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PM Perspectives

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Though today, I shared my perspectives on the vacation rental management industry under the title “Volsky’s View.”  I’m excited to report this will be my last blog under that title.

 

Going forward, my blogs will be supplemented by contributors (HomeAway Software for Professionals (HASP) employees) who are in a position to interact with vacation rental managers and observe industry trends. These blogs, along with mine, will appear under the title, “Property Manager Perspectives.”

 

It is our goal to enrich the content of blogs on HomeAway Community by addressing evolving industry trends, newly emerging issues that concern property managers and events that help rental managers make better decisions. 

 

This change is part of a new role I will be assuming at HomeAway.  I have been given an opportunity to help HomeAway provide new and meaningful resources for property managers on HomeAway Community. The planning phase of this new project will keep me busy for a good while. 

 

We hope to unveil some new online resources and services for PMs in the future.  Until then, I’ll keep contributing blogs to PM Perspectives, as will other authors. 

 

Best,

George

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Hotels must achieve higher occupancy rates to attract investors.  It is natural that hotels sometimes fill vacancies through aggressive discounting.

 

The first part of this blog addressed community interests in vacation rentals.  This second part discusses actions managers can take to defend against hotels and cruise lines.

 

What Community Leaders Should Understand About the Unique and Critical Role Played by Vacation Rental Homes in Local Economies and Why They Should Promote a Level Playing Field

 

As noted in Part 1, vacation rentals are well equipped to survive aggressive promotional discounts by hotels and cruise lines which, by virtue of their more demanding investor expectations, must always rebound to higher prices than are charged by vacation rental homes.

 

But when municipalities place unfair regulations on vacation rentals, long-term damage can result to both the local economy and the vacation rental industry.

 

It is important to recognize (and educate community leaders on this point) that vacation rentals’ unique investment profile generates economic benefits that—on a per-visitor basis—cannot be matched or replaced by hotels.

 

Large hotels are often not financially viable (and thus not present) in vacation markets that are just beginning to attract tourists or have short seasons.  Hotels in such markets would need to charge prices that are too high to generate the high occupancy rates required by hotels.  Here:

 

  • Vacation rentals bring the capital investment (housing infrastructure) that is necessary to lure tourism dollars to destinations that lack sufficient traffic to support large hotels.
  • Vacation rentals offer lower-priced or higher-value lodging than could be offered by hotels and motels.  This brings more tourists and primes the pump for tourism growth.

 

It is also important to recognize (and educate community leaders on this point) that vacation rentals bring economic benefits to a community that goes far beyond those traditionally generated by hotels and captured within the scope of tourism metrics. Vacation rentals typically:

 

  • Involve longer stays;
  • Involve larger travel groups;
  • Employ more employees per bedroom for maintenance and housekeeping;
  • Support larger numbers of small business;
  • Accommodate peak season overflow that hotels cannot cover;
  • Generate economic benefits beyond those embedded in “tourism” metrics:
    • Prodigious numbers of housing construction;
    • Large volumes of real estate sales commissions (5-8 year home turnovers);
    • Related volumes of mortgage financing and fees;
    • Home furnishings and housewares sales;
    • Indirect employment and sales measured as economic multipliers;
    • Tax revenues related to underlying employment and sales

 

Local leaders seldom realize the full range of benefits their communities receive by nurturing and protecting vacation rentals.  As an industry, we can’t expect community leaders to understand our industry until we do.  It is our responsibility to educate ourselves, then others if we are to defend against regulations that restrain vacation rentals at the prompting of competitors.

 

What Defensive Actions Should Managers Take to Compete with Hotels and Cruise Lines?

 

My advice:  educate yourself on the forces that actually threaten vacation rentals or dictate what we can and cannot achieve.  Engage where you foresee clear benefits.  Otherwise relax.

 

Cruise lines advertise some incredible prices for all-inclusive vacations that can include air fare, a cabin, entertainment and food.  What can you do in defense?  You could pass along articles that show how much cruise lines generate from drinks and gambling, but consumers probably sense that anyway.

 

  • Cruise ships require massive capital investment, and a small decline in bookings can be disastrous.  Unlike rental managers, cruise lines have to pay for empty rooms. 
  • It’s important for cruise lines to be full even if they have to give rooms away because cruise lines get revenue from liquor sales, gambling casinos, and shopping. Plus, ports often pay a fee for each disembarking passenger.
  • Cruise passengers don’t necessarily spend less, but they love the idea that they can spend less, eat endlessly, or put vacation money into shopping, drinking and gambling.
  • Cruise lines won’t supplant vacation rentals.  There’s room for both.  I believe vacation rentals offer more of a recurring lifestyle vacation embedded in family traditions. Cruises fit in the category of infrequent travel adventures, ala Las Vegas or Disney World.
  • For 2011, economic stabilization is allowing cruise operators to demand higher prices, and this should result in less competitive pricing pressure on vacation rentals

 

Periodically, ski resorts and high-end hotels steeply discount room rates to fill vacancies. 

