If your base price is wrong, no pricing tool can save you. Set it to low and you leave thousands on the table. Set it to high and your calendar sits empty. In this episode, we're going to show you a simple way to set your base price quickly. The three warning signs yours is too high or too low. And Zach Alley will share the one data point most hosts completely ignore when pricing their short-term rents. This is STR Pricing Pulse. Welcome to STR Pricing Pulse, a monthly series from Launch Based Buy House Planet, where we cut through the noise and focus on what the data is actually telling us about pricing and demand. I'm James Vali, the founder of Launch Based Buy House Planet, where we help short-term rental businesses improve their data and revenue management. Knowledge, this series is powered by beyond our exclusive data partners who provide the market and pricing insights behind every episode. And joining me, as always, is Revenue Management Guru Dr. Zach Alley. How's it going, Zach? It's going great. How are you? I am very, very well. I'm very excited to talk about base prices. Let's start with the basics then. So hosts here, the phrase, base price all the time. It talks about a lot in the industry, a lot of conferences. And they're going to hear it, especially when they start using dynamic pricing tools. But I think a lot of people don't really understand exactly what a base price is and what that means. So let's start there. What exactly is a base price? Yeah, I mean, first of all, it's a fantastic subject to talk about, right? I mean, there's a lot of uncertainty around base pricing. If you like, people think it's just a price point, but it's so far from the truth. So yeah, absolutely, we can go a little bit more into it. But just before I start actually, well, before I start explaining what a base price is, I think it's really useful to understand something about revenue management, specifically. And what I'm going to say probably is going to surprise you and maybe come as a shock to you and the listeners of this podcast. But realistically, if you think about it, revenue management isn't really about finding the perfect price, right? Are you confused? Yes, I'm still waiting for the point. Yeah, so realistically, when I say that, what I mean is it's about understanding how demand actually responds to a price rather than trying to find what the perfect price actually is. So when we look at base price, it's basically, or simply the starting point that allows a pricing system, a revenue management system, to do what they need to do, right? So a lot of hosts assume base prices or a base price is the average price that they want to charge for their property. But in revenue management terms, base price isn't a target price. It's more of a calibration point. And that's really how you should see it. So in reality, what it's actually doing is it's helping the system understand where normal demand tends to sit in the market. And then from that reference point, the system can then move prices higher. So when demand strengthens, for example, when we have strong weekends or events or peak season, for example, and also at the same time, it can lower when demand softens. So the goal isn't to guess what the perfect nightly rate is. The goal is to give the pricing system a sensible reference point so that it can move prices up when demand strengthens and down when demand softens. And when the base price is calibrated, well, pricing tends to move naturally with the market rather than constantly having to correct itself. Interesting. I mean, I've kind of had it in my head for a while that a base price is about what I think my property is worth and about what I'd like. Am I in the right ballpark? To a certain degree, right? Because you have to look at lots of different factors and obviously we'll talk about it more. But yeah, I mean, worth or valuation of property just form part of you collaborating your base price. But it is that starting point. Let's make it practical then. A mistake we see quite often is how setting their base price based on what they feel their property is worth. But revenue management doesn't really work like that as you've kind of been explaining. Give us a simple three step method then. How do you set the correct base price? Okay, so a three step method then. I guess the easiest way to think about it if we look at three simple steps if you like. So step one is going to be more about understanding the market that you're competing in. Because pricing only really makes sense in context. So the first thing hosts property managers should do is look at a competitive set. So properties that are genuinely comparable. Say for example in size, in quality, location, you know, these kind of variables. And then also what you're trying to understand is where pricing tends to sit during what you call normal demand periods. Now that's really important for you to actually understand because normal demand period doesn't mean peak weekends or major events. It's more kind of like the middle of the demand cycle. And that gives you a good sense of the price range that the market is comfortable actually with. So I guess in terms of step one, that's probably what step one looks like. Move on to step two then. So what comes next is choosing where your property actually sits within that range. So most accommodation markets, there isn't a single perfect price and they never will be. There's usually a range of prices that the market's actually going to accept. And that range, you know, it depends on what the demand obviously is. So base price should normally sit somewhere within that range if you like. So obviously depending on how your property compares with others. Now naturally, if you're listing how's the stronger views, better design, better location, you know, you might sit towards the top of that range. However, if it's new to market, for example, or still building on reputation, it might actually sit slightly lower, which is absolutely fine and it's perfect, you know, in terms of that entry point position. I think also what needs