The “Last-Minute Trap” Killing Your Airbnb Profits

Jasper Ribbers:

The biggest mistake that I see short-term rental operators make in revenue management is falling in the last minute trap. Very, very expensive. So make sure you do not fall in the trap. And in this podcast I'm going to talk about how to avoid it. So keep listening.

Welcome back to Get Paid for Your Pad. It is Monday, another episode of Rev Up, where I share our learning lessons from managing revenue for over 50 portfolios now across the world who are managing, I think, close to $125 million in yearly revenue.

Today's topic is last minute pricing and how to stay out of the last minute trap. That can be extremely, extremely costly. And I want to start this episode by just sharing a story from one of our clients, which will kind of illustrate how costly it can be to fall into the last minute trap. And it's possible that you're not aware that you're in the last minute trap. That's the worst case, you know. You don't know what you don't know.

The Occupancy Obsession Problem

I know a lot of operators are very focused on occupancy, right. We get a lot of companies that apply for our service. They apply for the free revenue report, and I always read the notes because we do a quick checking call with anybody who applies for our revenue report. One of our team members will jump on a call with you and get to know your business a bit. And before we get these applications, when we get these applications, I always like to take a look at the notes, because I'm always curious to see what people think about their own revenue management strategy, if they think they're doing well or not.

And oftentimes what I'll see is that an operator will say, "Well, I think I'm maximizing revenue because I'm outperforming the market. My occupancy is higher than the market. And also, you know, I run like close to 80% occupancy or 85% occupancy." Right? So I'm only leaving a few gaps on the table.

What they don't talk about typically is the ADR that they're getting booked at. Sometimes I'll see comments saying like, "Oh, my ADR is like 10% higher than the average. So I'm doing really good."

Well, let me tell you, the average typically is pretty bad. So if you're doing 10% better than average, then that might not be that good actually, because the average is just the average. There's a lot of people that are not focused on maximizing revenue. There's a lot of people that have Airbnbs who are just doing it as a hobby or side gig. They're not necessarily focused on maximizing their revenue.

And so I don't recommend you compare yourself to the average because it could create a false sense of accomplishment or like a false sense of, "Hey, there's nothing else left on the table to gain, because now I'm already beating the market."

So that's number one. And then number two, just because you're driving high occupancy doesn't mean you're maximizing revenue. If I price my units at $1 a night, I'm going to have 100% occupancy, right? Obviously, I'm not making much money.

Revenue = Occupancy × ADR

So it's not just about occupancy. Occupancy is important, and we are occupancy driven to a certain extent because a booking, outside of the financial reward (the direct financial reward of, you know, essentially the money that the guest is paying you to stay), that's one benefit of a booking. But there's also indirect benefits.

You get a review, which is helpful to get more bookings. It's a signal to the OTA that your listing is converting, so they might show your listing to more viewers, which is why sometimes you get these strange up and down scenarios where you don't get a booking for a couple weeks and suddenly you get like 3 or 4 bookings and then you don't get a booking for a while. A booking typically spikes a bit more visibility and potentially another booking.

So there's indirect benefits to every booking. There's also the people that stay with you can come back. They can tell other people about your place. So, you know, there's just a lot... it's just better to have somebody in your place than not having somebody in your place outside of the considerations of marginal costs and expenses and electricity.

And I know some markets, like the low season, especially in the winter, it sometimes doesn't make sense to host anybody. You know, we have some clients who are in like Canada where it's freezing in the winter. And so if you host guests, you know, the electricity and the heating expenses can be pretty high. So it doesn't always make sense to get guests through the door. Like it might make sense in the low season to maybe rent it out long term or get a student in there or like a traveling nurse or whatever it is.

But for the most part, the booking has indirect value. And so we are definitely occupancy driven. We want to drive higher occupancy than typically the average in the market. But at the end of the day, revenue equals occupancy times average ADR. And so those are two factors. And I think a lot of operators kind of forget about that second factor, the ADR.