 

  • Resorts and high-end hotels have higher fixed costs than vacation rentals and fight to cover those costs by getting “heads in beds” that generate additional spend from spas, lift tickets, restaurants and shops. When these entities discount lodging by 50%, their revenues drop just a fraction of that and could actually increase.
  • Managers and homeowners do not generate similar supplemental spend, and are hurt more by lodging discounts.  Managers should inform homeowners about steep hotel or resort discounts and give homeowners the option to defensively discount rents to retain renters—many homeowners will  discount rather than get nothing.
  • When resorts ask homeowners and managers to discount lodging to lure renters from competing destinations, do the math and raise the issue if it appears that private homeowners contribute 90% of the discounts but resorts reap 90% of the benefit.
  • Managers need only calculate how low rents can go for them to break even.  Profit is desirable, but it is better to help homeowners get some revenue through discounted rents (even if the manager makes no profit) than to lose the homeowner (and future profits from his home) because the homeowner thinks you didn’t try hard enough

 

Remember, the ability of hotels and resorts to meet fixed expenses depends on high occupancy rates.  This dictates that hotels deliberately keep capacity below levels required for peak demand days, leaving room for vacation rentals. 

 

Also keep in mind that hotels must charge enough to generate a return on investment, whereas vacation rentals need not even cover investors’ costs of home ownership. 

 

These facts, combined, make hotels and resorts vulnerable to vacation rentals, which deliver excellent value and lower prices. 

 

In other words, vacation rentals offer a better lodging value for the renter’s buck during normal times.  Hotels and resorts inflict the biggest pain on rental managers during periods when declines in demand make it hard for hotels to cover their larger fixed expenses.  But vacation rentals will always remain healthy competitors in the lodging market.

 

For 2011, U.S. hotels appear to be on pace to grow room revenue (RevPar) 7%, and this should alleviate the steep discounting of prior years. 

 

In all events, the threat from hotels and resorts is not great over the long-term. But I'd love to hear different perspectives if you have them.

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This blog addresses questions that confront every vacation rental manager at some point: 

 

1.    “How can I compete with hotels, cruise lines and other lodging segments?”

 

2.    “How can I convince community leaders to keep the competitive playing field level?”

 

Part 1 answers the first question.  Part 2 discusses how managers should react to other lodging segments and lists reasons why community leaders should promote a level playing field.

 

Why Would a Rental Manager Want to Compete with Other Lodging Segments?

 

The obvious answer: renters of vacation homes also patronize hotels, motels, cruise ships, camp grounds, recreational vehicle rentals, houseboat rentals and B&Bs. 

 

Each lodging segment has unique advantages and core customer groups.  But many travelers patronize two or more lodging types.  Customer pools for each segment can overlap.

 

When travel declines, cruise lines and hotels unleash expensive campaigns that could divert travelers from vacation rentals. The vacation rental industry is historically fragmented and has only recently been postured to defend itself with effective national advertising campaigns.

 

Renters Have Been Inundated With Offers for Alternative Vacation Opportunities


•    Cruise packages that include lodging, transportation, meals and entertainment;

 

•    Heavily discounted rates by resorts and four-star hotels offering shops, spas and food;

 

•    Central reservation systems that discount lodging to lure travelers to resorts;

 

•    The dominance of hotels on online travel agency sites:

 

Hotels have aggressively discounted in response to several years of declining roper room revenues.

 

Should Managers Defend Against Competitive Assaults By Other Lodging Segments?

 

This question should be addressed on four levels:

 

1.    Are vacation rentals’ role in the lodging ecosystem threatened over the long-term?

 

2.    Do managers have any ability to counter low-price promotions by other segments?

 

3.    Should managers respond to promotional initiatives by other lodging segments?

 

4.    Do communities have reasons to keep the competitive playing field level?

 

Vacation Rental Homes Compete Well With Other Lodging Segments in Good Times

 

Hotels are expensive capital assets that require a return on investment from operations and thus high occupancy rates in the 60 percent range.  So developers never intentionally develop enough hotel rooms to accommodate peak season surges (just as airlines wouldn’t intentionally buy enough planes to handle the busiest traffic days if those planes would have to fly half-empty other times).

