Everything You Need To Know About The Structure Of Pricing For Airbnb

What's in it for me?

While a lot of people find it confusing to take the Airbnb pricing model for what it is, this article aims at providing a simpler explanation regarding each of the components in the pricing model, thereby enabling you to get a detailed idea regarding which pricing model will suit best your vacation rental business. It will also help the vacation rentals decide on an alternative pricing strategy to ensure a smooth business flow.

There has been a rapid realignment and shift in focus towards developing and carving a strong online presence by hospitality organizations. However, rapid technological advancements have also greatly impacted the industry with new methods and styles of management being introduced. Airbnb is one such organization, that was founded in 2008 with the mere idea of raising money by renting out air mattresses. Since then, it has extensively expanded its presence in almost 200 countries and its market value currently stands at $98.91 billion. However, the transparent yet complicated pricing for Airbnb organizations, as claimed by many at times, needs to be better understood. The idea is to have clarity regarding the overall functioning and benefits of each of its pricing structures which is what we aim to cover in the course of this article. 

What Is Airbnb And What Do They Do?

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Airbnb or ‘Air Bed and Breakfast’, is the largest online marketplace for vacation rentals, homestays, and tourism activities. The hosts can rent their property to one or multiple people as per the requirement. Since the very early days of the organization, Airbnb has become one of the trailblazers of peer-to-peer property rental operating on an aggregate business model. Their business model is much more closely aligned with organizations like Uber and OYO unlike properties like Hilton and Marriott. They run their business with the help of an online platform that usually connects the various stakeholders and every component in the model. 

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However, the biggest asset of this organization is definitely the hosts or the individuals, who are the key components of the entire process. Airbnb allows one to turn their second homes into vacation rentals and list them on its platform.

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How Much Airbnb Fees Are Supposed To Be Paid By The Host And The Guests 

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The primary source of Airbnb’s revenue is generated from the service fees from the bookings that are charged from both the hosts and the guests constituting the very pricing for Airbnb. The guests are usually required to pay a non-refundable service fee that is apparently based on the type of listing. There are various pricing structures determining the overall pricing for Airbnb. 

Since Airbnb is seeking individuals to list lodging options, the question is “Why does Airbnb charge service fees? Airbnb charges commission fees from the hosts to rely on its smooth functioning and to cover the costs for products and services that help market a property effectively in its online space and platform including the 24/7 customer support, seamless administration, relentless marketing, etc.

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The Pricing For Airbnb - How Much Airbnb Charges

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Airbnb service fees are usually charged from the host of the property or/and the guest due to the plethora of services provided by the platform as stated above. The amount of fee charged is usually from the final amount for each booking made. It is automatically applied for each booking amount from the travelers and the hosts. The host can view the amount deducted or charged as a service fee from the host payout in Airbnb’s transaction history section. On the other hand, the service fee charged to the guests is applied during the check-out process before completing the reservation. So all in all, Airbnb is quite transparent about its pricing model.

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The Airbnb Pricing Structure - Split And Host-Only

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Historically, Airbnb followed a single pricing structure model for all the hosts. The single pricing structure employed a fiscal model whereby, a 3% service fee was charged from the host and about 14.2% from the guest. However, in 2020,  a new fee option was launched by the company for the hosts that are strictly software-connected. This was primarily launched to remove the aspect of guest service fees and simplify the pricing for Airbnb revenue structure while providing benefits to the hosts in terms of more control over the rates. Hence, post the introduction of this particular pricing structure, the host fee that Airbnb charges has now increased.. Currently, the platform has two most talked about pricing strictures- Split fee and Host-only fee. Let us gain a better understanding of each of these classifications:

1. Split Fee Model- Pricing For Airbnb

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"Does the guest pay a service fee on Airbnb?" If you had this question on your mind, this section will surely provide you with some clarity. 

Under the split fee model, the service fee is divided between the hosts and the guests. This is the most commonly deployed pricing structure:

• Guest fees: Guests have to pay a service fee of under 14.2% which is calculated from the booking subtotal. Guests can very well view the fee charged in the price breakdown on the listing page and during check-out before making the final reservation.

• Host fees: Hosts typically pay around 3% of the entire booking cost to Airbnb which tends to be more on the higher side in the case of Airbnb Plus hosts, rentals in specific tourist locations like Italy, and the properties having strict cancellation policies. 

The fee is calculated from the booking subtotal, including the nightly rate plus optional extra charges (the cleaning fee and the additional guest fee) but excludes Airbnb fees and taxes. 

