As 2009 came to a close, the lead story in Wall Street Journal’s November 16 Money & Investing section was captioned “Earnings are Strong, Sales are Another Story.”  Eighty percent of companies in the Standard & Poor’s 500 stock index beat analysts’ expectations during a period when revenue was on pace to fall 10 percent.

“Cost-cutting” drove profits for these major companies.  Cost cutting is similarly a priority for many vacation rental managers, which leads to the point of this blog:

The most direct paths to cost-cutting in vacation rentals can lead to a reduction in a company’s long-term profits and competitive stature.  The paths that best protect profits are often counter-intuitive.  So pick your path cautiously.

• “Knee-****” cost cutting often jeopardizes future profit and growth;
• It generally costs money to properly find and implement cost cuts;
• The best cost-cutting opportunities arise from industry changes.

What to Expect from Cost-Cutting.

• As noted in the Wall Street Journal article, cost cutting can only boost profits so long, but companies that learn to run lean in bad times can expect to see profits surge when sales improve.
• In my view, cost-cutting is “reckless” when it is the goal; it is “safe” when it is the byproduct (intended) of a goal to make your company more efficient.
• Your goal should be to become more efficient pursuant to a plan all players understand and buy into.

When Does It Cost Money to Cut Costs Properly? 

• Time.  Generating plans and buy-in is expensive because staff must stop doing something they may not want to stop doing--making their jobs harder--and devote time, money and energy to developing a new plan, acquiring any required resources, testing the plan, and implementing it.
  E.g., the woodsman who responds to the well-meaning passerby’s suggestion that he might cut a lot more wood if he sharpened his ax:  “I can’t—I’m too busy.”
• Systems Development.  Often, the best efficiencies require your company to change the way it does business, requiring an investment in new systems design, technology, training, promotion and customer hand-holding.

Why Do You Need Staff “Buy-In?”  

• If a player doesn’t understand how your plan will work, he can’t execute well. 
• If he doesn’t buy in, he won’t execute well.  He’ll be happy to let your plan fail so he can return to the system he is used to. 

Trimming Fat.  Successful companies can get “fat” during good years because they can afford to hire people and buy services.  I know a company that trimmed several top managers without losing a beat.  But the common pitfalls arise when you ask people to do more with less, without a plan they buy into. 

• This causes tension among employees, increases turnover (reducing your staff’s skills), reduces service quality, saps energy required to get new customers, and—ultimately—makes it difficult to keep and attract homeowners and renters. 

Look at Competitors Before Identifying Cost Cuts.   Difficult times pose problems for some but create opportunities for others who find ways to use them to leapfrog ahead of their nearest competitors.  You can’t decide which expenses to cut without knowing whether your competitors are redistributing their resources.  Are they:

• Going hard after your homeowners?
• Soliciting your renters?
• Trying to get extra bookings from their existing renters?
• Offering new services to existing renters and homeowners?
• Replacing expensive staff services with computer services?

Categories of Promising Cost Cuts. Look carefully at the following: 

1. Changing your business model.
2. Use of technology to free staff for other jobs;
3. Elimination of services to renters or homeowners  who don’t need them;
4. Downsizing of promotional activities that may no longer be cost effective;
5. Trimming of fat to become more lean and fit.



In a recent blog, I suggested ways to become more efficient in 5 categories.  In this blog, I include my thoughts about the second of these.

Using Technology to Free Staff and Reduce Expenses
Below, I list some ways technology is being used for these purposes. I discuss some of these in more detail.  Leave a comment if you want my thoughts on others.

Some of you may not use any of these. Others may have considered them all. Either way, use this checklist to ensure you have investigated each area’s potential savings.

1. Downsizing or elimination of printed brochures;
2. Use of Voice Over Internet Protocol (VOIP) to employ reservations staff who work part time from home (saving 11% or more in benefit costs);
3. Electronic document signing;
4. Keyless entry;
5. Elimination of check-in offices;
6. Automated travel insurance processing (via your reservation software);
7. Web site sections that allow homeowners to get information and make bookings;
8. Third-party booking agents;
9. Call centers that answer phones after hours or when you are busy;
10. Automated email blasts;
11. Learn to use reports that free staff from doing manual calculations or lists;
12. Housekeeping tracking systems;
13. User-friendly web sites that automatically mirror changes in your reservation software and allow staff to modify content without paying third parties.

A few deserve further comment.

Downsizing or Elimination of Printed Brochures.  Web sites are not a complete substitute for paper brochures.  Some renters like to read in bed or just prefer paper; consumers often keep brochures so they can contact you, and many homeowners feel brochures are important.

The more important question is whether brochures remain cost effective.  I believe your profit and loss statement will improve if you print fewer copies, or replace them with mini-brochures, or eliminate them altogether, unless there are conditions unique to your market that prevent you from doing so.

We know brochures are not an essential ingredient to vacation home rentals, because there are many internet-based companies that have never used brochures and compete very well against traditional managers who use print media.  But many of your existing customers are used to brochures and need to be hand-held if you make a change.

Some key companies in competitive markets have eliminated brochures.  Most were anxious, but ended the year with no discernable loss of bookings or homeowners—just lower expenses.  Their competitors are starting to follow suit.  Brochures consume enormous chunks of staff time and money.

