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9 Posts tagged with the managers tag
4

Through its ownership of listing sites and reservation software companies, HomeAway straddles a line that marked a cultural gap between professional managers and self-managing homeowners.

 

That gap is on the verge of disappearing.   This is good for managers, homeowners, renters and HomeAway—as well as the entire vacation rental industry.

 

The gap began when the Internet spawned listing sites that allowed homeowners to advertise their own vacation rental homes under the rubric “rent-by-owner” (RBO), bypassing managers. 

 

These listing sites provided resources for homeowners interested in self-management and for financially stressed homeowners struggling to cover the expenses of second home ownership. Today, they offer:

 

  • Credit cards payment options
  • Taxes collection and remittance options
  • Online bookings
  • Reservation confirmations
  • Payments tracking
  • Housekeeping or maintenance service options

 

On the other side of the gap, some professional managers wondered whether the RBO movement threatened their livelihood.  Some managers viewed RBOs as a danger to be avoided or fought.

 

Mangers and RBOs on both sides rallied to promote or protect their interests:

 

  • Some early RBO listing sites refused listings by professional managers.
  • Some self-help resources portrayed professional rental managers as cheats and unnecessary.
  • Some managers lobbied to exclude RBOs from local chambers of commerce.
  • Web site discussion groups for both groups made polarizing statements about the other.

 

The reasons for friction are easy to understand.  Technology evolution shifts money from one group to another, creating opportunities for some and problems for others. 

 

In reality, the shift occurred because Internet technology changed the way consumers shop.  This was first reflected in the popularity of online travel agents such as Expedia, Travelocity and Priceline.  Today, consumers have transformed listing sites into the most popular market places for vacation rentals.

 

Today managers needn’t worry about being displaced.  And RBOs needn’t view managers as competitors— their real competitors are other homeowners. Managers exist to serve homeowners (all homeowners are potential customers).  Today’s RBO may be in a managed rental program tomorrow.

 

Managers perform services that save homeowners from tedious and stressful tasks of dealing with customers and servicing homes.  Homeowners typically use managers when they can afford to do so, except where they make rental management their “job.” (My next blog is about the impact of rent-by-owner on professional managers).

 

Managers need not worry that renters do or do not recognize the advantages of professional managers.  Not only does this worry treat RBOs as competitors (potentially alienating future customers), but it channels energy (a scarce resource) to an unproductive end and assumes that managers’ future success depends on a public-awareness-of-rental-managers campaign that would cost tens of millions yearly.

 

Managers, while this may initially sound heretical, your success doesn’t require renters to appreciate managers or even know that a home is managed.  It is gratifying and helpful when that occurs.  But it is not critical.  Thank goodness—it means homeowners and managers are in harmony—not conflict.

 

Why?  Rating systems –which matured after RBO appeared—have emerged as an indirect champion of your brand as a professional manager.  Your systems are designed to deliver high quality, consistent service.  When that works, your homes get good reviews.

 

  • Renters increasingly rely on peer recommendations to find a reliable vacation rental.
  • Rating systems allow renters to identify which homes are well maintained and appointed.
  • Managers will always thrive where their systems generate good renter reviews.
  • Plus mainstream listing services identify managed homes as such for renters who look for this.

 

If a RBO home next to yours gets good reviews, it is usually because that homeowner is working very hard to do what you do.  That homeowner deserves to get rentals.  That same homeowner may eventually tire of working so hard, or have no time to do so, and hire you to do some or all of his work.

 

Today, there are still some RBOs and managers who distrust each other. Some RBO groups worry that:

  • The presence of managed homes on RBO sites dilutes their bookings; or that
  • Management companies have marketing and resource advantages.

 

Some rental management companies worry that:

 

  • Listing sites divert homes from rental management programs;
  • RBOs steal renters by under pricing managed homes;
  • RBOs attract renters by failing to collect (charge for) lodging taxes.

 

Many of these worries once had some basis in fact.  But today the impact appears minimal. 