 

•    By contrast, vacation rental homes can be financially viable with low occupancy rates in the 35 percent range and can serve as the safety nets for local economies that capture dollars spent by visitors whose numbers exceed the bedroom capacity of hotels.

 

•    Investors who own the capital assets in vacation rentals (the homeowners who own your rental inventory) don’t expect to make money from lodging operations.  They expect profit when they sell appreciated real estate and negative cash flow in the interim.

 

•    This unique and advantageous investor profile for vacation rentals means that:

 

     o    Managers and homeowners may price rental homes below cost!

     o    Vacation rentals should thrive with lower occupancy rates!

     o    Vacation rentals should exist and thrive as long as property values at vacation destinations are expected to appreciate over the long term.

 

Vacation Rental Managers Make it a Point to be Structurally Equipped to Ride Out Market Downturns

Generally, when the demand for hotel rooms pulls occupancy below 60 percent for the industry as a whole, many hotels become nervous and discount room rates to any level that contributes to offset hotels’ large fixed expenses.  This is the time when they discount most and/or encourage community restrictions on vacation rentals.

 

But vacation rentals are well positioned to survive price competition, even if hotels eat first:

 

•    Homeowners, not managers, shoulder the burden when demand dips (subsidizing mortgage and expenses), whereas managers have few fixed expenses.  Managers’ largest cost is labor, a variable expense that falls almost in lockstep with bookings and arrivals.

 

     o    When rentals dry up, vacation rental managers can lay off staff and hibernate.

     o    Homeowners survive dips in demand by (a) discounting rents to maximize contribution to expenses; (b) covering declining revenue out-of-pocket; or (c) selling the home to a buyer who can afford it at prevailing annual rents.

 

•    Apart from value, vacation rental homes offer:

 

     o    Greater space for families or friends who vacation together;

     o    Kitchens that extend vacations by lowering food costs;

     o    Options for every pocketbook, from small or older homes in great locations to luxury homes with home theaters and indoor pools that are destinations in their own right.

 

•    This unique resilience of vacation rentals to market downturns means that, barring another depression, vacation rentals should exist and thrive over the long-term regardless of the level of discounting by competing lodging segments.

 

Next Blog:  Part 2: 

 

•    What Community Leaders Should Understand about the Unique and Critical Role Played by Vacation Rentals in Local Economies; and why they Should Promote a Level Playing Field

 

What defensive actions managers should take to defend against hotels and cruise lines

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If there is one debate that rages continually inside vacation rental companies, it is this:

 

In our advertised prices, should we roll any mandatory add-on fees into the rent or not?

 

Why is this a recurring concern?  Because:

•    Fees (vs. commissions) often contribute all the profit and many expenses;

•    No lodging segment has a more varied or complex pricing structure;

•    Not all managers or homeowners roll fees into the advertised prices;

•    Renters hate it when hit with unexpected fees;

•    But renters will often ignore a home that “appears” more expensive.

 

I know a company that changed its advertised rents to roll in fees but later concluded that it would have to revert to its original pricing by backing add-on fees.

 

This company’s reservations staff had been repeatedly beat up by renters who became angry when informed that the advertised price had to be significantly increased by fees (fees and taxes can increase advertised 50%, especially for short 2-3 day stays).

 

So the company changed its policy by rolling fees into the advertised rent.  The result:

•    Renters who did book were much happier;

•    The lives of this company’s reservation staff improved significantly, and

•    Bookings fell 20%.

 

The unfortunate lesson for this company was that many renters ignore a home or company that “appears” more expensive than comparable homes.  They often dismiss a home without drilling down enough to learn that it would have been less expensive than the home they ultimately booked.

 

The dilemma: renters get angry when hit with unadvertised add-on fees. But property managers lose bookings when fees are made clear due to the perception of being priced higher than properties with hidden fees.

 

If you can take the high road without losing rentals, by all means roll your fees into your advertised rents.  But remember why add-on fees are used.  Pricing today is a game of psychology.  Add-on fees are indirect ways of increasing prices. 

 

Consumers don’t always take the time to get accurate price comparisons.  This fact is obvious and relied upon in the creative strategies that focus on appearances. For example:

 

•    Car dealers add a variety of fees, including delivery;

•    Banks invent more fees than I can keep up with;

•    Airlines adapted to low cost competition by lowering base prices but charging fees for every sort of convenience.

 

Some renters—too many to be ignored—punish good managers for being honest and reward companies that do a good job of hiding actual prices until the last minute.

 

The vacation rental industry is fragmented in its pricing, so there is no common standard.