It's a little bit harder to measure if you're doing great when it comes to your ADR, because every unit is different. If you drive 90% occupancy, obviously that's great occupancy. And it doesn't matter what type of unit you have or what kind of amenities whatsoever. 90% is solid in any market.

However, ADR, it's different because, you know, if you get a few hundred bucks a night on average for your unit, how do you know that that's the highest price you can get? You can look at other units, but every unit is unique, every short-term rental is unique. And so you don't really know what the optimal ADR is until you really start maximizing your revenue and you start really focusing on driving the highest ADR possible. And then you'll learn what type of ADR you can get.

But if you're only focusing on occupancy, then you might think that you're doing great, but that might not be the case.

Case Study: 35% RevPAR Increase Through Booking Window Optimization

So with that said, the story I want to start off with is a client that we... and I won't mention the name just to protect their privacy, but we onboarded a client earlier this year. I'm saying this year again, I will keep forgetting I'm in 2026. Early 2025, we onboarded a client and this was a client that they already had an in-house revenue manager, and they were very skeptical. They didn't really believe that we would be able to increase their revenue that much, because they already had great occupancy. They had an in-house revenue manager. And so, you know, they were beating the market, you know, all the things.

But when I looked at their portfolio, it became immediately clear to me that they were losing a lot of money on the table. That's because their booking window was much shorter than the market. They were overpriced far out, and they were getting way too many bookings last minute. And last minute is when everybody else is dropping the price, so you're not able to get a good ADR.

So when we started working with this client, most of their strategy was okay, but the far out pricing was just off. And so we immediately started to bring down the price far out. So we started getting more bookings early in the booking window and as a result, less last minute.

We actually did a case study about this client at the very end where we did a presentation on the revenue management. We increased their RevPAR by 35%. And it was funny because we looked at the occupancy and you could see it was pretty much the same. We actually drove slightly higher occupancy and their occupancy was already pretty high. You know, we're talking about in the 80s. And so it was funny to see... it was very clear that, you know, the occupancy was roughly the same. But our ADR was like 35% higher.

How We Lowered Prices But Increased ADR

Not because we raised the overall price level. No, we actually lowered the prices. So how can we get higher ADR if we lower prices?

Well, it's because we were getting booked very early, much earlier in the booking window. And so let's say, as an example, let's say you start off with, you know, far out... let's say you have a $300 price tag for your listing like 12 months out, nine months out, six months out. On average, you're charging about $300.

And as you get closer to check-in, let's say you lower it all the way down. Let's say your minimum is, let's just say $99, right? That's the minimum that you'll take.

Now, if you are getting, let's say, 80% of your bookings in the last couple weeks when the price is close to that $99, and let's say you're only getting 20% of your bookings at a higher price point (let's say somewhere in the range of like $150 to $300), then your average price is probably not going to be much more than like, let's say $130, maybe $140, right?

But let's say you get 60% of your bookings earlier in the booking window at that $150 to $300 range. So let's say $225 on average. If you get 60% of your bookings at $225 and you get 40% of your bookings at $100, you can do the math to calculate exactly what the average would be, but it would be a lot higher.

Right? So, you know, by lowering your far out prices, you can actually raise your average ADR that you're capturing for your bookings. I think that's something that a lot of people don't quite realize the power of, because again, we were able to raise RevPAR by 35% just by adjusting the pacing, focusing on the pacing and getting more bookings early on.

The Risk of Going Too Far

Obviously, you can take this to the extreme where you're lowering your prices far out too much. And let's say in this example that we're talking about, let's say you lower it all the way to like $150 or something, right? And now you're getting 80% of your bookings at an average price of $150. But now your average ADR is still going to be around like $140 to $130 if you take the last minute bookings into account. That's not optimal either, because now you're not taking advantage of the premium prices that you can get early in the booking window.

