The best times to add fees are during good rental years when the market will allow an increase in rates. In lieu of increasing rent that is subject to a commission split, a manager will create a fee to be paid directly by the renter. When this approach can be taken, the homeowner does not get less revenue, lessening his opposition to the fee.
Obviously, these are not the best of times. The Instant Software Research Center Monthly Report: December 2010 State and Regional Vacation Rental Trends, which I administer, reveals that the industry raised rents 1% in 2010 and arrivals declined 2%
There is a backup strategy. If a manager lowers commission rates when he increases fees, revenue doesn’t decrease for homeowners or increase for managers—the first year. This makes it easer to sell fees to homeowners. But if discounting gets worse in the future, homeowners will shoulder more of that burden.
Does your company need to do this? Not if you are making a healthy profit (10-15 percent of commission and fees for a small to medium company). Yes, if expenses have crept up over the past few years, eroding profits below healthy levels.
Can you pull this off? This depends on how well you communicate with your homeowners and on your competitive environment. If you don’t communicate very well, key competitors who are either very smart or very desperate will steal your homeowners if you haven’t made a very compelling case to your homeowners.
What fees do you add? It almost doesn’t matter. Run through your key expenses to find expenses that are killing you (hot tub, bill-pay services, housekeeping; inspectors; maintenance, etc.). And look closely at any fees already being charged by your competitors. Its not so much what fee you add but how you sell it to customers.
Can you sell change to your homeowners? I have worked with many managers over the years to help restructure their fees and commissions. Homeowners always resist. Managers always panic. But you can implement change. It’s just stressful (very).
How do you structure the fees? Add language to your listing agreement that allows you to charge fees to renters and raise them periodically without further approval from the homeowner. This way you can raise fees every year, but need only fight homeowners the first year. Tell homeowners you are placing the burden of the services on the renter.
Look for expenses you currently pay with a view toward passing them on to the homeowner. Or introduce new (high margin) services. Or terminate old services “because of runaway costs,” but announce your willingness to do them on a fee basis for those homeowners that really want them.
Can you pull it off? The question is, “Can you afford not to?” If you do not earn a healthy profit or your profits are declining, and if you can’t compensate by growing your inventory, you are on a destructive path that will force layoffs and degrade service.
Look in the mirror every morning and repeat this: “Profits are not selfish. They are a necessity. Companies must have a reserve to hedge against cycles in the marketplace and economy. Growth costs money. It takes money to find and implement efficiencies.”
If you still need motivation, let me offer this. Managers have an obligation to themselves, their families, their employees and their vendors to maintain their financial health. You cannot share your cup if it is empty.
If you forego the hard decisions required to protect your profits, you will eventually let down the people dependent upon you. Your sacrifice will not even benefit your homeowners, who will ultimately end up with a manager who charges enough to buy the services required to attract and retain renters and homeowners.
Keep in mind that you can’t raise or add fees that are paid by the renter if that new fee will cause renters to look elsewhere. The market sets a cap on rents. You must match market rents or risk losing rentals.
There is of course more to be discussed. This blog just offers an overview. If you would like further information, let us know.
