How Do I Know What Nightly Rate to Set for My Vacation Rental?


How should I set a nightly rate for my vacation rental? How can I make sure that my vacation rental is priced appropriately? Can my rates keep my short-term rental business profitable?


If you set your rate too high, you might lose your prospects to your competitors or form high expectations in your guests that result in negative reviews, if not properly delivered. On the other hand, setting too low rates will hurt your profits, and you will be leaving money on the table. How do you know that your price for your listing can

  • cover your rental fees?
  • guarantee a high occupancy rate?
  • keep you ahead of the competition?
  • attract proper guests to your properties?
  • keep your guests satisfied?
  • retain repeat guests?
  • maximise revenue?

There are steps you can follow, and tools and software to employ that will help you set the best nightly rates for your vacation rental.


1. Estimate Your Expenses and Operating Costs

Analysing and estimating the expenses of your business correctly can pretty much help you to define your minimum average rate. As a result, your foremost step to set a nightly rate for your vacation rental is to list your expenses and operating costs.

Make a full list of your fixed costs including taxes, mortgage payments, insurance, salaries, TV, internet and any other expenditures that are the same each month. Then add your variable costs to the list. Your variable costs are the items that change depending on your usage like utility bills, listing fees, restocking of supplies, cleaning services, maintenance and repairs and large upkeep costs.

Here, a property deal analyser can help you to calculate all the costs associated with your rental to set a bottom line for your rental property.

2. Find Out the Average Market Prices in Your Area

Check the properties similar to yours on online booking sites like Airbnb, Booking.com and Expedia to get a general overview of your neighbourhood’s vacation rental market. Of course, no two listings are exactly the same. However, comparable listings in your vicinity can pretty much help you to determine the optimal amount you can charge for your place. Follow these steps to figure out your property’s value in the market.


Find Your Competition

Use the search filters to find your right competitors, which are the vacation rentals with the same amenities and number of rooms as yours. Take a deep look at their location, list of amenities, and the services they offer. Identify properties that are the most comparable options to your rental.

To get better results, search for a few months (3-6 months) in the future, so that you can also have the booked properties in your results and make a more complete list.

Create a ‘Price Comparison’ Table

To find out where your vacation rental stands in the market, you need to check your competitors’ prices. Creating a list of your competitors’ prices can help you quickly reach your price range.

Before you enter a price for each competitor, investigate the calendar of each listing. Compare the price and the reserved nights of each listing to make sure their price has brought them a reasonable occupancy rate.

Write down the nightly rates for weekdays and weekends during the high season, low season, and holidays for each property. Calculate the average rate properties in your area charge for each night type.

3. Choose Your Pricing Strategy

The pricing strategy you choose for your rental business more or less depends on your local market conditions, the type of your vacation rental and your business goals and objectives. You must choose a pricing method that suits the kind of vacation rental company you want to be and the sort of guests you want to attract. However, you have two main pricing strategies to follow:

  1. Competitive Pricing
  2. Premium Pricing

Competitive Pricing

If your neighbourhood is packed with properties very similar to your competitors, competitive pricing can be a practical method for you to attract travellers preferring to stay in a comfortable vacation home without any special amenities and services.

To have a competitive price, you must set a rate less than your competitors’ for your property.

This pricing method can also be very helpful for the property managers who are starting out their rental business, and discounting nightly rates can help them build up reviews and make their name known.

Setting competitive pricing will reduce your profit margin. Nevertheless, it will significantly increase your occupancy rate and bring you more revenue in the long run.

Placing yourself as the most affordable accommodation in the area will undercut your competition and can help you capture more bookings. However, ensure that your rates protect your bottom line, and that you’re still making a profit. Sometimes, you need to implement creative ways to optimise the costs to be able to offer the most striking bargains.

Premium Pricing

Although many travellers will be absorbed by lower prices, there is a group of accommodation seekers who are willing to pay a premium price to stay in properties with unique features, modern appliances, and special amenities.