So there's always two forces at play here. There's the pros and the cons. You always have to weigh the benefits versus what you're giving up. Right. So that's the game of revenue management... fine tuning. And you know, learning like, "Hey, where do I need to be in the booking window? How much occupancy do I need in order to take advantage of premium prices, but at the same time, also not falling in that last minute trap?"

Right. So this client was a typical example. They fell into the last minute trap. They just didn't know that they were in the last minute trap because they were always getting most of their bookings two, three, four weeks out. So in their mind, they just thought that was the booking window. They didn't realize that the booking window started six months out, not four weeks out.

So in their minds they're thinking, "Oh yeah, we always get our bookings starting around four weeks and then all the way until the last day, we get our bookings and we're 80% occupied. And so it seems to be going pretty well." But that wasn't the case.

So that's the last minute trap that you want to avoid, right.

When to Start Dropping Your Prices

So now let's talk a little bit about how do we actually determine what our last minute pricing strategy should be. As we're getting closer to check-in we should generally lower our prices. There are some extreme examples where you might not. But you know, let's just exclude that scenario. Those are like the Taylor Swift concerts and whatnot where you might want to play the Last Man Standing game, where everyone's already booked up and you're the only one in town left with some accommodation, and then you can charge maybe even a higher price last minute.

But outside of those scenarios, generally you want to lower your price as you get closer to check-in. Why is that? Well, it's very simple. You'd rather have a booking than no booking, right? That's what we talked about at the start of this episode. There's a lot of benefits to getting a booking.

And so when you're last minute, if you keep your price elevated, you're probably not going to get booked because everybody else is dropping their prices. So last minute, that's kind of like your last chance to get booked. And so it makes sense to lower your price as you get closer to check-in. You can only sell every night once. And if you're far out, you still have a lot of time to sell the inventory. But last minute you don't have much time left, so you want to be very aggressive.

So that makes sense, right?

Now the question is: when should you start dropping your prices? Do you start dropping your prices two weeks out? Three weeks out? One month out? Two months out?

That depends. Everything always depends. But what you want to pay attention to is your booking window.

Market Example: Miami's Short Booking Window

So if you're in, let's say Miami... Miami has a very, very short booking window. So people don't generally book very far out. So it doesn't really make sense to start lowering your prices a month out because 90% of the demand is still coming. So then if you're doing that, then your entire booking window becomes like a last minute pricing booking window, right? So you don't want to do that.

So in Miami, where most of the bookings will come like two or three weeks out, you don't really want to drop your prices until the last few days or maybe the last week. You want to start dropping your prices.

But if you're in a market where the booking window is much longer... and of course, booking windows are seasonal. So typically the high season has a longer booking window. In a typical market where summer is high season, people are now already booking for the summer, right? So for the summer the booking window has already started, but then in your off season, your booking window might only be a couple weeks, right?

So you have to take into account your seasonality. You have to take into account your booking window, but then also the season, because the booking windows are different in the different seasons. You want to have a different strategy.

Last Minute Strategy by Season

So I'll go through low season, shoulder season and high season and kind of give you an idea of how you should manage last minute prices.

Low Season (Under 30% Final Occupancy)

If your low season is very low, if it's like, let's say less than 30% occupancy in the market, you pretty much want to start with your last minute pricing a year out, you know. Because if your low season is that bad, you pretty much want to offer your most competitive price early on because you just want to get as many bookings as possible.

That's not a situation where you want to try and get a premium price and then hold out. I mean, your entire booking window for the extreme low season is pretty much last minute pricing. So then there is no last minute pricing. You set your most competitive rate, and you just drive as much occupancy as you can. And you're hoping that you can get to like 60% occupancy because that will keep the momentum going.

Right. So if the market is at 30 and you want to get 60, then obviously you need to get twice as many bookings as the market. So you have to be pacing like at 200%.

In some markets occupancy drops below 25 or 20. And then, you know, it's just like whatever... any booking you can get, just try and get it. It's an occupancy game in that scenario.