 

Booking Dilution. Today, leading listing sites market managed and self-managed homes side by side.  I see no evidence that this can/should be avoided or that it dilutes or diverts bookings from one group:

 

  • It is consumers who decide the popularity of listing sites-- consumers are patronizing the sites that offer the widest range of product and price. 
  • Renters love to use the Internet to shop—they have so many options that no single company could thwart consumer shopping preferences (aggregator services today search multiple sites).
  • Renters use the Internet to find and compare all available homes—Internet shopping technology is the driver of integrated market places, not listing site policies.

 

Resource Advantages.  It is obvious that professional managers have marketing and service resources advantages—this is a common sense result where managers spread the service costs among multiple homeowners.  That’s why so many homeowners hire managers.  But hardworking RBOs compete well.

 

  • Renters simply want a well serviced home that meets their needs and is competitively priced.
  • No RBOs can be at a disadvantage if they service their home well and price competitively.
  • In my experience, renters tend to find the good homes—even where lesser homes have superior marketing exposure.
  • A manager’s pooled resources (e.g., backup cleaners) confer advantage where this results in better or more consistent service (reflected in the reviews).
  • RBOs lose rentals to professional managers and vice-versa when they are not able to provide high quality service.  Many RBOs will eventually hire managers for some or all services.

 

Tax Collection.  Interestingly, I have seen no evidence that professional managers are losing bookings to RBOs who ignore tax collection requirements, at least not in measurable dimensions.  This is due in part to local tax authorities who are ramping up tax enforcement and to efforts to educate homeowners.   Also, renters appear most concerned about finding the right home at a competitive price—it takes a lot of extra work to identify a homeowner who won’t charge tax (homeowners can’t advertise that fact).

 

  • One of the most successful professional managers on HomeAway sites tells me that his bookings are not remotely affected by RBOs who do not charge tax.  He says he is not interested in renters who take bargain hunting to this extreme and that it is his attention to inventory quality and marketing that brings him bookings and growth.

 

Underpricing.  It is true in theory that some self-managing homeowners try to offer lower rents and feel empowered to do so because they do not pay a professional manager.  But I see no evidence that self-managed homes end up with lower rents or that they divert renters from managers based on price:

 

    • Professional managers initially set rents at levels that renters are willing to pay—given all the competing homes that are being offered in the area.  They then adjust rents as necessary.
    • RBOs commonly set rents based on comparable managed homes.  Even though they don’t pay managers, most RBOs can’t afford to charge too much less rent than renters are willing to pay.
    • A percentage of RBOs do try to under price managers in an effort to attract renters.
    • This stimulates discounting by managers.  Managers track bookings pace from one year to the next and are quick to discount prices when current year bookings are slow, equalizing rents.
    • For every discounting RBO, there is a hungry homeowner demanding that his rental manager discount his rent so he can snag a renter or a manager who discounts to fill vacancies.
    • The net effect is that rental home prices adjust the way that stock prices adjust. They simply rise and fall on a weekly or daily basis in response to shifting balance between supply and demand. 

 

Stay tuned for my next blog will summarize the impact of the rent-by-owner trend on professional managers.

 

Best,
George

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GMH3330-L.jpgWe are just weeks away from hosting RezFest 2012 on September 25-27 at the beautiful Red Rock Casino and Spa in Las Vegas! The excitement is building as we prepare for this incredible event where leading property managers gather to learn, network and have fun together for a couple of days.  To make this event even more fun this year, we are launching a ”Mobile App Challenge,” which consists of gathering ideas from our clients through a 5 minute survey.  Once at RezFest, you will have an opportunity to check out the best ideas from the survey, vote on them and work with our Product Managers and Software Designers to help them build a prototype, which will be presented to you during RezFest’s closing session. Whether you attend RezFest 2012 in person or not, you can contribute your ideas through this survey and automatically qualify for a chance to win some great prizes, such as an iPad, Bose Noise Reduction Headphones or a membership to the "Wine of the Month" club.  Take our 5 minute survey before August 15th for your chance to win!