 

While commodity price can be compared on aggregation sites, I know of no site today that can accurately compare prices for vacation rental homes without a direct link to reservation systems.

 

Hotels rely heavily on fees today, as do airlines.  And the Internet does a good job of comparing prices for hotels and airlines.  But both industries typically use reservation systems that provide real-time access to availability and pricing data to travel agents.

 

In vacation rentals, the “advertised” price often does not include add-on fees.

 

Here’s my advice.  Let your market be your guide. 

•    Check the advertised prices for homes similar to yours;

•    Determine the extent to which they roll in fees;

•    Decide whether your prices “look” higher;

•    Determine whether your prices are higher and, if so adjust them.

•    Always price your homes so they “appear” to be price competitive.

 

It goes without saying that you should post all add-on fees on your website if you don’t roll them into your advertised fees.  

 

If you are dominant in your market, or have the greatest number of homes with great rental appeal, you may be able to book them even when your advertised rent is higher.

 

One question commonly arises.  “What if I go to great lengths to let consumers know that my all-inclusive prices are often less expensive than competitors’ homes that have unadvertised add-on fees?”

 

This is a fine idea if it works.  I know companies that do a very good job of this by adding language to every web page and by comparing competitors’ prices.  But if there is even one renter who doesn’t bother looking at their web sites because the advertised price appears too high, then this strategy may still result in lost rentals.

 

Sometimes, renters zero in on homes that interest them based on two lines of text and a picture.  There is a lot of basic information that competes for space in these two lines.  It is hard to make the point, “our all-inclusive price is actually a great value.”

 

In the end, your pricing strategy must take into account:

•    Your competitors' practices;

•    Your ability to distinguish your prices from competitors;

•    Your homeowner's fickleness;

•    Your staff's ability to deal with unhappy renters;

•    Your inventory and share of desirable homes.

 

 

Good luck.  There is never an easy answer.

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Title notwithstanding, this is not a blog where I will:

•    List and rank markets according to competitive opportunities; or

•    Assume that managers have much choice about where they operate.

 

I will list some characteristics that make a market good or difficult to compete in.  Understanding these can help you set realistic priorities, identify strategies that have a chance of success and avoid competitive efforts that are a waste of resources.

 

First, let’s acknowledge the Internet has put pressure on second home owners and managers alike, pushing rents down and expenses up in all markets.  A manager’s ability to adapt to these changes will vary by market.

 

Markets offer more or less opportunity depending upon:

•    Season length (longer seasons mean more revenue per home);

•    Real estate prices (rising prices counterbalance rising expenses or discounting);

•    Average stay length (how many times do you have to rent and clean each home?);

•    Number of vacation rental homes (profit opportunities increase with volume);

•    Number of competitors (discussed below); and

•    Market maturity (also discussed below).

 

The best market to compete in is one in which you have a monopoly—you are the only rental manager in your area, and you have the vast majority of available homes.  Consumers can’t bargain shop by threatening to use a competitor.  (Few monopolies exist).

 

The second best market is one where there are 3-4 equally sized large competitors and a number of smaller companies. The large companies often compete on everything but price (“pricing parallelism”) and are able to discipline smaller companies who undercut them(discouraging predatory discounts by responding with even steeper discounts).  Everyone makes money.

 

The worst market to compete in is one where you have tons of equally sized competitors and vacancies (this generates desperate discounting).  Few managers can make much money here until the market consolidates, weeding out the weak and creating leaders.

 

A very difficult market environment is one where the growth of rental inventory has stopped.  This occurs, for example, where all desirable land has been developed, local regulation has strangled growth, or falling home prices have forced homeowners to subsidize mortgage and carrying costs. As a result:

•    Managers can no longer achieve double digit growth in inventory;

•    It is no longer possible to offset “expense creep” by taking on more inventory;

•    Each new home must be acquired through hand-to-hand combat with competitors.

 

By categorizing the characteristics of your market, you can better identify what won’t work and zero in on the tactics that can grow (or at least protect) your company’s profits.

 

Here are suggestions for a mature market or a fragmented market with many competitors:

•    When the growth of new rental homes slows or stops in your market, focus on becoming more efficient than your competitors.  A lean company can do more with less and spend more money to retain and attract homeowners, leapfrogging over competitors who are saddled with less productive operations.

•    If it is getting harder to find new revenue streams or you are digging into profits to cover growing expenses, consider growth by acquisition (or merger).  This will insulate you from requests for discounts and allow you to offset shrinking margins with volume.  Consider the impact on you if your competitor beats you to this.

•    Don’t be afraid to “buy” new inventory one home at a time by offering promotional or introductory rates.  You can give away up to three years' profit to get a new home, just as you would if you bought a competitor’s inventory. (Just take care not to undermine your general commission structure).

