Julian Sage:                         00:00                     In this episode we’re talking about pricing and how you should be pricing your Airbnb and short term rental unit, so stay tuned.

Julian Sage:                         00:07                     Vacation rental machine helps hosts just like you learn how to start, grow and scale your short term rental business. The show is all about creating systems that help you automate your business, give any more time and money freedom. If you’re ready to start living the vacation rental life, then subscribe to this podcast today, come and join us on our Facebook group, the host nation where we’ll be talking about starting automating and scaling a short term rental business now onto the show,

Julian Sage:                         00:34                     Hey, welcome back host nation to another episode of vacation rental machine. In this episode. I am back in though very cold D.C .so I left Florida so that the audio should sound a bit better in this episode. But I’m super glad to be back because I am pumped to be able to provide so much content for you guys and a little bit of a little, a little sneak peek or a little teaser is that John and I are working on a very special secret projects that our people in the BNB empire builders mastermind group are aware of. So if you want to get the low down on what Jon and I are doing, cause we’re w we’re right now we’re providing a lot of free content, a lot of really good information, but we’re going to 10X that we’re going to make this even better for you guys and we’re providing resources and all this really cool stuff.

Julian Sage:                         01:18                     So the BNB empire builders, it is going to be closing down by this Wednesday we are going to be cutting it off to our early adopters. We would just have a few spots left. So if you are interested, put in an application and you can register to join that. But that is some exciting stuff that is happening. But I just want to jump right into this because we are talking about pricing, how to price your Airbnb and short term rental unit. So Jon, one of the things that when you created your profile, so that’s something that everybody should have done already. They’ve created their profiles. Now, they are filling in the information such as their description and now they’re filling in their pricing. One of the things on Airbnb is the base price. Now the base price is a little bit different from your minimum price.

Julian Sage:                         01:59                     And when we’re talking about smart pricing like we did in some of the other episodes, we were talking about your base price and your minimum price. How do you even come up with how you should be pricing your units? And then what are the differences between the base and minimum price that is in the smart pricing space?

Jon Bell:                               02:14                     All right. First of all, guys don’t fall for the trick that Airbnb wants to make you fall in by putting in and using their smart pricing. There’s a little button down below on the screen that says use base price only. You want to make sure that you select that. That way Airbnb is not automating your prices for you technically setting you up so you’re not making really any money, but yet you are booking like crazy. All right, so everybody get your pen and pad ready because we’re going to go over some numbers. These are crucial numbers that you need to know.

Jon Bell:                               02:51                     Let’s identify what they are first. First, you need to know all your expenses. Your expenses include little things including your subscription costs to whatever you provide, whether that’s Netflix or Hulu or if you do sling TV or whatever you do. Include that stuff. Include any type of overhead cost that you need to add in for employees or anything like that. Now, I’m not saying quit your entire payroll on one unit, but if you have multiple units and you have a maybe one staff person that is working, you need to spread that out across all your units. Other things that you might forget to include are your just parking fees and other things that are included in your lease. It’s not just your lease and your utilities. You got to make sure you include all your expenses because this is going to set you up for your minimum price. So when somebody asks you for a discount, you know that, Hey, this is the lowest I can go just to make sure I get everything that I need to cover. Very crucial in the low season.

Jon Bell:                               04:00                     All right, so you know your expenses now, right now we need to figure out, or you need to take the data that you’ve gathered from other data points that was from either your airDNA research or your regular Airbnb research that you pulled together and said, Hey, this is an average occupancy rate that I should be able to achieve. Or you looked at top producers and you said, Hey, these guys get about 70-75% I would kind of go a little bit conservative on this number just because it works better when you occupy yourself more and you’ve been really conservative on this other number. So whether that’s 70% or 60% or 80% you want to know this number. Next number you want to know is your anticipated profit. What do you plan to make out of a month outside of all your costs?

Jon Bell:                               04:59                     Because if you did it right, you put your costs in and everything’s covered there. So what’s your profit? What do you want to make? Is that a thousand is that $2,000 is it $5,000? Let’s be real. We all want more, but we gotta be practical too. We got to make sure that we’re not just overpricing everybody just because we want a large profit. So the best way to kind of go in, I would say, is maybe about 800 to a thousand dollars of profit a month. You can then start to test that number and stretch it depending on what season you guys are in. All right, so how do you get all this data? Well, let’s break it down. So you’ve got expenses, that’s very easy, put that calculation, score it. Then you have your occupancy rate. How do you get your occupancy rate? You multiply the month times the anticipated occupancy that you want. That is in a percentage, so if it’s 60%, it’s 0.6. That gives you the number of days out of the month that that is. All right, you got that number. Now for your anticipated profit, you take that same number that you just put in and you put your total profit amount, whether that was $1,000 you put in that number as well. Now you have a profit amount that you would add to your minimum or base price number later on. All right, so what does that look like on a calculator, everybody? All right, let’s run through some numbers. Let’s just say I got an apartment. I got total expenses of $3,450 I know that number just because I’ve calculated all my expenses, my lease payments, whatever. If I’m renting furniture, I got all my other costs in there. That’s my number. All right, let’s figure out how, what that number is that I’m going to figure out.