 

If there is one educational event you must attend this year, RezFest is it! At this exceptional event, you will hear from Tom Flick, whose keynote sessions have inspired companies like Ritz Carlton, Starbucks and Boeing. You can also expect HomeAway® executives to make some PM-centric announcements you want to miss!  With almost 100 sessions and 9 concurrent tracks, RezFest is your once-a-year opportunity to sit down with your software trainers for free to see demos of our latest features.  As always, you can count on our social events to have fun while learning and networking with other leading property managers. So, make sure you bring enough staff at all levels of your organization, because your biggest regret will be that you didn’t bring more employees with you to take advantage of all the learning opportunities!


See you in Las Vegas on Sept 25-27 & may the best idea win!

2

As the newest member of the HomeAway Software™ marketing team, Carmela joins us with many, many years of vacation rental industry experience, making her ideally suited for her new role as our Marketing Product Manager.

 

IMG_20120614_082955.jpgCarmela started her VR industry career at First Resort™ Software as their second Support Representative.  She progressed through the ranks to become the Support Department Manager and then Vice President and Chief Operating Officer until 2004.  From there, she moved on to ResortQuest to become Director of Operations, and then VP of Information Technology.  Most recently, she served VR companies across the country as a business development consultant.  Through it all, Carmela has driven quality customer service, matched technology to client needs and discovered efficiencies while doing so.

 

Carmela grew up loving football in Arkansas (Go Razorbacks!), moved to Colorado in 1988 (Go Broncos and Buffaloes!) and recently relocated to Austin.  She has a daughter who is a college senior, two dogs, a cat, and everyone gets along great! Her hobbies include a love for tennis (because of the cute outfits), golf, hiking, all winter sports, entertaining, fresh local food, wine and flowers. Says Carmela, “Flowers just make me happy!”

 

“I am passionate about the vacation rental industry mainly because of the people who are in it—you have to be a ‘people person,’ you have to be creative, you have to be smart and you have to be passionate about delivering great customer service.  Also, I know my successes are because of the individuals with whom I have worked.  They are very talented (very lucky here too!) and I believe a team is much stronger than an individual.”

 

As Product Marketing Manager, Carmela will help identify and prioritize feature requirements on HomeAway’s® software platforms and help us communicate the great things we do on behalf of our clients.  She is amazingly bright, caring and fun, and we are thrilled to have her aboard with HomeAway Software. When you get a chance to meet her, perhaps at the RezFest® conference this year, you will find yourself putting her on your short list of super smart people who also happen to be very, very nice.

 

Welcome aboard Carmela!

2

We just launched the 2012 Breakfast Seminars in Destin, Florida and Gulf Shores, Alabama.  Both were great events and very well attended with over 50 attendees at each event.  The feedback from each seminar was universally positive.

Amy, Lisa, Bryan.jpg

 

At the seminars, the team gave an update on our plans for all five of our HomeAway Software for Professionals™ platforms: Entech™, PropertyPlus®, FRS®, Escapia® and V12.NET®.  We reiterated our commitment to continue development and support for all of them.  We will continue to support all five software platforms well into the future as long as our clients want us to because supporting the products will continue to be a profitable business for us.  More details on our product development plans are on the way in the coming weeks, but as a public company we are not allowed to make any forward looking statements so it is a difficult balance.

 

 

Our sponsors also presented an update on very important current issues including Credit Card Security by HomeAway and VacationRentPayment, the Five New Marketing Best Practices by Visual Data Systems and Selling Value-Added Travel Services by CSA Travel Protection.

 

Destin Seminar 3.jpg

But our primary message at the breakfast seminars is that it’s time to get excited!  Think about this: roughly six million Americans use vacation rentals for their vacation lodging. That’s six million out of a traveling population of over 100 million. With that as a backdrop, it leaves a huge upside for you to advance your business.  HomeAway is constantly efforting to increase the visibility of vacation rentals.  If you haven’t seen our most recent ad campaign called “Let’s Stay Together,” check it out here.

 

 

Along with increasing the visibility of the vacation rental industry through advertising, we’re continuing to develop new capabilities on our software solutions so you can take advantage of that heightened visibility.  And, we’re constantly improving our online marketing tools for professional managers.  Stay abreast of all product advancements through your Relationship Managers and a new quarterly newsletter, the first of which you will receive later this month and we hope to see you at the next Breakfast Seminar!

