How to Price a Vacation Rental From Your Own Costs

Price a vacation rental in two steps. First work out the floor, the rate below which a night loses money. Then set the base rate from five listings a guest would book instead of yours. Every other price on your calendar is a multiplier on that base, and none of them go under the floor.

Step 1. The floor

1. Add up the monthly costs that exist whether or not anyone stays: mortgage or rent, insurance, utilities, internet, software, permits, and a share of the yearly repair budget.
2. Divide by the nights you realistically expect to sell in a month. Use last year's number if you have one. If you do not, use half the month.
3. Add the per-stay costs divided by your average stay length: cleaning, supplies, laundry, and the platform fee.
4. The total is the floor. Write it on the rate card.

A discount that goes under the floor pays the guest to stay. The only exception is an orphan night, the single night stranded between two bookings, which earns nothing if it stays empty. The orphan night article covers that case.

A floor, worked through

Fixed costs of 2,400 a month, fifteen nights sold on an ordinary month: 160 a night. Cleaning of 120 and supplies of 20 per stay, a three-night average stay: about 47 a night. A platform host fee of 3 percent on a 220 rate: about 7. The floor is roughly 214. Any rate under that, on an ordinary night, is a loss dressed up as a booking.

Notice what the arithmetic says about short stays. A one-night booking carries the whole 140 of per-stay cost on its own, so its floor is nearer 300. That is the real reason for a minimum stay. It is a cost decision before it is a calendar decision.

Step 2. The base rate

Pick five listings a guest would consider instead of yours. Same town, similar size, similar quality. Write down their rate for the same ordinary week, their cleaning fee, and their review count and score. Place yourself honestly on that list. A newer listing with fewer reviews sits below the median until the reviews arrive. Where you sit on an ordinary week is the base rate.

Update the comp set twice a year. Listings come and go, and a host who priced against last year's neighbours is pricing against a market that no longer exists. Two minutes on the five listings during the weekly review keeps it current.

Cleaning fee, or folded in

Guests see the total, and a large cleaning fee on a short stay makes a fair nightly rate look expensive. Either way the money has to come in. Set the fee at what the clean actually costs, no more, and put the rest in the rate. On long stays a flat fee is a smaller share of the total, which is another reason the weekly discount can be generous.

The three numbers that tell you if it worked

• ADR, average daily rate: revenue divided by the nights you sold.
• Occupancy: nights sold divided by nights offered.
• RevPAR, revenue per available night: revenue divided by nights offered, or ADR times occupancy.

RevPAR is the honest one. A high rate that rarely sells and a low rate that always sells can each look fine on its own number. Only RevPAR shows which one put more money in the bank.

A worked example

Two months, thirty nights offered each. Month A sells twelve nights at 300 for 3,600, a RevPAR of 120. Month B sells twenty-four nights at 175 for 4,200, a RevPAR of 140. Month A looks better on the rate card. Month B earned more and produced twelve more reviews. Neither is automatically right, but only one of them is what you are actually running.

Month B also cost twelve more turnovers. Run the floor on both and the gap narrows. That is the point of doing the arithmetic rather than guessing: the answer depends on your cleaning cost, and only you know it.

Where new hosts go wrong

• Pricing from the mortgage payment alone and forgetting the per-stay costs.
• Copying the neighbour's rate without knowing whether the neighbour is making money.
• Discounting to fill the calendar and finishing the year busy and broke.
• Never writing the floor down, so every discount is a fresh guess.
• Running one rate all year. The seasonal calendar article is the fix.

What the floor is for

Most pricing mistakes are a discount that felt reasonable and was under the floor. Last-minute, weekly, monthly, repeat guest, the friend of a friend. With the floor written down, each of those becomes a yes or no in ten seconds.

Where to do the arithmetic

The Pricing and Seasonality Worksheet holds the floor, the comp set and the multipliers in one spreadsheet. The Revenue Management Playbook is the method in full, with the discount ladder and a fifteen-minute weekly review. The revenue management page lays out how the pieces fit.