example of how big are the daily fluctuations in historical data, as well as the uneven spread in pacing we see in the future. As you can see, there is a lot of daily fluctuation.

A dynamic pricing tool allows your prices to immediately respond to these changes in supply and demand.

These incremental bookings lead to higher occupancy—about 12 points more on average—and ultimately, more revenue.

Dynamic Pricing Does the Heavy Lifting

Think of a dynamic pricing tool as the powerful beast of burden in your revenue management strategy arsenal. Once you set it, you’ve basically unleashed a smart, advanced animal that does about 95% of the heavy lifting for you.  It’s built to find pockets of revenue in areas other tools can’t, therefore maximizing potential revenue.

Source: Beyond Data

This chart illustrates what those hidden pockets of revenue are—fluctuations in daily demand. Flat or seasonal pricing don't account for these changes. It also doesn't allow you to go as high as you should when demand spikes, or as low as you should when demand craters, because it's not tied to demand.

Dynamic Pricing Let’s You Focus On Other Areas

Manually pricing, or trying to manage a less sophisticated pricing tool, is tedious and time-consuming. Dynamic pricing in general gives you a more advanced strategy in a more efficient way.

By trusting a dynamic pricing tool will also allow you to have more time to do other important things, like focusing on problem listings, working closer with harder-to-please owners, and addressing guest issues in a more timely manner.

There is an owner behind every listing a short-term rental manager has, and that owner expects a return on their investment. Having a proactive revenue management strategy in place that is centered around dynamic pricing will not only save you time and increase your revenue, it’s also a sure-fire way to keep your owners happy. One thing you can’t argue against are real, hard numbers.

Ready to see how dynamic pricing can work for you? We’d be happy to show you how with our dynamic pricing tool.

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