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What do you do when a competitor threatens to steal your inventory or renters by offering lower commission or rental rates? This challenge presents itself when competitors:

 

  • Set their seasonal rent at a level below your rates
  • Put homes on website “specials” page at a discounted rent
  • Solicit your homeowners with offers of lower commission rates
  • Offer your homeowners free amenities or services to join their rental programs

 

I know what many of you want to do.  But what makes business sense?  The right approach is the one that leaves you with the most rental revenue. Unfortunately, the right approach is not always the most intuitive and can require you to speculate about customer behavior.

 

  • If you lower rents or commissions once, will you brand yourself “price flexible?”
  • Once you discount, will it be difficult to hold your regular prices with other or repeat customers?
  • If you refuse to discount, will you lose rentals or homeowners?
  • Will losing renters or homeowners snowball into migration of other homes and renters?

 

No one sets prices with complete certainty but you can perform the best if you have good technique and strategy.  A good approach is to view pricing like a sports event that has both an offensive and defensive strategy. 

 

For offense, begin by setting seasonal prices correctly and by knowing whether or not it is in your interest to use discounting to grow or protect your business, and how to discount most effectively.

 

For defense, create a foundation that will withstand competitive discounting by building knowledge of your product and markets and developing a business philosophy that is grounded in economics.

 

As to business philosophy, be wary of general principles that have brought you this far but which you promote and defend with emotional energy (we all have them):

 

  • “We deliver good value and we never discount.”
  • “If I discounted, I would undermine my ability to maintain my pricing structure.”
  • “If I don’t match every discount, I’ll lose rentals and homeowners.”

 

The best business philosophy recognizes:

 

  • Vacation rentals will always make financial sense no matter how low rents go as long as vacation homes continue to offer more value for the dollar than alternative lodging segments
  • The Internet allows renters to depress rent levels whenever supply exceeds demands
  • There is little you can do to protect a homeowner’s investment against discounting that arises from seasonal vacancies, predatory competitors or market downturns
  • Price flexibility (dynamic pricing) a necessary evil
  • There are opportunities to protect your pricing

 

Knowledge of your home(s) and market is your best defense against competitors discounting.

 

First, know your product and homeowners.  For each home, make the effort to identify the homes with which it competes, including other homes you manage, in terms of size, features, quality, proximity and consumer appeal.

 

  • One of your homes may be a commodity, like numerous others, that competes for renters during a low occupancy season; you have to discount to maintain your historic share of rentals
  • Another home may be unique and does not need to be discounted during low occupancy seasons because it has no peers, because its peers are not being discounted or because all competing homes are in your own rental program
  • Work to understand whether you lose money on seasonally discounted homes after add-on fees are taken into account.  If not, don’t hesitate to match competitive discounts during off-peak times where this will make your homeowner happy and keep his peak season rents in your program.
  • Offseason rents are often so low that they lose money for rental managers.  Where offseason rentals benefit homeowners only, match competitive discounts only where necessary to prevent your homeowner from leaving.
  • Also remember that homeowners, especially those with good homes, generally prefer rental programs that offer homes of equal or higher quality.  In this case, think about whether losing or retaining a homeowner over your discount policy will nudge other homeowners to join or leave your rental program.

 

Secondly, make sure you monitor and understand your market.

 

  • What’s Up with Your Competitors? 
    • If you have aggressive or up-and-coming competitors, you might have no choice but to match or beat their discounts to prevent them from “buying” market share by hijacking your customers (“We have more quality homes” or “We get more rentals per home.”)
    • If you know most of your competitors won’t discount aggressively during lower occupancy seasons, you can ignore an occasional competitive discount and hold your prices at levels renters are willing to pay for the week in question.
    • If you have multiple competitors who are discounting during a time when supply exceeds demand, your options are to match every discount or risk foregoing any rental for the period in question.
  • Mature or Growing Market: You must fight hard to retain your homeowners if your market has matured, exemplified by little or no growth of rental homes in your area.
  • Tracking the balance of supply and demand for each week of the year

 

When there is more supply than demand; renters have bargaining power thanks to the Internet—price competitively or forego the rental after asking yourself:  If I get fewer rentals than competing homes, will more homeowners leave me than if I match discounts?  Where will I likely lose the most money?