To set a premium price, your vacation rental must offer a higher value to your guests, compared to your competition. Offer your guests special amenities and unique features, as well as a higher quality service so that they won’t mind booking at higher rates.

If your vacation rental has a competitive advantage or offers a unique selling point (USP), setting a premium pricing strategy can be super beneficial for you. For instance, you must have a property designed luxuriously or featuring a hot tub, spa and swimming pool. Otherwise, you can offer free breakfast, discounted meals at the local restaurants, transfers and tours.

Just note that this strategy requires improving your vacation rental and services. Besides, you need to make additional marketing and branding efforts to ensure that your customers are aware of the differences that justify your exceptional pricing.

To set a price for each of your amenities, use the listing sites’ filters and add and remove that particular amenity to see the differences to the price. If properties in your area charge a similar average price per night, but the ones offering that amenity charge a higher price, then you can calculate the difference and add it to your base rate.

4. Consider Seasonality

In the short-term rental industry, demand changes more frequently than seasons. This is why having a fixed, year-round price for your vacation rental can never maximise your profit margins and guarantee a reasonable occupancy rate.

Seasonality doesn’t just depend on the weather. It ranges from weekdays and weekends to events and holidays. So, the vacancy rate in your area can be affected by weekly, even daily, factors like annual holiday periods including Christmas and New Year and local events, concerts and festivals and sporting events.

To set a winning nightly rate for your vacation rental, you must take into account the demand alterations for different occasions and days of the week. Get a calendar of local events and change your base rate to comply with the demand of any particular day to convince more guests to book your property.


5. Use Analytics and Market Data

Short-term rental rates fluctuate based on market demand. So, you need a viable pricing strategy to adjust your prices day-to-day to respond to the rise and fall of daily rental demand.

To make sure that your pricing is competitive, you need insights into vacation rental industry’s trends. As a result, you must do a bit of market research to find out your market value and create a pricing strategy that can adjust your rates to market demand.

Hopefully, there is no need to search all of the short-term rental market data by yourself. Many short-term rental analytics platforms out there can help you access all of the accurate and up-to-date data that you need. You can use short-term rental data platforms like AIRDNA, Mashvisor and Transparent to gain valuable market insights to optimise your pricing strategy and maximise revenue.


6. Use Dynamic Pricing Tools

Taking all the above steps and doing vacation rental price optimisation manually sounds too much work. Besides, constantly checking your competitors’ prices, collecting and analysing data and making calculations can take up an insane amount of time. It gets even more difficult if you run multiple listings across multiple locations worldwide.

Fortunately, there are also many revenue management solutions for short-term rentals to automate their rate-setting process. By using a dynamic pricing software like PriceLabs and Beyond, you can automatically change your nightly rates in real-time based on the fluctuations in the market demand.

Dynamic pricing solutions can take charge of calculating and automatically updating your vacation rental prices on all of your channels. These tools use a data-driven approach to analyse your competition, seasonality and market conditions in order to provide tailor-defined price recommendations that help you increase your revenue.

7. Define Your Minimum and Maximum Rates

Dynamic pricing software are proven to be the best tools for automating pricing. However, even by using a vacation rental pricing software like the ones mentioned above, you might be at the risk of over-charging or under-pricing at any given point in time.

Dynamic pricing tools let hosts put their insights into practice and fix their recommended prices according to their experience. So, set your minimum and maximum rates and regularly re-evaluate and readjust them to make sure everything is under your control, and there’s no room for error.

In order to set efficient prices, it’s crucial that hosts first analyse their property’s return potential. This is where a property deal analyser for vacation rentals comes in handy. It allows you to evaluate your property, calculate profits, and make informed decisions. By factoring in several costs, this tool can help you determine the minimum rent you need to charge to cover your expenses. 

It might sound difficult to find yourself a practical pricing formula to keep you ahead of the competition. However, by knowing your costs, average market prices, your business goals and objectives, and analysing deep market data, setting a winning pricing strategy is not that hard to achieve. Hopefully, many pricing tools and software specialised in the short-term rental industry can help you make smart decisions and set the perfect price each and every day.

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