to be clear here is that the goal isn't to pick a perfect number, as I've said before. It's to position your property realistically, if you like, within the market. And that's really fundamental when you're actually trying to understand, you know, where the base price range actually sits. So, so that was two points. So in terms of my third point then, it's probably going to be stress testing that base price over time. And it's a really critical point actually, which a lot of property managers and hosts tend to forget to do. Because what you've got to remember is once pricing starts moving, you have to, or you want to watch how the market's actually going to respond to that. So, if your calendar consistently fills much earlier than your comparable listings, you know, that can sometimes mean that base pricing is sitting maybe, you know, slightly too low, for example. Or if again, comparable properties are booking while your calendar remains open, then that can also suggest that the anchor might slightly be too high. So it's about constantly understanding, you know, on watching how the market responds. I think also what's probably important to mention here is what you're really watching for is how pricing behaves relative to the market. Now, of course, you know, this is exactly the kind of analysis that you would get in a revenue management system, like for example, beyond they tend to automate this. What they tend to look at is they analyze a lot of large amounts of market data, which obviously can be a little bit tricky if you're not using technology. But what's fundamental is it's continuously adjusting pricing as demand signals change all the time. So that's really where the advantage of having this exercise conducted within a revenue management system comes from. So, but again, I think just to also conclude that, you know, the objective isn't really to find a perfect number. It's to position the base price somewhere that allows the system to move naturally within that demand and that's one demand tool in getting that range. I've got a scenario for you. So somebody makes an investment and they're looking at their numbers and they think, right, I need to get 200 pounds a night in order to cover all my costs and, you know, I'm going to reach the occupancy level I want and I'm going to make sure that I make a profit. And then they do a load of research with comparable properties and they look at the data and it keeps consistently telling them that their properties actually worth about 100 pounds a night. What do you do in that situation? I mean, as much as I hate to say it might be, you know, that might be basically what it is. You've got to, when you're looking at base pricing, you have to remove the emotion, right? You have to remove your emotion from what you believe your property is valued at. Ultimately, the customer will decide what the problem is.
properties valued at. Yeah, you can put all the fancy amenities and make it to a certain level, which is within your control to do so. But ultimately, you've got to understand what the value proposition looks like. And that comes from the customer point of view. And if your property is constantly converting at those lower price points, and you have got it at a higher price point, then there's masses of missed opportunity there. And you'll never really fully maximize on your opportunity if you are consistently over anchoring or over setting your base price. And I'm going to tell you about what I did at the start of my journey, which when I look back now, I kind of cringe a little bit at. But when I got my first property, I was living out in Qatar, and I was only just concerned really about the property covering its costs and being there in the UK when I wanted to use it. So I charged a very low rate because I wanted to get high occupancy and make sure that the cost were all covered. The mortgage was covered and all that kind of thing. Unsurprisingly, I got lots of bookings occupancy very, very high. And then after about a year, I heard of this thing called dynamic pricing and implemented it and saw that I was charging way too little compared to competitors and the standard of the property and all that kind of thing. So to people who might be starting out and they're thinking, oh, I'm just going to charge a really lower amount because I want to get people through the door. Where might they be going wrong and how much value are they going to get by using a tool like beyond? So I think if somebody launches their property in terms of what you've said there, the instinct is naturally going to be what you've talked about in terms of what you've done. So drop the price immediately. But I think that's usually, well, that should usually be the last step rather than the first step. So if you are starting out and bookings are slower than expected, for example, the smarter approach is going to be to diagnose what's actually driving that slow down. So the first thing I think you'd probably need to understand and the one piece of advice I would have given you if you'd asked me at the time is whether demand actually exists there yet or not. Right? So in most accommodation markets, we know that booking doesn't, bookings don't really arrive evenly. So demand tends to build as dates get closer and more travelers start making more decisions. So sometimes what looks like a slow booking is simply just the market not having reached that part of the booking window yet. I think that's probably the first thing I would say you need to look at before getting your touch price. Then I would probably say you need to look at how the competitive listing is overall or how competitive your listing is overall. So remember guests are not just comparing price, right? They're comparing views, they're comparing photos, amenities, location, what else overall presentation. So if comparable listings are booking whilst you know yours is not, then it's worth asking whether the difference is actually really price or whether the listing itself needs improving. So I'd probably look at that. And then also in addition to