Some companies are easing into it by printing fewer copies and mailing brochures to fewer customers (but keeping brochures around for visitors).  Some now just mail out postcards or mini-brochures.  These do not include all homes in a rental program, but they try to:

• Drive renters to the company’s websites;
• Sell the area or vacation experience;
• Promote the managers brand; and
• Include pictures for each type of home or area.

Mini-brochures can have a “featured home” section for homeowners who feel that they can get more rentals by paying to be in the brochure.  But you’d have to make sure your best homes are shown even if the homeowner does not pay.  You’d also need to carefully present this change to homeowners:  “Renters rely primarily on the Internet to book homes, so our strategy is to use a mini-brochure to drive renters to our website—but if you feel strongly that your home might attract extra bookings by being featured in the brochure, we have a few slots that can be purchased for a fee on a first-come, first served basis.”

Electronic Document Signing.  I know innovative companies that say, “Hands-down, electronic documents allow reservations to be booked faster and eliminate tons of staff time and expense.”  If you are skeptical about doing away with paper copies or are worried about legalities, you are not alone.  But please don’t let those fears stop you from looking seriously at electronic document signing.  The vendors who offer them have addressed virtually all natural concerns.

Keyless Entry and/or Elimination of Offices.  I realize the development of strong client relationships can form during the check-in process.  But it is very expensive to touch every renter on check-in.  Unless you are small or base your brand on personal relationships, consider eliminating check-in offices, at least in new remote offices (use them as a test bed).  Renters like the idea of “express check-in.”  Use lock boxes or mail the keys (the maid can bring them back).  Worried about early arrivals?  One company got buy-in from housekeepers who realized they increased their tips when they introduced themselves to the guests.  Or use keyless entry to activate the locks at a specific time.

I will address the rest in my next blogs. Stay tuned!

In a recent blog, I suggested that you look for ways to become more efficient in 5 categories.

In this blog, I include my thoughts about the fourth of these: revisiting each of your company’s major promotional expenses with a view to identifying/downsizing programs whose benefit can no longer be justified.

I recently accompanied a visiting rental manager who visited three of the four largest rental companies in a particular vacation destination.  The visits left me with questions of simple but stunning implications.

I’ll share my impressions and leave you with my questions.

Each of the three companies told the visitor they spend a lot of money on a specific program they knew none of their competitors had.  I won’t identify the programs, but each are designed and promoted to help managers generate more bookings. 

Each company told the visitor, in effect, “I guarantee you the cost is worth it.”   Each could produce at least one statistic to back up their guarantees.  I suppose each program could be worth the price. 

But here’s the rub:  over several years, none of the three has won significant new ground over the other two--and all three have lost market share to a fourth competitor that doesn’t use any of the programs. 

The fourth has won its newly gained market share by offering lower prices to generate more bookings.  It touted its superior bookings to successfully attract more high-end rental homes.  It’s showing no signs that its strategy is losing strength.

This has to make us ask, “What did each rental manager have in mind when they told the visitor their unique program was expensive but well worth it? “

If each lost market share to the fourth competitor and none increased their market share relative to each other, how could their expensive programs really generate any unique economic benefit?

• Are all three paying a lot of money just to maintain parity among them while the fourth continues to steal their market share?
• How much of their confidence is rooted in past benefits?
• How much is rooted in the natural need to believe that a past decision to spend money was a good one?  Or in statistics that—examined closely by a business consultant--are cancelled by stats they didn’t think to measure?

I was drawn to these questions by my observation that the web site specials page and innovative Internet marketing are allowing both managers and rent-by-owners to steal bookings from conservative mainstream managers by merely lowering prices as needed.

I have seen too many examples to support the unfortunate conclusion that homeowners pay more attention to the number of bookings than to the net amount of their rental revenue. 

So we have to ask:

• Has the Internet made pricing so important that it trumps almost every other activity in the mainstream manager’s promotional budget?
• Are managers’ most expensive workhorse programs—and the assumptions underlying them—still viable in today’s Internet world?
• Going back to the visitor, was his “take-away” that the benefit of each company’s expensive program was lost over time to a competitor who has lower costs (doesn’t pay for similar services?)  I can tell you that the visitor’s program generates more bookings through aggressive pricing, and he hasn’t changed his marketing since his visit.)

I have reluctantly come to believe the Internet has turned competition into a jungle where the overconfident, slow and meek fall prey to the quick, lean and mean.

The point:  re-examine each big-dollar program in your budget.  Play devil’s advocate and force yourself to re-prove each program is cost-justified today.

Don’t get side tracked just because:

• Your percentage of on-line bookings may have increased;
• Your revenue has increased; or
• Your best renters and homeowners are happy.

The only important measure of your competitive health, beside your profit and loss statement, is whether your share of bookings and desirable rental homes is (a) increasing, (b) holding steady, or (c) decreasing and—whichever of these is true—whether any competitor is doing better!

If you are paying for expensive programs (as opposed to the homeowner paying), consider the fact that our industry’s most aggressive managers are passing the full cost of discounting on to homeowners and still managing to increase or maintain their inventory.

Force yourself to prove that your company’s most expensive programs are today increasing your “share” of renters and homeowners.  Consider whether that same money could be better spent (or given back to homeowners to help them tolerate the dynamic pricing that is often the most pivotal generator of more bookings).

The streets are getting mean!