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Maximizing Your Airbnb Profits: Best Cancellation Policy for Owners

In this can’t-miss guide, you’ll find out how to maximize your profits with the best Airbnb cancellation policy for owners.

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I'm Sabrina, a short-term rental host coach who knows starting your own Airbnb biz can quickly get waaaay too complicated. But it doesn't have to be. I help first-time Airbnb hosts like you go from overwhelmed to "Yes!! Another  booking!"
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Want to maximize your Airbnb profits? One often overlooked but oh-so-crucial factor that can significantly impact your earnings is your Airbnb cancellation policy. To hit your Airbnb goals, you’ve got to understand the different Airbnb cancellation policies for owners and how they affect your bookings, revenue, and overall profitability.

In this blog post, we’ll cover each Airbnb cancellation policy and give you the tools you need to choose the best policy for you. You’ll also find out exactly what to do when an Airbnb guest asks to cancel, penalties for canceling, and exceptions to Airbnb’s cancellation policies.

Whether you’re a seasoned Airbnb host or just starting out, understanding the best Airbnb cancellation policy for owners is crucial to ensure a profitable and successful short-term rental business. Keep reading to learn how to optimize your Airbnb profits with the best cancellation policy for owners.

This post may contain affiliate links. If you click a link and make a purchase, I may earn a commission at no additional cost to you. As an Amazon Associate, I earn from qualifying purchases. I’m not affiliated with Airbnb in any way (other than being an Airbnb host, of course). Read my full disclosure policy here.

Why choosing the right cancellation policy is essential

A cozy spot to relax by the fireplace at my Airbnb. | The Realist

As an Airbnb owner, your cancellation policy is one of the most critical factors in determining your profitability. A good cancellation policy can help you retain bookings, minimize lost revenue, and maximize your profitability. A bad cancellation policy, on the other hand, can cause you to lose out on thousands (if not tens of thousands) of dollars in revenue each year.

When guests book your Airbnb, they agree to your cancellation policy. This policy outlines the conditions under which they can cancel their reservation and receive a refund. The more flexible your policy, the more attractive your listing will be to potential guests. However, a flexible policy can also put you at risk of losing revenue if guests cancel at the last minute.

Understanding the different types of cancellation policies and their impact on your business is crucial to maximizing your profits. By choosing the right policy and communicating it effectively to your guests, you can ensure a steady stream of bookings and minimize cancellations.

Pro tip: One of the best things you can do to increase your profitability is optimize your listing.

Airbnb Cancellation Policy Overview

Airbnb offers several different cancellation policies for owners including flexible, moderate, firm, and strict as well as non-refundable options. Additionally, Airbnb has a separate cancellation policy for long-term stays (28+ days). It also tests out other policies from time to time.

Be sure to check out Airbnb’s cancellation policy page for a full list of current policies and the details of each. If you’re wondering how to change your cancellation policy, check out Airbnb’s how-to guide.

In this post, we’ll focus on the most common Airbnb cancellation policies: flexible, moderate, firm, and strict as well as Airbnb’s non-refundable option.

Here’s a breakdown of Airbnb’s most common cancellation policies:

  • Flexible
    • Guests can cancel for a full refund until 24 hours before check-in
  • Moderate
    • Guests can cancel for a full refund until 5 days before check-in
  • Firm
    • Guests can cancel for a full refund until 30 days before check-in. Additionally, guests can cancel for a full refund if they do so within 48 hours of booking and at least 14 days before check-in
  • Strict
    • With this option, the only way guests receive a full refund is if they cancel within 48 hours of booking and at least 14 days before check-in
  • Non-refundable
    • With these policies, you can choose to also offer a non-refundable option. If guests choose this option, they won’t get a refund if they cancel. In exchange, they receive a small discount when booking.

Pro Tip: Note that a “full refund” includes the nightly rate only. You won’t be paid the cleaning fee if your guest cancels before check-in. Learn more about refunds for cancellations and Airbnb’s guest refund policy.

The Best Airbnb Cancellation Policy for Owners

Now that we’ve got those basics out of the way, here’s what you need to know about the best Airbnb cancellation policy for owners.

Airbnb’s Strict Cancellation Policy

You might’ve heard that as a new Airbnb host, having a strict cancellation policy will prevent bookings. The idea is that, since your listing doesn’t have many reviews, you should incentivize more bookings by offering a more flexible policy.

When I first started my Airbnb, I didn’t follow that rule at all. I chose Airbnb’s strict cancellation policy. And guess what? Bookings came flooding in. I had 97% occupancy my first month hosting and grossed close to $19,000 in revenue!

My cancellation rate was just 19%. And, those guests that did cancel didn’t get a refund (per my cancellation policy). On top of that, those bookings were usually filled right away by new guests. Meaning I earned twice as much when a booking was canceled.

Pro Tip: One huge reason my first month was so successful was because I listed my property before high season. Get all of my tips to increase your Airbnb revenue here.

All that’s to say, having a strict cancellation policy did not prevent bookings.

Airbnb’s Flexible Cancellation Policy

Unfortunately, after high season my Airbnb hit a dry spell.

During off-season, I got very few (if any) bookings for several months in a row. Typical low occupancy for that time of year was compounded by wildfires in the area that prevented travel.

At the same time, I felt like I was getting pushed and pushed by Airbnb to switch to its flexible cancellation policy. After months of little to no bookings and a lot of prodding from Airbnb, I finally decided to switch to Airbnb’s flexible cancellation policy.

And it was a disaster.

