Finance
Dynamic pricing: what it is and how it works
Dynamic pricing is an automatic rate strategy that modifies an accommodation's prices in real or near-real time based on market demand, local events, occupancy rate, and competitor behavior. It's the main operational tool of revenue management and can increase a property manager's annual revenue by 10 to 25% vs fixed prices.
- Primary keyword
- dynamic pricing short-term rentals
- Monthly search volume
- ~720
Full definition
Dynamic pricing for short-term rentals operates on three dimensions: price per night (varies by date, weekend, events), minimum stay duration (higher in high season, lower in low to attract last-minute), and last-minute discount (discounts on unsold near-term dates). Dedicated software like PriceLabs (~$20/listing/month), Beyond Pricing (1% revenue), AirDNA Smart Rates collect data from OTAs, public events, comparables, and generate recommendations or automatic updates. Verto AI integrates a dynamic pricing module called Auto-Notte, focused on last-minute with configurable floor price to prevent fire sales.
How it works
The dynamic pricing algorithm continuously evaluates dozens of variables: prices and occupancy of similar properties in the same area, local events (concerts, fairs, exhibitions), days of the week, national and foreign holidays, distance from check-in date. For each future night it calculates an optimal price that balances booking probability and revenue. The property manager retains control by setting floor price (minimum acceptable) and ceiling price (maximum) to prevent anomalies. Updates happen via API integration with the channel manager.
Practical example
A property manager with 5 apartments in Rome uses PriceLabs since 2023. Concrete example: during a 4-day book fair in 2025, the algorithm raised prices by 80% vs standard (€140 → €252/night). All apartments booked 12 days before the event. Without dynamic pricing, the same manager would have applied +30% manually, losing ~€1,500 revenue on those 4 nights.
📊 Key data point
65% of Italian property managers with 10+ apartments use automated dynamic pricing in 2026, with average RevPAR increase of 18% vs fixed prices.
Frequently asked question
Does dynamic pricing lower prices when the market is weak?
Yes, and it's one of the main reasons it works better than fixed prices. In low season or weak demand periods, the algorithm lowers prices (within the floor price you set) to fill otherwise empty dates, generating marginal revenue exceeding the opportunity cost of an empty night. The same applies to last-minute: discounting near-term is almost always more profitable than leaving the night unsold.
Related terms
Explore the network of concepts that orbit around this term.