 

Price right initially by monitoring the duration and amount of seasonal discounting by competing homes. Then monitor your competitors’ discounting and booking pace.  Decide how discounting is likely to cause your inventory to decline, hold steady, or grow.   Think carefully about whether your company’s long and short-term interests conflict:

 

  • Do you need to match competitors’ discounts and lose money for a few rentals in order to protect several years of revenue? 
  • Is a competitor stealing your inventory and hurting your brand image by discounting steeply to get bragging rights that attract your homeowners (“I booked more rentals than my competitors.”)?
  • Do you dominate any market by managing most of the homes in a particular category so you can maximize revenue by refusing to discount at all?

 

What we thought of as “discounting” yesterday is today better thought of as “dynamic pricing” that requires quick adjustment in response to supply and demand.  The pressure to discount cannot be successfully addressed by inflexible policies.  It is easy to calculate how discounting will erode your historical rental income in the short-term.  It is more difficult, but more necessary in today’s Internet world, to acknowledge that the decision to discount or not has both short and long term consequences that often conflict.

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HomeAway_sm.jpg

 

As the worldwide leader in online vacation rentals, HomeAway® continues to invest in building broad-based awareness to travelers nationwide.  This year our brand team has decided to forego Super Bowl advertising and focus on a campaign promoting families and groups ‘staying together’ in a vacation rental home.

 

The new national advertising campaign, centered around the key message “Let’s Stay Together,” focuses on families and groups creating lasting memories out of where they stay, not just where they go. The HomeAway ad campaign licenses the rights to Al Green’s 1972 classic hit, “Let’s Stay Together,” and debuts in select markets during the January 15, 2012 NBC television broadcast of the 69th Annual Golden Globe Awards.

 

We believe investing in a long-term campaign with ongoing communication, rather than on a brief Super Bowl ad, will have a much bigger impact on the marketplace by bringing traveler awareness to our amazing category!  The goal with this 2012 advertising campaign, which kicks off next week is to confirm HomeAway’s commitment to building the vacation rental category as a whole and increasing traveler demand for vacation rentals.  If you’d like to learn more about the campaign, please read this blog by our co-founder and CEO Brian Sharples.

 

We invite you to join us for a webinar this Thursday, January 12, at 2pm CST.  The presentation will provide a sneak peek of our upcoming ads and discuss the overall campaign strategy to ultimately bring you more travelers.  Just click on this link to sign up and join us.

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I’m excited to announce Community for Property Managers, a new online resource for professional vacation rental managers. 

 

The vacation rental management business is tough because there are many ways of going about it.  The Community for PMs will share snapshots of how successful property managers grow and streamline their respective businesses.

 

The site is launching November 10, 2011, and will be seeded with a rich sample of content.  The variety of resources will increase rapidly over the next year with your contributions to its articles and forums.

 

Sure!  All sites want great content, but few achieve this.  Why should this Community be different?  Because resources will be contributed by members of the industry itself, making up the “Community.”  Users will learn and share content via forums, share and seek advice with one another and form groups with fellow users to pool resources on a variety of topics and issues.

 

How will we foster this? Community for PMs is designed around a “give-to-get” information exchange.  Members will give opinions and advice regarding their business experience with an interest to see others’ answers.

 

Key Features of the PM Community

 

How-To-Articles.  Vacation rentals are a complex business.  The Community will offer a continuing steam of “how-to” insights on discounting, growth and other common industry challenges and trends.

 

Forums are available for managers to exchange comments.  These will grow in lock step with content and participation.  We expect to see forums for industry trends, vendor products and relevant industry news.

 

Statistics (available in 2012) will provide perspective to the booking trends experienced by individual rental managers.