Shoulder Season (30-50% Final Occupancy)

Now shoulder season. Some markets' low season is kind of more like shoulder season. You know, for example we have some clients in Australia. I don't know what's up with the Australian market but occupancy is just really high there. So like the low season is like 60% occupancy. The shoulder season is like 70 to 80. The high season is like 95 to 100.

So every market's low, shoulder and high... there's different metrics in every market. You know, if your final occupancy is going to be around like 30 to 50%, which in a lot of markets that's kind of low season... in that case, you probably don't want to drop your rates all the way to the minimum far out, but you want to still be very aggressive because you still want to be pacing ahead of the market. You still want to be pacing like 50% or so ahead of the market, maybe a little bit more.

And so you still want to be really aggressive. So you start lowering your prices very early on. And again, the question is... it's not really a last minute strategy. So you're offering last minute prices very far out, right. So you start lowering your prices very far out. You know, you might be offering very competitive prices like three, six months out or even like 9 or 12 months out.

Shoulder Season (50-70% Final Occupancy)

Right. Now, if you go into the shoulder season, let's say final occupancy is expected to be around like 50 to 70%. That's an interesting season where you don't want to lower your prices that much far in advance, because you do want to take advantage of some higher rates. But you definitely want to start lowering your prices pretty far out because, you know, at the end of the day, you do want to drive high occupancy.

And in the shoulder season, if final occupancy is 50 to 70, you still have to drop your prices pretty much to the minimum, probably last minute to get booked. Because there's just enough inventory that doesn't get booked up where people are dropping the prices last minute extremely aggressively. So you still want to be ahead of the curve. You still want to get more bookings, more than your fair share of bookings early on. So you still start lowering your prices pretty early on.

High Season (80-100% Final Occupancy)

Now, obviously high season, that's a little bit of a different animal. You know, I'd say high season, let's say anywhere from 80 to 100% final occupancy. That's a situation where you can hold rates until pretty late, because a lot of inventory is just going to run out.

And especially if you have a nice, a good product, because what typically happens is the nice units will get booked up and the cheap, underpriced units will get booked up first. The underpriced units usually get booked up in high season. So there's always operators that are not professionally managing their revenue and they are underpriced for the high season.

A lot of operators price too flat. You know, some operators don't have a pricing tool and they just have roughly the same price. Believe it or not, we still get a lot of companies applying for our service who have sizable portfolios who are pricing almost flat and they don't have pricing tools. So I know it sounds crazy, but they're out there.

And so the people that price flat, they're overpriced in the low season, they're underpriced in the high season. And so what happens is those units get booked up first in the high season because of the price, which is why in the high season, you don't necessarily want to participate in the earliest part of the booking window, because that's where typically people scoop up the deals.

But outside of the underpriced units, the high quality products typically get booked up. And then so that last 10 to 20% of inventory that doesn't get booked... that's usually low quality listings, listings with bad reviews or just low quality products.

So if you have a decent product and you have good quality listings, you're probably going to get close to 100% occupancy and you probably don't have to lower your prices a ton last minute because there's just not that much available. There's not that much available.

So then what you can do is, you know, you can kind of look at the market data on price levels. I love looking at the neighborhood data and seeing like, "Hey, how am I priced compared to the market?" Now in high season, last minute, you don't have to be at the bottom of the range. You don't have to be the most attractive, the lowest price property to still get booked just because there's just a lot of demand and there's limited inventory.

Right.

Setting Up Your Last Minute Pricing Strategy

So yeah, again, the last minute strategy really depends on the season that you're going into. It depends on the booking window, depends on your product. But also, let me just talk about a couple different ways of setting it up, because I've seen some pretty interesting setups throughout the last couple of years that we've been doing this.

You know, the way to set it up... I've seen... because in PriceLabs, and I'm sure in other tools as well, I have PriceLabs in front of me here. You can set your last minute strategy up in different ways.

