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Written by: Howard Tillerman
Howard Tillerman is the Chief Marketing Officer for Step By Step Business and an award-winning marketing professional.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on May 24, 2021
Investment range
$5,750 - $10,700
Revenue potential
$120,000 - $240,000 p.a.
Time to build
1 - 3 months
Profit potential
$60,000 - $72,000 p.a.
Industry trend
Growing
Commitment
Full-time
Important factors to remember as you launch your Airbnb business:
How Daniel Rusteen Helps Airbnb Hosts Optimize Listings and Boost Revenue
You’ll never really know what you’re getting into until you have a bird’s eye view of the Airbnb market. In this section, we’ll cover all the foundational information for starting your business.
It makes perfect sense to analyze the pros and cons of the industry before you take the plunge. Let’s find out what they are.
Airbnb has been so hot that not even the economic downturn related to covid-19 has been able to cool it down. Since the start of the pandemic, home rentals like Airbnb have outperformed hotels in 27 top global markets even though rental prices have increased, according to hotel benchmarking firm STR.((https://www.nytimes.com/2020/09/24/travel/airbnb-pandemic.html))
Airbnb went public in December 2020 and immediately topped $100 billion in value, and its success has helped other home-stay businesses emerge, such as VRBO and Golightly.
Some of the trends shaping the Airbnb market include:
Challenges faced by the industry include:
The startup costs for an Airbnb business mainly depend on the number of properties you plan to rent. For instance, it will cost you more to start an Airbnb business with five properties compared to renting out an empty room in your home.
Whether you rent or own the property, the startup cost for a single unit can be as low as $1,000, or as much as $10,000 or more, depending on the readiness of the space. Here’s a closer look at your likely up-front costs, excluding the cost of utilities, subscriptions, and room or apartment:
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $100 - $300 | $200 |
| Insurance | $100 - $300 | $200 |
| Business cards and brochures | $200 - $300 | $250 |
| Renovations | $1,000 - $2,000 | $1,500 |
| Furniture and appliances | $3,000 - $4,000 | 3500 |
| Pantry staples and toiletries | $200 - $600 | $400 |
| Website | $1,000 - $3,000 | 2000 |
| Total | $5,750 - $10,700 | $8,225 |
Your Airbnb income potential is practically unlimited! US hosts earn an average of $1,000 per Airbnb booking, so if you’re able to generate 10 monthly bookings, you’d make $120,000 in annual revenue in your first year or two. After expenses, which include utilities, administration, and maintenance, you should expect a profit margin of around 50 percent, which would mean $60,000 in income in this scenario.
Of course, the higher your occupancy rate, and the more units you make available, the greater your income. You’d have to hire staff, though, reducing your profit margin to 30%.
If you have three units and generate 20 monthly bookings, your annual revenue would be $240,000 and you’d make a tidy profit of $72,000.
And keep in mind, an Airbnb business can be easily scalable. A young entrepreneur in Myrtle Beach, South Carolina, went, in six years, from renting out her spare room to running 10 Airbnb properties.
The biggest barrier to entry in the Airbnb industry is legislation. In New York, for instance, the Multiple Dwelling Law prohibits renters from renting out Class A dwellings for less than 30 days.
The second barrier is skepticism from potential customers. Staying in an Airbnb might sound off-putting to first-timers, making it difficult for new entrants to win customers in locations where Airbnb is unpopular.
The third barrier is trying to run an Airbnb management company at scale. Unless you own lots of property, finding owners or renters willing to lease out their property for the Airbnb business might be difficult.
Now that you know what’s involved in starting an Airbnb business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Your direct competition will be other Airbnb hosts in your area, as well as other home-stay options like VRBO. You will also be competing against nearby hotels, resorts, and other lodging choices.
Providing an excellent Airbnb experience to your guests is one of the most effective strategies to outperform your competition and boost your occupancy rate.
Once you list your property on Airbnb, you will be expected to do the following:
You’ll also provide essential amenities and services to your guests, including toilet paper, pillows, towels, Wi-Fi, TV.
The charges for short-term rental services depend on the expenses you’re likely to incur, along with the market trends in your area.
If you’re renting the property, consider the rent amount and monthly overhead costs such as electricity, water, cleaning services, Wi-Fi, and subscriptions. Divide total monthly costs by thirty. The result will be the minimum nightly charge to enable you to break even.
You’ll also want to check out local Airbnb rental rates to help you decide how much you should charge to cover your recurring expenses and make a profit.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Identifying prospective guests can help you map out how to build a profitable Airbnb business. Also, choosing your target market allows you to know who you’re marketing to and how much they’re likely to spend.
Your primary target market is likely to be travelers under the age of 50, as well as remote workers, and holiday-makers eager to try out the Airbnb experience. Yet as in real estate, location is crucial. People stay in Airbnbs because they want to be close to something, whether it’s a landmark, an appealing city, or specific event or attraction.
Research your town and your area to see what it has to offer, and use this information to determine the people most likely to stay in your Airbnb property.
Location is critical to the success of your Airbnb business. In fact, you can hardly break even if you choose a poor location for your Airbnb startup.
Here are some factors to consider when choosing where to rent or buy an Airbnb unit.
Closeness to popular attractions: Airbnb occupancy rates are high in areas close to popular attractions such as national parks, amusement parks, landmarks, and beaches. Other factors to consider include the leniency of Airbnb regulations and affordability of management costs.
Find residential space to rent in your area on Craigslist, Crexi, and Commercial Cafe. When choosing a space, you may want to follow these rules of thumb:
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool below. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to Airbnb listings.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your Airbnb business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding an Airbnb business. You might also try crowdfunding if you have an innovative concept.
Starting an Airbnb business requires obtaining a number of licenses and permits from local, state, and federal governments.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your Airbnb business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use Airbnb’s preferred software partners, such as rentlio, Beds24, and smoobu, to manage bookings, rates, guests, and payments.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your Airbnb meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Some signature USPs for your Airbnb business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running an Airbnb business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in the home sharing economy for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in Airbnb. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
If you’re starting out small, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for an Airbnb business would include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
You’re now ready to start booking guests and making good money! Expect a busy year ahead as Airbnb predicts a strong sustained demand, especially for new listings. In its financial report for Q1 2022, Airbnb says new listings are getting booked faster compared to a year ago. The average time to get a first booking for the majority of new listings is only about a week.((https://news.airbnb.com/airbnb-first-quarter-2022-financial-results/))
With careful planning and creative marketing, you should have little trouble capturing a share of the recovering travel industry. Now it’s time to put on a winning smile and launch your Airbnb business!
Yes, Airbnb can be a worthwhile investment venture. In fact, starting an Airbnb business is a great way to create passive income. Still, you need to have adequate hospitality knowledge, good communication skills, business acumen, and a well-thought-out marketing strategy to create a sustainable Airbnb business.
Yes, you can. Your revenue depends on factors such as location, number of properties, bookings per month, and your rates. Most Airbnb hosts generate $102 per night on average. Of course, the more bookings, the higher the income.
The profitability of Airbnb properties varies greatly depending on factors such as location, demand, local regulations, and market conditions. Generally, popular tourist destinations, major cities, and areas with high demand for accommodations tend to offer greater earning potential for Airbnb hosts.
Generally, properties with desirable features such as convenient location, attractive amenities, comfortable furnishings, and unique characteristics tend to perform well. This can include various property types like apartments, houses, condos, vacation homes, or even unique listings like treehouses or boats.
The level of difficulty in operating an Airbnb can vary based on factors such as local regulations, property management, guest communication, marketing, and maintenance.
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