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No Vacancy: Maximizing ROI

1 Post tagged with the measurment tag
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There are many ways to measure the success of a vacation home rental business.  How do you measure yours?  Are you hitting the goals you’ve set for yourself?  Or more importantly, do you even have goals for your vacation rental business beyond “to cover our mortgage” or “make a profit?”

 

In this blog we’re going to look at a few different ways to set goals for your vacation rental business in order to track your success.  Some of them can be tied directly to your profits and losses, while others may not directly impact your bottom line, but are good indicators for success, nonetheless. 

 

To start off, it’s a good idea for any business owner to establish goals.  As a general practice, I like to use the old business adage that every goal should be S.M.A.R.T.  (For more information on S.M.A.R.T. goals visit http://en.wikipedia.org/wiki/SMART_criteria)

 

For example, let’s suppose one of our goals is to increase our revenue from $65,000 to $77,000 the following year.  Here’s how we make it S.M.A.R.T.:

 

  • SSpecific:  Increase revenue by $12,000 to $77,000 in the calendar year 2011.
  • M Measurable:  If our annual revenue reaches $77,000 at year end, we will have been successful.
  • A Ambitious:  The goal represents your very best effort or maximum output
  • RRealistic:  Considering vacancy rates (in this case) a $1,000/month increase in revenue is achievable.
  • TTime Bound:  We are using the 2011 calendar year as our time constraint.

 

Other examples of S.M.A.R.T goals may be that your vacation home does not sit vacant more than 5 nights in any calendar month, or that your non-rental revenue in the year 2012 exceeds $5,000.

 

This may seem like a simple exercise but you’d be surprised how easy it is to set a goal that doesn’t line up with the S.M.A.R.T. principles.  Using this approach to set appropriate goals for your vacation rental business will help ensure your goals are driving your business towards increased profits.

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Equally as important as the goals you set are the metrics you employ to track your progress. Many businesses refer to their primary metrics as Key Performance Indicators, or KPI’s.  My wife, Angela, and I established our KPI’s early on in our vacation rental business and have stuck with them ever since. 

 

We set our goals using the following KPI’s:

 

  • Rental Revenue – includes regular nightly revenue and fees for additional guests
  • Non-Rental Revenue – includes cleaning and pool heating fees, underwater camera and video game console rentals, and commissions from attraction ticket sales
  • Booked/Occupied Nights– the total number of nights in a year our home is occupied  including:    
    • Personal Use – nights we stay in the home for our own use
    • Donations – nights we are able to give away with little or no revenue in return
    • iTravex Exchange – nights we’ve taken in trade using iTravex.com 
  • Vacant Nights  – missed opportunities during the year when our home has sat empty

 

We have kept track of these KPI’s by month and by house for more than four years.  The historical data has proven to be invaluable to us in terms of understanding and managing our business while maximizing our ROI. 

 

I spend 30-45 minutes each month putting the KPI information we gather into a simple Microsoft Excel spreadsheet that allows us to monitor the progress of our business over time.  If you have not been tracking this information, I recommend taking the time to go through past bookings to compile whatever data you can to give yourself a benchmark. Then going forward you’d only need to maintain the spreadsheet moving forward.  To me, this is definitely time well spent. 

 

With this information readily available, you can make more informed decisions on:

  • Which reservations to take when check-in and check-out dates conflict
  • Which bookings to discount
  • When to run special offers or featured listings
  • When to take trades
  • Which nights are available for donations

 

Donations have become an increasingly more important KPI for us in our vacation home rental business.  In our next blog we will explore several ways to grow your vacation home business, (and your heart) by donating time in your vacation home. 

 

The Bottom Line:  Proper goal setting and tracking of KPI’s is an integral part of maximizing the ROI of any business.  A business running without goals or established metrics to track the progress towards attaining those goals is analogous to a ship at sea without a rudder or a compass.  The time you spend setting goals and tracking your progress will help you run your business more efficiently and profitably while paying dividends in the long run.

 

If you have success stories related to goals you’ve set for your business please share them in a comment below.  Until then, here’s to knowing where we’re headed and how we’re going to get there! 

 

Cheers!

 

Michael