Jon Bell:                               06:58                     My occupancy rates. So let’s just say within this market there is a 65% occupancy rate. So I’ll take 30 days. How times that 0.65. Okay. Okay. That’s 19.5 days out of the month. So I did that out of 30, 19.5 if you did 31, maybe it’s 20 days. All right, let’s grab our minimum price. Our minimum price is going to be our expenses divided by that number of days, which was 19.5. So three, four 50 divided by 19.5 that comes up to $176 and 92 cents.

Julian Sage:                         07:46                     So Jon, what this means, the minimum price is this is the bare minimum for you to be able to cover all of your expenses.

Jon Bell:                               07:52                     Exactly.

Julian Sage:                         07:52                     Right. So now, how does this different from the base price?

Jon Bell:                               07:57                     All right, so this is just minimum, your base price is gonna have in your profit, your anticipated profit. Granted, when using a smart pricing tool, that pricing tool is going to take your base price and still add more to it.

Jon Bell:                               08:13                     So it’s not just going to cap you at that price. It’s is going to say, Hey, if this is your base, then I mean just increase it from here. So let’s come up with that base price. So the other calculation you really need to know is how much profit you want. I feel like the best way to do that is to take your anticipated profit amount and divided by the number of days that you’re looking for. So if we got to and anticipated profit amount of $800 we take that $800 that we want to earn. And we divide that by the occupancy rate of days that we already came up with. That puts us at roughly about $41. So what we need to do is add $41 plus the minimum price that we got, which puts us right around an average daily rate of $218. So this is what you would put into your pricing tools that allows you to fluctuate your pricing. Again, you got a good downward slope if you need to be competitive as days get closer, you can set in discounts to apply and then your pricing would almost go all the way down as low as 177. Most pricing tools out of the box won’t allow you to go down that low because that’s a large percentage. However, you know that number, so when somebody calls or asks for a discount, you could go just to slightly above it. You can go right at it. Or when you’re pricing things out, like, Hey, I need to stay here until 6:00 PM for late checkout, how much would that cost? Maybe you think, Hey, why don’t I, I can’t book that next day, so why don’t I charge them $150?

Jon Bell:                               09:58                     Well, if you come up with a 150 you’re very close to your minimum stay. You might even charge them $180 then you technically didn’t lose anything, right? You pretty much booked that extra day. So knowing your numbers, especially your minimum price is always going to be your best number, right? This is the number that you know that you have to get over. Now, if you were to take this, and luckily you were to squeeze out 80% occupancy, well, you also drastically increased your profit number, right? That’s why I said go conservative on your occupancy rate. I know that we’re going to be top producers. We’re probably going to be right in line or above everybody else that’s within the market. So you want to make sure that you’re not going to shortcut yourself when you’re kind of put these numbers in.

Julian Sage:                         10:45                     Now, Jon, a lot of people in the rental arbitrage space are always saying, Oh, you want to double whatever your gross rent is. So if your rent is, you know, let’s say $2,000, you should be expecting to return net double that amount. So $4,000 is what you could expect. Or you could expect $2,000 in your pocket cause you’re trying to double whatever the rent is. Is this always the case? Because in that example, you were giving us $800 when after all of your expenses, that was over 3,500.

Jon Bell:                               11:13                     So let’s do that calculation, right? Let’s just say we make $218 and we do make it, let’s just say we’re pretty booked. We got it times 25, that’s $5,450.

Jon Bell:                               11:31                     That’s an extra $2,000 in profit, right? So taking that number, yeah, it’s not 6-5, whatever. But our pricing tool is going to be pricing to our advantage. It’s just going to take the data that we give it. If an influx and deflux whenever we need it to, it’s not impossible to hit that number. It’s just you configure these tools to hit that number. Think about it this way. If you go into it and the reason why people put out that number is because they want you to be wrong on pricing. If I were to say, okay, double everything that I wanted to do, that puts me right at 6,900 if I divide that by the number of days that we talked about 19.5 that means by pricing should be $353 now, of course that’s very attractive, but is that competitive with everything else that’s in your market or are you very, very high?

