how does Airbnb make money?

In this blog we will discuss the topic that is “How does Airbnb make money”, We will also discuss the working of the company, the brief history of the company, the value it offers to customers and most importantly how Airbnb makes money. If you are interested in the topic then keep on reading.

how does Airbnb make money

Airbnb makes money in two ways:

·       It charges a fee to property owners, which is typically 3 percent of the property’s value. While it charges the same owners a commission, which is typically 20%, it does not charge them a fee.

·       A processing charge of between 5 percent and 15 percent of the reservation subtotal is applied, depending on the amount of the reservation.

 What is Airbnb?

Individuals may use Airbnb to rent out their principal houses to traveling guests. When it comes to renting out their houses, renters often need a more customized experience than hotels can provide, while hosts generally seek more money. Both customers and hosts are required to pay service fees, which comprise the majority of the company’s revenue.

Airbnb produced $3.5 billion in cash after going public on December 10 under the ticker code ABNB and selling its shares for $68 per share, giving it a fully diluted market worth of $47.3 billion. Revenues declined by nearly 19 percent to $1.34 billion in contrast to the previous year. Despite this, the corporation reported a net profit of $219 million, despite preceding net revenue losses.

Brief History of Airbnb

Co-founders Brian Chesky and Joe Gebbia turned their living room into a temporary bed and breakfast when they launched Airbnb in San Francisco in 2008. The couple decided to rent out the space to visitors in order to cover the excessive rent costs. It was with Nathan Blecharczyk that they co-founded a website for short-term rentals in 2008, which later grew into the popular travel site Airbnb.

In 2018, the business had a number of notable leadership transitions. Earlier this year, Airbnb announced that Dave Stephenson had been selected to take over for Laurence Tosi as chief financial officer (CFO). In addition, Belinda Johnson, Airbnb’s first Chief Operating Officer, has been named to the position. The business started soliciting investors in 2009.

After a few years, the corporation established offices in the United Kingdom, Germany, France, Spain, Russia, and Brazil. Additionally, the firm provides the following other services:

Airbnb Experiences

Renters may book cooking classes, excursions, and other activities.

Airbnb Collections

Utilize this area to identify homes that may be rented for special events such as vacations. Additionally, these websites may provide individual rooms with their own toilets for rent, as well as whole houses.

Airbnb Plus

These houses are well-rated and come with a wide range of standard amenities.

As a middleman between hosts and tourists, Airbnb facilitates the exchange of goods and services by creating a safe marketplace for both parties. It is possible that prospective hosts and guests may benefit from a comprehensive evaluation system when utilizing a peer-to-peer network, such as Airbnb. When it comes to shopping on the internet, participants lay their trust in product reviews, which assist them to avoid purchasing lemons and instead choose high-quality merchandise.

How Airbnb makes money?

Airbnb now has over seven million listings in more than 200 countries and territories, which represents a sizable quantity of inventory. Over 150 million people use the site daily, with an average of six people booking an Airbnb-listed property every second of their life.

When visitors book an Airbnb stay, both the guests and the hosts are charged service fees. Clients are obliged to pay a nonrefundable service fee—typically less than 14.2 percent—based on the number of appointments booked in advance, depending on the kind of advertising. When customers buy a more costly reservation, they benefit from cheaper service costs, since bigger groups or families may save money on other aspects of their vacation.

To cover the costs of processing visitor payments, hosts are charged a 3% fee for each successfully fulfilled booking. It is conceivable that Airbnb Plus rentals will have a higher price tag. When visitors book a reservation, they are responsible for the service charge unless the host cancels or retracts the listing, in which case the guest is not liable. If a guest wants to modify their reservation, Airbnb will alter the service costs accordingly.

Taxes

Airbnb customers are subject to additional taxes in the European Union (EU), as well as in countries such as Switzerland, Norway, Iceland, and South Africa. These taxes, dubbed value-added taxes, are applied in addition to ordinary income taxes (VATs). Additionally, travelers from the EU are taxed at their own country’s rate.

Guests who make bookings in a foreign currency are likewise susceptible to currency changes. Airbnb is responsible for establishing the price structure. As with other businesses, hosts are obliged to pay a value-added tax, which is taken from the revenue generated by taking bookings from clients.

Airbnb value proposition to its key partners

Host businesses 

Hosting businesses may be able to earn additional revenue by renting out unused space in their homes. Hosts may become entrepreneurs by leasing many locations on long-term leases and earning money from short-term rentals, or by purchasing properties and earning a bigger income from short-term rentals in the long run.

Additionally, hosts get a suite of tools to aid them in managing their clients without having to invest in proprietary software. The “Entertain Protection Coverage” protects persons who host visitors on their premises with insurance and liability coverage.