that, I would look at where your price sits within your competitive set. So creating that competitive set is going to be super duper important and it should be consistently monitored and reviewed. But if similar properties are priced above yours and are still booking, it's unlikely that price is the issue. If comparable listings are consistently priced below you and filling up, then obviously that can indicate that market may be a little bit more price sensitive than you actually expect, right? So I think again looking at competitive set and conjunction to everything else, it's going to be super important. Again, before you actually touch price, one of the thoughts that just comes to my mind actually, which I think probably would be a fourth thing for you to look at is if you're still relatively far from the stay day, it might just simply be too early for demand to actually start to appear, right? So in addition to everything else that I've said, what's really fundamental is having a look at your properties, search activity, visibility and also conversion and what that looks like from a distribution point of view, especially if you are using third-party distribution channels. Because we know that sometimes bookings are slow and not necessarily because on price, but because guests are not choosing that listing when they see it or search traffic might also be a little bit lower as well. I think after you've looked at all those signals together, it gives you a little bit more clarity in terms of whether pricing actually needs adjusting. And I think the key idea is not reacting immediately, but understanding whether the signals actually coming from said demand from your listing itself or even from pricing. And that's really when then you decide, okay, now I need to go ahead and make some changes. One thing I do know is that if I'd have had beyond from day one, I'd have made a bit more money and this is a good time to mention a quick note before we continue, then the series is powered by beyond who provide the market data behind every episode. If you want real-time market trends for your area and want to stop pricing your property based on guesswork, scan the QR code on-screen if you're watching on YouTube or hit the link in the show notes. It could help to boost your revenue by 20%. All right, then, Zach, let's get back to it. So once someone sets a base price, we know that it shouldn't necessarily stay the same for ever. We know that markets change, demand changes, competition changes, as a how often should host be reviewing and adjusting their base price? Yeah, so I mean, I've been asked this question a number of times and a lot of people assume base price is something that you just set once, maybe once a year and then, well, once and then review every year. But I think in reality, and as you just mentioned there, it's better to think about it as something that basically evolves as the market changes. So we know that accommodation markets aren't static, so new listings end to the market all the time and drop off for that matter as well. Demand patterns shift also get behavior changes over time. So I think the real trigger for reviewing base price isn't really a fixed timeline, but it's more generally around when you see a change in market conditions. So, for example, if a large number of comparable listings suddenly appear in your area, then the competitive landscape that you've been trading in previously has changed and the price range that you were working with previously, where booking center happened may actually shift slightly or dramatically. So I think, in addition to that, actually, I should say, is if you make significant improvements to your property, perhaps through renovations, even stronger reviews or even weaker reviews, if something's happened and the reviews have fallen, your position within the market will change higher or lower. So in both situations, the price, price, calibration, which we've talked about previously, will need adjusting. So it still reflects where the property actually is going to sit. And for that reason, I think a more frequent calibration actually needs to happen. I like to give. Well, I like to. The simplest way to think about it from a calibration point of view is it's like botting a shirt, right? So if you get the first button wrong, everything else looks slightly off, right? And you end up having to undo the whole thing and start again. And I think pricing works in a similar way. If the base price isn't calibrated properly, the pricing system that you're working with spends a lot of time correcting rather than naturally reacting to demand, which is basically what it should do. So, base price isn't a fixed number. It's a reference point that should evolve as a market environment changes. I mean, everything else evolves, so it should be base price. And for someone watching right now who isn't sure whether their base price is correct, what are the warning signs? It might be too high or too low. I think there's a few signals property managers can watch out for, you know, and I think in terms of the first signal, if you like, it comes back to market positioning. So if you're comparable listings in your area are regularly charging more than your property and still booking, that can sometimes indicate that the base price may be still sitting too low. But it's also important to remember that pricing isn't the only factor that influences the bookings, you know, reviews, photos, amenities, all those factors, guest perception in terms of value for money, all those play a part. So when you are comparing your property with the market, the real question isn't simply who's going to be cheaper or who is cheaper. It should be more around how does my property actually compare in the overall value relative to similar listings that you are comparing against? I think pricing also works better when it reflects where your property sits in the market, not just what you actually want to charge or would like to charge. I think in addition to that, you, you know, demand often reveals what you call price sensors.