Jon Bell:                               12:34                     What’s your occupancy rate based on that number? Those things you have to consider. You want to be booked. Yes. I like to just look at it like, Hey, what is the profit that I want? That’s to me, what’s more important? If I had double that number, it’s a good way of just to easily think about it. Just say, Hey, yeah, double the rent. You’re going to pull in numbers that are doubled to rent 100% of the time during high season. That is what you’re going to do or above. It’s not uncommon for me to have a place. I got a, I got a nice three bedroom apartment that it costs me $2,500 on the lease, but I can bring in numbers like 7,500 when it comes time for high season. So I mean I’m well exceeding even double. It’s just you want to be competitive.

Jon Bell:                               13:24                     This is how you’re competitive within your market.

Julian Sage:                         13:25                     Yeah. I think, I think it’s important to clarify that John, because a lot of people that are getting to the space, they hear everybody saying, Oh it’s double the note, double the note, double whatever the rent is. But just because you double it doesn’t mean that it’s going to get booked. You know, you could say it’s going to be, I want double the amount, but if the market is telling you that the occupancy is a certain amount at a certain price point, then how can you expect your place to book if you’re just, you know, creating a random number saying it’s going to be double. There are times and seasons when that does happen, but like let’s let, let’s just say for example, right now it’s a slow season, so we’re falling back on our minimum pricing because now we’re just having to be able to make sure that we can, to be able to pay for the expenses for the place.

Julian Sage:                         14:12                     But you might, you’re not going to be able to double it every single month. That’s just not reality. That’s not how things work in this business. But a good rule of thumb is during the high seasons is that you can foresee typically doubling your rental amount. If, if I’m, if I’m not wrong, Jon.

Jon Bell:                               14:26                     No, you’re definitely right. I mean, the numbers during high season will surprise anybody. I mean, I’m always surprised. I’m more surprised now that I have so many reviews, how much more in price I could really charge just because I got so many good reviews.

Julian Sage:                         14:41                     So I hope this episode really helps you to understand how to be able to calculate your pricing. Because there, there might be some confusion out there, but really you want find out what is the average occupancy for your for the location that you’re going to be in. What’s the price that you are trying to hit and the, the calculation that you use to be able to hit that price. We also covered what is the minimum price versus the base price and the difference between the two because there is a big difference. Remember that your minimum price is what you are just trying to hit to be able to cover all of your expenses. Your base price is what you’re going to use as trying to hit that profit. And if you are using these smart pricing tools like wheelhouse, then that will help you to be able to hit those prices. And that’s just the base price. It can go up based off of other things that are happening in the areas such as events, such as seasonality, so that is just what we are aiming for, but that can always be adjusted. One last thing that I want to ask Jon is when it does come to seasonality, because seasonality does play a big factor into how you’re going to be pricing your unit. Do you have to change your minimum or your base price depending on the season?

Jon Bell:                               15:48                     You’ve got very good question. You’re definitely hitting on some BNB empire material there, but yes, you’re going to end up in fluctuating your, your base price a little bit just to bring prices down. You really want to adjust your minimum price because one, you know it’s what you need to cover all your expenses. As you play around with this gap down, whatever that discount curve is that you’re going to have, you need to start moving that base price just a little bit closer just so you can get what you need to get to stay afloat. You’ll still end up making a little profit in the low season if things are going well.

Julian Sage:                         16:24                     I think that’s really important Jon, because maybe some people are thinking, Oh, I’m just going to set the price and then forget it, but these things do change and one of the things that we are going to be covering in the BNB empire builder’s mastermind group is those pricing strategies, how we are going to be adjusting our base prices based off of what the market is telling us to do because we can’t just leave these prices at a certain point. We do have to adjust them accordingly, but this is going to depend on each and every market. This is going to be a little bit different. It does take a little bit of finesse, but that’s something that we are going to be doing a little bit more in depth in our private group. So if you are interested, definitely fill out an enrollment form. When the group does open back up again and you are interested in joining, then fill out an application and we can let you know next time the enrollment period opens up again and we can let some more people into the group.

Julian Sage:                         17:08                     And with all that being said, keep on hosting. Hope you hosts found value in this episode. If you did, please go on over to iTunes and leave us a review, that would greatly support the show. If you’d like to connect with Jon the community, and I then go on over to our Facebook group, the host nation, talk to you hosts in the next episode Keep on hosting.