 

Vendor Showroom -  I am especially proud of HomeAway here: we are planning to include a Community Vendor Showroom that will be free and open to all—including HomeAway competitors to provide PMs the ability to browse and rate products and service providers for their managed homes.   This is a bold move.  But we are hoping this will provide an incredible value to our PMs

 

I’ll host Webinars where guest speakers share insights.  One of our first webinars, “Hybrid Business Models,” will show how a rent-by-owner business morphed over five years into a PM with five hundred homes under management by incorporating best practices of both PMs and rent-by-owners.  Subsequent webinars will address difficult industry challenges in the realm of rate setting, finding growth in maturing markets and channeling employee conflict.

 

Polls will be utilized to gauge opinions on topics such as booking trends, financial effects of discounting and the impact of social media on the industry.

 

Community will also offer business support tools.  Our first example is a spreadsheet tool that will help calculate the dollar value of a single home—illustrating how much is at stake when a homeowner is added or driven away.  Soon, our “What-is-it-Worth” valuation tool will help calculate the value of a vacation rental management firm.

 

Community for PMs Will Belong to the Industry.  Community is designed to attract and benefit all segments.  No cost.  No strings.  Our goal is to build this industry and welcome any efforts towards that goal. 

 

So come on in.  See what’s there now.  Let your imagination show what you can help it become.  Then contribute what you can, take what you need and help make this a fabulous Community.

 

See you there!

 

George

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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.

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The New Year brings to each rental manager the challenge of growing profits and responding to emerging competitive pressures.  Ideas are seldom scarce.  Resources usually are.  How can a manager best decide which promotion ideas will best grow your business?

 

As managers sift through their options, they need an understanding of the profit drivers for vacation rental management business.  The fundamental concept can be conceptualized with this question:

 

“What is more important to your business— inventory (homeowners) or reservations (renters)?”

 

“Why,” you may ask, “is it even important to ponder this question?  Shouldn’t we treat both groups as equally important? “

 

I’d illustrate the importance of prioritizing inventory vs. reservations in the context of budget planning.

 

For example, as your company puts together its 2011 budget, it might see opportunities such as the 12 that follow, but have resources to invest in just one.  How does your company decide which to pursue?

 

1.    Website enhancement;

2.    More money for paid search;

3.    Marketing consultant or staff;

4.    Database mining and email blast capability;

5.    Staff to respond more quickly to email inquiries;

6.    Phone systems that help monitor and improve call-to-booking ratio;

7.    Data mining that identifies homeowners;

8.    Lists of target homes;

9.    Email and postcard campaigns that solicit new homeowners;

10.  Staff time that can be dedicated to soliciting new homeowners;

11.  Studies of competitors’ commissions, fees and services;

12.  Decision support tools that monitor each home’s bookings year-to-date

 

It can be loosely said that the first six options target renters and the last six target homeowners. 

 

Certainly, you have to “treat” both renters and homeowners as though they are your highest priority.  But you can’t always invest in promoting both.   If you have a sense of whether it is more important to grow reservations or inventory, you are half way through a difficult decision.

 

So, which is more important?  (Let’s assume that you don’t already have enough of one group.)

Initially, the question appears to pose one of those “which came first, the chicken or the egg?” questions that has no definitive answer:

 

  • Without renters, there is no business.  Their rents and fees supply all the revenue.
    • If you bring in enough renters, you can attract new homeowners.
  • Without homes, you have no product to attract renters; your company profits depend on the number of homes you have.

 

But we need to look deeper.  Embedded in the very structure of the vacation rental industry are other facts that help prioritize these two customer groups.  A grasp of these structural facts will help managers better understand their business models, identify profit drivers, and decide how to allocate scarce resource to grow the business.

 

“What,” we need to ask, “is the product we sell?” Vacation rental managers sell lodging of course, like hotels, motels, cruise ships, and RV rentals. 

 

“Duh!” you might respond.  “What’s not obvious about that?”

 

The answer:  Lodging is by far the most expensive component of the vacation rental business. Many managers don’t focus on this because they don’t own the lodging they rent.  For managers, the greatest expense is usually labor.  But for vacation rentals to exist, someone has to invest capital in lodging.

