Beginning of the “Base Price”
Since Beyond pioneered the idea of a “base price” (not to be confused with a “base rate” used by hotels) in 2014, it has since become the gold standard for pricing logic in the short-term rental industry—endlessly imitated but never truly duplicated.
The base price serves as an easily understandable and accessible lever that allows property managers and owners to interact with extremely complicated algorithms to ensure the best price for every night. Condensing 365 days of pricing into one interact-able number is an impressive feat for revenue management and pricing performance.
But Why Use a Base Price?
Unlike hotel rooms, there’s no denying that every short-term rental property is unique. Since all the hotel rooms in a market offer similar amenities and experiences, hotel revenue managers can easily benchmark their room inventory against the rest of the market.
Short-term rental property revenue managers should be careful when comparing their listings to others in the market, especially when properties with the same amount of bedrooms can vastly vary. Things like amenities, online reviews, and property renovations all have an impact on booking pace, but they may be hard to measure quantitatively.
That’s why it’s important to assign a unique value to each property by setting a base price that can be adjusted as a part of your revenue management strategy.
If something were to change for your listing, like updating the kitchen or getting a few 1-star reviews, you’ll need a way to adjust the value of the listing and the price of each night. These types of changes only affect your property—not the entire market—and should be addressed accordingly. The best way to do this is via a base price that is unique to your listing.
Pricing your property solely based on the prices of your nearby competitors assumes that they are pricing correctly, which we know may not always be the case. Identifying your competitive set is important, but you shouldn’t base your entire pricing strategy off of what your neighbors are doing. They could be utilizing an under-optimized pricing strategy that will result in everyone leaving money on the table.
Now that we know why we use a base price, let’s take a look at how we go about setting the perfect one for your property.
Setting the Base Price
Given the significance the base price is to the overall performance of a listing, we wanted to delve into the science, automation, and logic used behind finding the right one. After all, pricing is a science—save the art for the interior walls of your property.
While the base price is important, it doesn’t mean it should be difficult. Over the last eight years we’ve been educating the industry on dynamic pricing, we’ve turned that knowledge into powerful algorithms to come up with the appropriate starting base price automatically. In the seconds it takes to connect your account to Beyond (or each time you add a new listing), we analyze the available data for that listing, as well as our internal data on the listing’s hyper-local area, to suggest a base price which shows up as soon as you can see your listing.
A Data Driven Approach
So, what is actually happening in the background to arrive at that first base price? We start by analyzing the historic and future reservations for each listing, primarily looking at both the achieved ADRs and occupancy. We can then compare this proven performance to other similar and local listings where we already know their optimum base prices.
We also take care to make sure to select one that has higher than previous prices where you have traditionally had full occupancy (think high season) and may dip lower in periods where the listing may need additional nights filled.
Sadly, not every listing has sufficient or adequate reservation data to conduct this sort of analysis (think recently acquired listings). In these instances, we overlay the current pricing before Beyond for the listing and then use a gradient descent optimization method to find the base price that has the least difference between the current pricing and our forecasted pricing. We take special steps here to remove any outlier pricing and "seasonality weighting" to address any outliers or overly optimistic previous pricing.
Supplementing all the individual listing logic above is pricing data on nearby similar listings, which we can compare to. We focus on your listings’ data as it is the best indicator of your performance, but it still needs to be put in the context of comp sets just like in the real world.
In the case of brand new listings without a lick of data, the process of setting a base price isn’t as straightforward. In the case of a property manager with an established portfolio, we suggest selecting which other properties are most similar and using that as a starting point. If you have no context from other listings you manage, then simply pursue similar listings in your neighborhood and find a few that are similar in size and quality with at least 30-80% of their next 30 days booked.
To do this directly within Beyond, check out our support page for more information on using the Nearby Listings tab. Finally, set your Base Price slightly below (15-20%) the average until you have your first 3-4 bookings and your first review.
On newer listings, we also suggest that you flex your local knowledge of the area. Your experience may tell you what your expected rate for a major holiday, for example, and then simply set a base price that matches that time period’s rate to what you desire and let the algorithm take care of the rest of the calendar.
Setting the right base price for your listing helps ensure that your pricing strategy gets off on the right foot—that’s why we take pride in recommending a starting base price for your listing. For more information on base prices, visit our support page. Now that you have your base price set just hit enable, sit back, and relax!
Want to see first-hand how Beyond’s pricing tool can work for you? Start your free 30-day trial today!