and price sensitivity through when guests decide to book. So if your property consistently books much earlier than your comparable listings, it can sometimes mean that the price was attractive probably earlier than it necessarily should have been. And then on the other hand, if comparable listings are filling while your calendar remains open, that can also suggest that maybe you're sitting slightly above where the market is actually comfortable, therefore it's impacting your conversion. So, you know, actually another thing I probably say is how pricing behaves around the base price over time as well. So when the base price is calibrated well, pricing tends to move naturally with demand. So some dates price above the base price was, you know, demand strengthens and other price below it when demand softlands, which is naturally how it should work. But if pricing frequently has to drop below the base price just to generate bookings, that can sometimes indicate that the base price itself might be anchored slightly too high. So pricing generally should move smoothly with demand rather than constantly having to correct itself. Makes sense. If you could give host and property managers one piece of advice then about base price or pricing strategy that they rarely hear, what would it be? They rarely hear. Okay, let's pop me on the spot James. So, okay, so one piece of advice I would give to host and property managers is most pricing mistakes in my own understanding experience don't actually happen when demand is actually weak. They actually happen when demand is strong. Now, when the booking starts coming in quickly, the instinct is to feel relieved that the property is actually selling. So, it's a great feeling that, okay, I'm getting bookings coming in. But I think for somebody who's managing revenue or for the property managers managing pricing, that often is the moment to become more cautious, not less. Because if nights are selling too easily or too early, it can sometimes mean that the market was actually willing to pay more and you've simply sold the inventory before demand has actually fully revealed itself. Now, I know some people might listen to me and say, "Yeah, but I've got an amazing property." It's better than everybody else out there. And why wouldn't it sell easily or convert better? Yeah, you might have a better product out there. But then again, what I'm saying is, if the market is willing to pay more, and you've sold that inventory before that demand has actually come to your door, there might be missed opportunity there. I think, in other words, if you like, the real skill in pricing isn't just filling the calendar. I think that's really important to understand. It's more of an understanding of when demand is still developing and allowing price to move with the market rather than locking in bookings too early. So, good pricing isn't just about reacting to slow demand. It's also about recognizing when strong demand is telling you that the price might actually need to move higher. Yes, about filling the calendar at the right time, not just as early as possible. It's probably more like, "We all want to see those bookings." Zach, it's been a pleasure, as ever. Thank you for sharing your wisdom on this episode of STR Pricing Pulse. Being great. Thanks for having me, James. See you next time. All right, we'd love to hear from you. If you're watching on YouTube, drop a comment and tell us, do you know what your base price is and how did you set it? We read every single comment. If you found this useful, hit like and subscribe, wherever you watch or listen. New episodes of STR Pricing Pulse drop every single month. And if there's a topic you'd like us to cover, leave a comment or email
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