For example, if the total monthly revenue generated from your property is $3000, your service fee amount shouldn’t be more than $90. On the contrary, the share of the guest is depicted on the final amount that they are supposed to pay while checking out. In order to provide you with a clear idea of the estimated revenue fee structure, we have attempted to provide an Airbnb host fee calculator below, where an estimated revenue structure has been provided:

Fee per night$50Number of nights stayed3Cleaning Fee$20Total$170Guest Service Fees$24.14Table 1: Split Fee Pricing Model (assumed)

In this structure, the host will pay 3% of the booking subtotal ($5.1) while the guests will pay 14.2% of the booking subtotal ($24.14)

Therefore, the host would earn $164.9, and the guest would pay $194.14

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What Is Airbnb Host Only Fee?

2. Host-Only Fee Model: Pricing For Airbnb

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Under this model, unlike the Split-fee model structure, the hosts are responsible for paying the entire service fee. In other words, this structure of pricing for Airbnb eliminates the aspect of guest fees. The service fee that the hosts are required to pay usually ranges from 14% to 16%, depending upon the total cost of the booking, and is deducted from the host’s payout. 

This is a newer addition to the pricing structure in the form of Simplified Pricing and while it is still optional for most hotels, it is mandatory for the software-connected hosts (the ones using software or channel manager to connect to Airbnb). But in the cases of even the software-connected hosts having most listings in locations like the United States, Canada, Mexico, the Bahamas, Uruguay, Argentina, Taiwan, and so on, this option is not mandatory. 

In order to have a better understanding of this pricing structure, let us assume that the monthly revenue generated from the property is around $3000. If the service fee (14% - 16%) is considered, then the host would need to pay around $420 to $480.

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Fee per night $75

Number of nights stayed 3

Cleaning fee $45

Guest Service Fee $0

Total$270

Host-only Fee Pricing Model (assumed)

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Host-Only Pricing Model - Worth It?

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In the overall pricing for Airbnb, this particular model of service fee has a wide range of potential advantages, some of which are as follows:

• Lack of ‘hidden charges’ promoting transparency and boosting bookings: The last thing that a guest wants while booking a travel experience is the "surprise" charges aka the hidden fees. Given that you ask for none, this can inadvertently boost your rate of booking. 

• Increase in service fee amount easily nullified by a rise in bookings: We understand that there is no guest in this pricing structure to split the service fee with you. But it’s quite possible to cover that with the surge in bookings, thereby keeping the overall balance.

• Greater control by the hosts over the nightly rates: Airbnb better equips the host to choose their base/nightly rates, thereby opting for a simpler pricing strategy. This can play a major role in covering the increased commission by increasing your base rate. As per the Airbnb report, hosts who have decided to switch and keep their prices competitive across channels have seen an overall increase in their bookings (~17%)

• Special tag provided by Airbnb on the listing page: The hosts opting for this model are rewarded with a special tag on their listing by Airbnb which explicitly states that you’re not charging any service fees. This, in turn, can have a positive impact on the consumer buying experience in terms of travel shopping by allowing your guests to understand that you’re a safe bet as you’re covering the service fees for them. Needless to say, this will make your listing more attractive.

• Being at par with the other third-party intermediaries: OTAs like Booking.com, Expedia, etc. run somewhat on the same pricing strategy by not charging any type of guest service fees. Hence implementing a somewhat similar pricing strategy will help you assert more control over your rates and maintain them across all channels, thereby keeping the price competitive at all times. 

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On the contrary, you need to be aware of the following points (the potential disadvantages) of the host-only structure in the pricing for Airbnb:

• Increase in guest expectations with the visible nightly rates
• Host fees might be more for longer stays.
• Compared to your competition, your nightly rate might seem more expensive.
• The Airbnb cleaning fee coupled with the local taxes contribute to high service fees
• The surge in host fees to be paid to Airbnb from 3% to 14%-16% is quite a dramatic change. And chances are Airbnb will soon make this mandatory for all the hosts across the board.

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When Does Airbnb Host Get Paid?

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This is, undoubtedly, one of the most burning and quintessentially the most significant questions. Here’s the good news: Your money is on its way!

But, when will you get it? 

Airbnb sends the payout to the hosts within 24hours after a guest checks into the property of the host. If the guest is planning to stay for 28+ nights, the host can expect to receive the money on a monthly payout basis. In addition, the pricing for Airbnb in this particular context states that if the host has multiple listings with check-ins on the very same day, the entire amount is supposed to be deposited as a single payout. Moreover, if you have set a minimum payout amount and until the amount is met, your money won’t be released. 

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Do The Hosts Need To Pay Any Other Fees?

Apart from the host service fees, the host doesn’t need to pay for anything else. Note that host service fees are different from the general 3%-5% for Airbnb Luxe properties and Airbnb Experiences (having the host service fee of 20%). 

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How Does Airbnb Charge Host When It Comes To ‘Experience’ Fees

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The percentage of the fee is apparently withheld by Airbnb from the payout of the host and in certain cases or situations, it is occasionally waived off largely due to experiences related to social impact. It charges service fees from hosts for any ‘experiences’ that are being provided by them to the guests. Under this structure of pricing for Airbnb, an amount of 20% is charged which is usually automatically deducted.