That’s because as the area inevitably headed back into high season, my bookings naturally picked up again. Unfortunately, because of my new flexible cancellation policy, my cancellation rate picked up too–all the way to 50%!

Half of the bookings I received eventually got canceled. And I wasn’t paid for a single one of them. Instead, those bookings took up precious time when another guest could have booked instead.

For example, one guest booked my Airbnb over Christmas four months in advance. That guest then canceled two weeks before check-in. This guest booked one of my most profitable nights, restricted any other guests from booking for four months, and then canceled just before check-in and was fully reimbursed.

What’s worse is that, at the time, I had Airbnb Smart Pricing turned on. This automated pricing tool immediately dropped the price on those nights to a rate half of what the initial guest committed to. Why Because that’s what Smart Pricing predicted it should be, despite the fact that those nights had already been booked at a much higher rate.

Pro Tip: Before using any automated pricing tool, be sure to read my honest review here.

What should have been one of my most profitable bookings turned into my least profitable. Even after that disaster, I still kept the flexible cancellation policy. I was convinced that the increase in bookings would outweigh any losses in revenue.

After 5 months, I didn’t notice any increase in revenue directly related to having a more flexible Airbnb cancellation policy. What I did notice was that I couldn’t actually count on having the revenue of any upcoming bookings.

I started to expect that all of my bookings would get canceled and need to be filled at the last minute (if I was lucky enough to get them filled at all). The stress and unpredictability weren’t worth it.

For all those reasons, I can hands-down say that I believe the best Airbnb cancellation policy for owners is Airbnb’s strict cancellation policy. That said, every Airbnb is different and, as a host, you get to choose exactly what works best for you. So, test out any policy you’d like until you find the one that works best for you!

Recommended: Why Relying on Airbnb Pricing Tools Could Cost You Thousands

Another cozy spot at my Airbnb. | The Realist

Airbnb’s Non-Refundable Option

Similarly, I tried out Airbnb’s “non-refundable” option and then promptly turned it off after ONE guest made a non-refundable booking.

That’s because I didn’t feel like I was getting any additional bookings from it. Instead, I was giving a discount to guests who were already very likely to book AND very unlikely to cancel their reservation…no thank you, I’d rather earn the full amount on bookings like that.

How to handle Airbnb cancellations

What to do if a guest asks to cancel their reservation for a full refund

If you opt for the moderate or strict Airbnb cancellation policy, you’re bound to get requests from guests asking you to make an exception by letting them cancel and getting a refund outside of the free cancellation window.

Whether or not you choose to grant this exception is totally up to you. You’re running a business; your guest agreed to a policy when booking, and you have every right to uphold that policy.

Alternatively, rather than giving a flat-out yes or no, consider proposing a compromise that makes you both happy, like allowing them to reschedule to off-season. That way, you won’t lose out on the revenue altogether and they still get to enjoy their vacation.

(FYI if you reschedule your guests, your cancellation policy timing also resets.)

If a guest cancels on their own without requesting a refund, those dates on your calendar automatically open up, you’ll receive any applicable payout, and your guests will receive any applicable refund. Here’s what happens to your Airbnb host fee if guests cancel.

Pro Tip: Don’t be tricked by Airbnb notifications stating that the “guest requests that you cancel” Selecting ‘cancel’ will result in a host cancellation, with all of the penalties covered above. Guests don’t need your consent or approval to cancel a reservation.

Penalties for canceling a reservation as a host

Airbnb really doesn’t want hosts to cancel existing reservations. (Makes sense, since that would be a poor guest experience.) So, there are some pretty serious penalties for hosts if they do.

Host penalties for canceling a reservation can include a cancellation fee, a block on your calendar for those dates, a public review from Airbnb, account suspension, and/or loss of Superhost status.

Pro Tip: If a reservation is cancelled on or after the day of check-in (regardless of who cancels it), your guest will have the option to leave a public review on your listing.

How to avoid cancellation penalties

  • Instant Book
    • If you have Instant Book turned on, you might be pretty frustrated by all these cancellation penalties. (Because, heck, if you screened guests before booking, it’s less likely you’d ever need to cancel!) Thankfully, Airbnb accounts for that by allowing certain exceptions for reservations made with Instant Book. And, you can add certain requirements to automatically screen guests using Instant Book. If a guest doesn’t meet one of your requirements, they can send you a booking request instead.
  • Extenuating circumstances
    • Another time Airbnb makes exceptions to its cancellation policy is if there’s an “extenuating circumstance”. To learn what qualifies as an extenuating circumstance, be sure to read Airbnb’s extenuating circumstances policy.
    • If a cancellation is due to an event covered in this policy, then a guest or host can cancel without penalty (In my experience, if a booking is granted a full refund under this policy, hosts will not receive that payout. Also, Airbnb can and does approve exceptions to their policy, without notifying hosts or telling them why an exception was made…in my experience.)
  • Unauthorized parties

Takeaway

When it comes to determining your Airbnb cancellation policy for owners, you have a lot of options. The good news is, you now know the ins-and-outs of each Airbnb cancellation policy, how to choose the best policy for you, and what to do when guests inevitably ask to cancel. You’re now well-armed to maximize your profitability and navigate tough situations–great work!

Recommended: 5 Proven Tactics to Earn More with Your Airbnb Business

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What do you think is the best Airbnb cancellation policy for owners? Let me know in the comments.

Disclaimer: All content on this website is for informational purposes only. You are taking all provided information at your own risk. We are not financial, real estate, legal, investment or other professionals. Nothing on this website should be construed as professional advice. We will not be liable for any loss or damage of any nature. For more information, read our disclaimer.

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