Fixed Price Approach (Not Recommended)

You could either do a fixed price within a certain amount of days, and I've seen operators doing this. I don't think this is the best way of doing it, but I've seen portfolios where let's say the price hovers around like $200 to $300, and then suddenly one month out it drops to like $100 and it just stays there for the last 30 days. Right? That's a fixed last minute discount.

Gradual Discounts (Recommended)

I think it's better to do gradual discounts. In PriceLabs, you can set up your gradual last minute discounts. You can specify X amount, X percent over X amount of days.

PriceLabs has pre-configured settings called market-driven, balanced, conservative and aggressive. So PriceLabs will look at the market. You know, based on the data they'll start dropping the prices at a certain time, and they'll gradually start lowering those prices as you get closer to check-in.

Now, the gradual process, I think is important because every time you lower the price a bit, the OTA will give you a bit more visibility because they see that the price went down. And so they'll show you to a few more people. So it's nice to have every day the price go down a tiny little bit. That means that every day there's an incentive for the OTA to give you some more visibility. So I think that that helps.

So yeah. In PriceLabs, you can choose between balanced, conservative and aggressive. I think for most people, if you don't have a strong reason to deviate from the defaults, then I suggest just keep it at the default. There's a reason why PriceLabs recommends it.

Example: Looking at PriceLabs Settings

You can also see what it actually does. So for example, I'm looking at PriceLabs right now for one of the units in Idlewild. And the market-driven balanced approach is saying that we lower the price by 31% for same-day bookings, which reduces to 0% after 16 days. Right?

So we start lowering our prices 16 days out. Our booking window is pretty short, which makes sense why we're lowering prices only when we're within the next 16 days, right?

We could also choose conservative. If we choose that, it's going to only decrease the prices by 21%. And if we do aggressive, it's going to increase the discount to 40%.

So you can play with these different settings. But I would just suggest, you know, if you don't really have a strong reason to change it, I would just use the default. And then you could still just make some last minute manual changes as well.

Right?

Making Manual Last Minute Adjustments

So we do that sometimes where, you know, let's say last minute we're seeing that the market is just weak. Or maybe the weather is not looking great. You know, in the low season the weather is often very important. Right. Because, you know, if you're in a beach market and you're on a random weekend somewhere in February or March, if it's sunny, you might see some pretty good demand, actually, because, you know, even if it's a little colder, people still like going to the beach if it's sunny, right?

So what we see in those markets is like, if I look on Monday and I see the weather forecast is like it's going to rain and it's windy, I'm dropping my prices to the minimum because I know there's not a lot of people that are going to be booking, so I'd rather get something than nothing.

If it's a sunny weekend coming up, you know, I might just stick with the strategy. Right?

So there's a lot of factors where you can look at, you know, how many bookings are coming into the market, what's pickup, what's the forecast. You know, sometimes there's some other factors to take into account as well that might affect travel.

But yeah, last minute I would typically look at the next seven days or so and see like, "Hey, how's our occupancy, how's the market pacing." And I typically make some last minute changes to the strategy.

Wrap Up

So that's it for now. Thanks for listening. If you have any questions, feel free to email me at jasper@freewyld.com.

Again, our goal is to really help operators that we're not working with just to provide education on revenue management. So if you do want to work with us, you can go to freewyldfoundry.com/report.

If there's any topics that you want to learn about, feel free to reach out as well. I'd love to hear from you. Love to hear what are your challenges? What do you need the most help with? What's happening in your market? You know, is your market doing great? Is it not doing great? What changes have you seen lately? I love hearing all those things.

And as I mentioned at the beginning of this podcast... or not the beginning of this podcast, but in a previous one... next week I will be doing a podcast where I'm answering all the questions that I've received in the last couple months or so. I don't always have time to respond to every single question. So if I think it's a good question that I can cover on the podcast, I'll just save it for a future podcast.

So with that said, I appreciate you all. Thank you for listening and I will be back next Monday with another episode of Rev Up.

We'll see you then.