Indeed, trust is vital for the platform to function properly. According to the business, some of Airbnb’s success may be attributed to the company’s attempts to make transactions on its peer-to-peer marketplace as simple as possible.

Guests using the digital platform

Making a reservation is a piece of cake now that the digital platform is in place. Travelers may be able to make financial savings. Visitors may engage in a variety of engaging activities as an alternative to staying in a typical hotel. True, the host may serve as the guest’s local point of contact in their new neighborhood. This is not always the case, though.

For both hosts and guests

A review system ensures that both hosts and visitors get superior service. It is a safe and secure method of payment. They can connect and create experiences that extend beyond the typical hotel stay, courtesy of the resources at their disposal.

Issues to Airbnb’s success and further scale

Lack of Trust

They rely on the site to connect them with decent individuals when they offer their rooms and residences. Guests are treated the same as other guests. If people’s trust in the market starts to dwindle, the market’s value will begin to fall as well. There are many built-in features that may assist you in this area, including the following:

·       Visitors and hosts must have user-generated ratings in order to live together.

·       Both protecting your personal information and maintaining the security of your account are critical issues.

·       When it comes to the identification of bogus accounts, predictive analytics and machine learning are employed to analyse hundreds of signals in order to detect them.

·       The security of internet transactions is important.

·       Background checks and a watchlist are also required (for hosts and guests based in the United States).

·       Keeping everything in order (become extremely important during the pandemic to make the environment COVID-free).

Ability to retain customer

Nowadays, travelers have a plethora of alternatives available to them, and they should take use of them all. As a consequence, Airbnb’s momentum will wane as more customers choose hotels or alternative accommodations. Another possibility is that visitors who develop strong bonds with their hosts opt to leave the nation. They may even opt to conduct their subsequent transaction in a more clandestine manner.

As a consequence, rather than acting as a solid connection between hosts and tourists, Airbnb acts as a bad intermediary. Examine the connection to verify that both parties are comfortable with one another, but not to the point of quitting the Airbnb marketplace.

In conclusion, we answered the question “how does Airbnb make money”, and we found out that Airbnb makes money, when visitors book an Airbnb stay, both the guests and the hosts are charged service fees. Clients are obliged to pay a nonrefundable service fee—typically less than 14.2 percent—based on the number of appointments booked in advance, depending on the kind of advertising. When customers buy a more costly reservation, they benefit from cheaper service costs, since bigger groups or families may save money on other aspects of their vacation.

Frequently asked questions (FAQ): How does Airbnb makes money

What percentage does Airbnb take?

Hosts are often required to pay a set fee of 3 percent of the total booking price. Your nightly cost plus your cleaning charge* and additional guest fee (if applicable) are added together to form your subtotal. Airbnb fees and taxes are not included in your subtotal. It is typical practise for clients to be charged a service fee of 14 percent.

Does Airbnb make any money?

Airbnb generates revenue by charging visitors fees ranging from 5% to 15% of the whole reservation price, with hosts pocketing an average of 3% of the total reservation cost. Airbnb, for example, may make as much as $15 on a $100-per-night rental if the host and guest fees are split evenly.

How much does the CEO of Airbnb make?

In 2019, Chesky, the CEO and president of Airbnb, got a total compensation of $421,000 dollars. Joe Gebbia and Nate Blecharcyzk, two of the business’s other co-founders, will get a total of $22.8 million in compensation in 2020, according to the company.

How much money do Airbnb hosts make?

The amount of money earned by hosts on a monthly basis varies significantly. The revenue gained by renting many houses or flats on a monthly basis, as some hosts do, may easily surpass six figures.

Is Airbnb profitable in 2021?

It was our most profitable quarter ever, with net earnings of $834 million, almost four times greater than the same period the previous year. Because of our significant revenue recovery and prudent cost control, our third quarter net income improved by $615 million (280 percent) compared to the third quarter of 2020 and $567 million (213 percent) compared to the third quarter of 2019.

Why is Airbnb not profitable?

The majority of Airbnb’s net loss is attributed to non-cash stock-based compensation. Its first public offering led to an outsized stock-based compensation package for 2020, with the firm holding more than $3 billion in equity at the time of the offering (IPO).

References

Why Airbnb — a Company That Makes Money Every Time You Rent Your Home — Is Losing Money. (2020, February 12). Vox. https://www.vox.com/2020/2/12/21134477/airbnb-loss-profit-ipo-safety-tech-marketing.

How Airbnb Makes Money. (2021, September 10). Investopedia. https://www.investopedia.com/articles/investing/112414/how-airbnb-makes-money.asp.

The Risks And Rewards Of Making Money With Airbnb. (2021, September 11). Investopedia. https://www.investopedia.com/articles/personal-finance/021815/how-make-money-airbnb-risks-rewards.asp.