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Airbnb Plus and Luxe - Fees and Features! 

• Airbnb Plus: This is a curated collection of great Airbnb homes that are usually chosen for their great hospitality and exceptional design. Airbnb Plus consists of both apartments/rooms or entire homes. However, one of the downsides of this particular feature is certainly the aspect of expense. Airbnb Plus properties usually tend to be more expensive compared to the standard listings primarily due to the quality experience it stands to provide. 

• Airbnb Luxe: Luxe can be regarded as the sophisticated version of Airbnb. It usually includes high-end properties such as mansions, penthouses, villas, breathtaking estates, and picturesque mega homes. It provides a starkly different experience compared to the $95 per night stays with loud neighbors. This particular platform aims to provide an elevated experience compared to the standard ones. 

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Advantages Of Being An Airbnb Host

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Airbnb provides a plethora of advantages to its hosts. These are as follows:

• Transparent Fee Structure: One of the major advantages of Airbnb is the transparent fee structure policy used by the organization. The lack of hidden charges is a major USP of the organization that automatically makes it a preferred option by guests. 

• Wide Selection And Exposure: The platform lists various types of properties, ranging from single rooms, houses, and apartments to caravans, villas,  houseboats, and a lot more.

• More Bookings: One of the significant advantages of Airbnb is that it helps in marketing your property or space through its website. In addition, it also helps in handling payments and bookings, which, in turn, makes for a smooth and hassle-free experience. 

• Income Diversification: It provides you with the benefit of diversifying your income or pursuing an additional income stream, thereby helping in mitigating the otherwise steep pricing for Airbnb. 

• Host Insurance: Airbnb provides its hosts with insurance of up to $1,000,000 against any unreasonable damage to their property or space from the guests. This acts as a safety net in case anything goes wrong. 

• Free Listing: One doesn’t have to pay to put up a listing on Airbnb for their properties.

• Setting Your Own Price: It’s up to the hosts to decide how much they would like to charge per night, per week, or month for their listing.

• Customizable Searches: Airbnb database can be accessed by the guests—not only by searching using the date and location, but also by property types, price, amenities, and the language of the host. For instance, one can use keywords like “close to Seine river” to narrow down their search.

• Good Reputation: Garnering more exposure and generating more bookings must be backed up by quality service. Providing quality service ensures a memorable experience followed by a good reputation. Regardless to say, a good reputation compensates with increased bookings.

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Alternatives To Airbnb - Own Website!

If you plan to invest in Airbnb and take advantage of their services, or if you are already a host and wondering whether you should keep the relationship intact, you should have a closer look at this. Airbnb started with an empty credit card and turned itself into a $98 billion worth of an organization. The founders back then were in dire need of money and rented out their air mattresses. Since its inception, it has been one of the major distributors of hitherto hospitality services. 

However, along with its benefits, the expensive pricing for Airbnb can be a deterrent for many. When combined with other fees such as cleaning fees, taxes, and room costs, the Airbnb fees for hosts and guests end up being one of the most expensive rental options.

Despite its impressive utility and features, it should not be perceived as the only medium to gain bookings as the platform keeps altering its algorithms.  Hence, you might want to diversify your distribution strategy by seeking other alternatives to gain bookings and keep the business flowing. Investing in your own website stands to drive up your profit due to the absence of a heavy financial toll from the high service fees. 

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To avert the steep pricing for Airbnb, you can diversify your income strategy in the following ways to sustain your vacation rental business and keep it thriving in the market:

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1. Get your own website

Investing in a website of your own will lead to more direct bookings which, in turn, will save you from paying hefty commissions to any third-party intermediaries, including the Airbnb commission. This also means less dependence or reliance on online travel listers like Airbnb. This will give you more control over your direct rates, and marketing endeavors by using the right tools that will help provide a seamless vacation rental business experience. 

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2. Get listed on other platforms

Listing properties on other equally efficient and powerful platforms like Booking. Com, Vrbo, Expedia, TripAdvisor, Agoda, etc. can be extremely beneficial. Not to say that you won’t be charged any commission from these, but at least you have many backup options that will save you from depending entirely on Airbnb. Before listing your rentals on multiple channels, it is crucial to ensure that your booking calendar is well synchronized so that there is no case of double booking.

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Conclusion

The rise of Airbnb in recent times emphasizes the market opportunity for the small rental business. Since its inception, Airbnb has been a significant disruptor of the hitherto conventional methods of managing hotels. Some of the reasons behind its rise to prominence have been a wide array of benefits the hosts stand to receive once they subscribe. However, the pricing for Airbnb or the Airbnb fees to hosts is usually considered to be quite steep which is perhaps the most important factor that one needs to contemplate while subscribing. As a host, you must equally consider other alternatives to increase your profit margin in the long run, and remain sustainable. Investing in your own website can turn out to be a great alternative.

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