Case Study: Pricing a 2 BR in USVI St Thomas

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I wanted to share some pricing data for a 2 bedroom on St Thomas Island in the USVI and what I did. Hopefully sharing this is either entertaining or educational for you. Maybe both!

Here's an example of what I mean: https://www.zillow.com/homedetails/68-Lovenlund-Est-L-Saint-Thomas-VI-00802/2059252459_zpid/

We go for the USVI Short Term Rental A license for an extra $65/yr, since this place definitely looks like it can hold 5 or more.

The 12.5% tax they remit for you is a bit steep compared to most any other market I’ve seen in the US, but such is the price in the Caribbean.

Ballpark rules suggest I'd need to earn like 50k on this place to be worth the trouble of even running an ROI. A 2 bedroom that can sleep 6 on USVI could earn anywhere from 50k all the way up to 200k+ annually.

75th percentile of properties like this did $169k last year. Obviously, like any coastal area it greatly depends where you are in relation to the beach. The ROI process is a different post, but we're here now and we need to price this place.

First, I see the occupancy targets for each month. I’ve trimmed out all the high nightly rate beachfront places and I’m left with an occupancy rate goal for each month.

Next, I’m looking at booking lead time. I don’t want to get all of July’s 62% occupancy (~19 days) booked in July, and I don’t want to wait until June to figure it out.

This market is pretty flat compared to some markets. Looks more like a city market. 

For example, Destin, FL:

I wouldn’t want to book February the same way I book for July here.

Anyway. I can export this data and easily add this to my targeting.

Looking at July with my filters (and combining the 0-6 & 7-14 because that’s too tight for the end of the month), I want 18% of my bookings (19 * .18 = 3.4 nights) to happen by the time I hit 90 days to go. Usually I’ll start paying attention closely with about 180 days to go.

By the time we hit 60 days to the end of July, we should have 18%+10% (5.4 nights). With 30 days to go, we should have 8.8 nights and start aiming for 11.7 nights, and so on.

It’s a gradual (or steep) climb depending on the month you’re aiming for and month we’re in. And how conservative you want to be in getting filled means you can set your ‘final day’ targets based off any point in the month you’re considering, if that makes sense.

Excel can easily help you determine these numbers from your export here.

Then, you can keep it all in a big spreadsheet that you can keep track of your targets and current place in them each time you get a booking.

The mistake everyone makes in pricing - and the reason people fail - is because they don’t pay attention to this. They start to worry about July in June. And that’s obviously a huge mistake, because as we can see, by that time you’re down to less than half of the bookings that are going to happen in that month. If you’re empty because you priced too high, you’re in a scramble to drop prices last minute to catch the minority percentage of bookings that are going to occur. Had you just rode the Wave of Demand(™) leading up to it, you’d be in much better shape financially (and mentally).

To set your initial pricing, the other mistake people make is using Airbnb listings. Every appraiser and agent on here knows to comp based on what has happened, not what people are asking. Looking on Airbnb is only looking at the prices of people who wish they were booked at that time. We want to see what the market is actually telling us.

That being said, we don’t have a crystal ball. So the best we can do is to, sure, perhaps use a bit of that to inform us, but we can also export the daily rates from last year around this time for rough exact values, and compare that to the trend by week leading up to where we are to make your best educated guesses to start.

Year to year demand is never going to be the same. Demand and prices might be way higher or way lower than last year. I've helped many investors with their launch and pricing, and I'm working with investors now who are seeing this specifically in their market.

But the trend is what we look for and we can extrapolate. We can launch at a further 20% discount to this, because again, as you saw there will be only a fraction of guests even looking to book that close. As time goes on, you can slowly increase the prices out into the future. And by month three or four you can be fully ramped up to full prices.

We want to show Airbnb that we’re bookable right away in the launch period when they’re throwing traffic at us to test us. Pass this test and you won’t be one who slowly sees views die off after a short time.

Once you’ve got your educated guess prices set, simply refer back to your booking lead times relative to where we are and adjust to fit the demand. Getting too many bookings? Demand is higher and you should raise those prices, and vice versa.

Simple concept I think, but execution can be the tricky part. And next to just making sure the listing is on point, this is THE lever for investors to pull on to maximize revenue. Could be the difference of tens of thousands.

Now you’re probably looking at allllll this and thinking: Pfft, I’ll just turn on PriceLabs and be done with it. And I mean, you can. Sure. But if you truly want to maximize revenue and your investment (and there are ways to see how you’re doing with this, but that’s a different post), understanding what PL is doing is important. And if PL isn’t doing what you want, what do you change to make it work? Understand the concepts and you can control the beast that is automated dynamic pricing software, if that’s the route you want to go. All it’s doing is automating what you tell it. So with the wrong settings or rules, you can easily be in a much worse place.

Hope you enjoyed, cause I love this stuff.