 

“Okay, inventory is the most expensive aspect of this business.  Why is that important to know?”

 

Here’s the key.  Unlike investors in hotels, motels, cruise lines, and RV rentals, most homeowners do not expect to earn a profit on rentals!  Rental homes don’t have to generate a return on investment.

  • Homeowners are largely investors in real estate who profit when they sell their home at an appreciated price; they usually expect to have negative cash flow from the rental activity.
  • They are investors who use rental income to help them buy a more expensive home than they could otherwise afford (leveraging the potential appreciation on their investment);
  • They include investors who gain lifestyle benefits while rental income helps them pay for real estate that—during the history of the US—has always appreciated over the long term and is likely to continue to do so as the US population grows.
  • Investors supply the bedrooms we rent, allow us to sell the rooms below cost, subsidize the renters through negative cash flow (often losing $2000 monthly), and take all the risk.
  • Rental managers get to price these rental properties below cost (which hotels cannot do for long), take a percentage or every dollar spent by a renter, and expand or cut our expenses when the market expands or contracts.

 

When the economy was booming, a study I did for the North Carolina Vacation Rental Managers Association concluded that homeowners in NC subsidized renters by $251-500 million annually.

 

This subsidy makes vacation rentals a superb value to renters.  For each dollar spent, renters get more space and privacy than can be offered by hotels.

 

  • This single fact frames the business model depended upon by most rental managers:
  • Managers don’t have to pay for the lodging they rent;
  • They don’t have to charge enough rent to pay the mortgage as do hotels;
  • They don’t have to generate a return on the homeowner’s investment;
  • They can sell their product below cost, making it a great value;
  • They take a commission and fees on every rental;
  • Managers do not need a large capital investment to enter the business.

 

This gives rental managers some fairly unique advantages over other lodging providers:

 

  • Vacation rental homes offer such good value relative to hotels and motels that managers don’t need large marketing war chests to sell their product.  “Build it and they will come.”  (At least during peak season).
  • Managers can survive by spending just enough money to enable renters to find them. 
  • Promotion of the resort area can be left to State tourism agencies, County tourism development bureaus and Chambers of Commerce who represent hotels as well as rental homes. 
  • Managers need only compete for a fair share of those tourists who have already decided to visit.

 

And here is the wonderful part:

  • Good inventory will be found by renters.  

 

With these thoughts in mind, let’s revisit the question, “What is more important, inventory or renters?
It has been my contention for the past 10 years that inventory is more important, hands down:

 

  • If a manager can offer great inventory at a competitive price, renters will find it (good inventory = inventory in demand);
  • Competition in each market may dictate rent levels and limit the fees that a manager can charge.  But it is the quality and number of homes in a manager’s inventory that will determine how much profit a manger can generate.

 

Am I suggesting that managers need not dedicate resources to getting reservations?  Of course not.

  • A rental manager’s first priority is to attract and keep the best homes possible;
  • A rental manager often has more bedrooms than area hotels; he needs to build his hotel a few bedrooms at a time, and it is the number and quality of inventory that attracts renters.
  • Renters will find good homes (homes in demand) whether the manager has a large or small marketing budget.  Illustration:  in most markets, a great new home that is not yet constructed can book up fully for the peak season shortly after it is advertised on any manager’s web site.

 

Managers must also focus on getting reservations because homeowners want to be in rental programs that maximize rental income.   Even one extra rental per home per year can help managers retain and attract the most desirable rental homes.  But the key to profits lies in attracting and retaining inventory.

 

There are of course other things that must be considered in deciding whether to pursue renters or homes at a given point in time:

  • How fast can you grow without degrading service levels or diluting rentals for veteran homeowners? 
  • Can you finance this growth (growth costs money) or survive it (most small business failures arise from growth, not from lack of customers)?
  • Is one of you key competitors growing (can I afford not to grow);
  • Is your market maturing or can we count on growth?

 

We’ll cover some of these issues in future blogs.  Hopefully this discussion will illustrate the structural elements of the vacation rental industry that set it apart from other lodging segments, and bring into focus the core importance of inventory in driving profits for vacation rental managers.