•    If your market is maturing (no growth), focus on becoming dominant in a specific area, building or type of home (50 percent market share is a good goal).  This is another way to protect yourself from renters who demand discounts and from competitors who will undercut your pricing (more on this in a future blog).

 

In a healthier competitive market, you can focus on marketing.  Keep in mind that inventory quality and size trumps almost everything. The better your inventory, the less you must spend to find renters. Companies with very large marketing budgets sometimes achieve a relatively small occupancy rate advantage (or barely manage to stay even with other large-budget competitors).  Cutting marketing expenditures may not translate to many lost rentals:

•    If you don’t already do so, monitor your competitor’s occupancy via the Internet.  Weekly monitoring of availability calendars can allow you to track this with only a few hours of effort each week.  You need to know how you match up.

•    Re-examine each market expenditure with an eye toward identifying expenditures that aren’t clearly necessary and with the goal of leveraging any advantages that you do achieve from them.

          o   If you spend more on marketing, let homeowners know if you are getting more rentals than competitors—homeowners respond to this.

          o    If your competitor has a bigger marketing war chest, use Internet monitoring to let homeowners know there is little difference in occupancy for comparable homes (say you put your money into service where it goes much further in benefiting the homeowner).

 

I’ll cover some of these strategies in more detail in future blogs.

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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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Discounting poses one of a rental manager’s biggest challenges.

 

The Internet has shifted bargaining power from vacation rental homeowners and managers to renters, providing the tools that allow renters to capitalize on vacancies.

 

Renters peruse online availability calendars to confirm a company has empty homes. They use this knowledge to bargain.  Each year brings an increasing number of renters who demand discounts.

 

It would be wonderful if managers and homeowners could set a fair price and hold it.  But that is no longer possible during periods when there are more vacancies than renters.

 

  • A slow economy has prompted renters to look for value and ask for discounts.  When homes are vacant, usually one vacation rental homeowner will agree to discount.
  • Discounted rates reduce annual rental revenue and dig into homeowners’ lifestyle:
  • We operate in a fragmented industry, meaning there are so many managers and homeowners that they have no chance of acting together.  When a few homeowners start discounting, others must follow or lose rentals.
  • Discounting was further fueled by a housing crisis that destroyed the investment value of rental homes for buyers who bought at the peak of the housing market; homeowners who are digging further into their pockets to pay mortgages are not able to sell their homes without losing their equity.
  • The accompanying financial crisis made it difficult for second home owners to unload homes even at a loss, because buyers couldn’t get financing.
  • Consequently, there are homeowners who are desperate to generate any rent, and they are the first to discount during the non-peak seasons.
  • Again, other homeowners must match these discounts or forego renting

 

A decade ago, managers set rates based on the prior year’s rental history, and largely held to those prices.  Today’s Internet world, the market is dynamic.  Prices fluctuate much like stock prices—they change daily in response to the balance between supply and demand. There are few rental managers today who are immune from discounting. 

 

This poses several dilemmas for rental managers. 

 

  • If they don’t ask vacation rental owners to discount, they get fewer rentals; some homeowners will change rental programs.  If they do ask owners to discount, then owners blame managers for giving away rental income.
  • When managed homes are discounted, there is less revenue for the commission split.  A 20 percent discount reduces managers’ commissions proportionately but managers’ housekeepers and maintenance staff expenses remain fixed.

 

When rental rates are discounted, managers do the same amount of work (or more) and can’t afford to shoulder the burden.  Managers must either cut expenses (staff) or take a bigger share of the dropped rates.

 

In a resort market with many competitors, managers can’t raise commissions without losing homeowners to competitors.  So they do what banks and car dealers have done:  tack on fees that, in a strong company, can contribute two-thirds of all company revenue.

 

Fees have many advantages over commissions:

 

  • They are payable in full whether the home is discounted or not, insulating the manager from discounting (placing the burden of discounting on the homeowner);
  • They increase the “effective” commission rate in a way that is more palatable to homeowners who might leave if the commission rate were increased directly;
  • Fees help most during the off-peak seasons, where seasonal discounting of up to 50 percent traditionally caused managers to lose money on rentals.
  • Fees are the best way for managers to insulate themselves from discounting.
    0

    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.

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    Volsky's View: All About Me!

    Posted by gvolsky Dec 7, 2010

    Hi!  I’m George Volsky – the person responsible for posting blogs on the Community about vacation rentals in relation to property managers. This first blog is devoted to ME--who I am, what I’ve done, what I’m good at, and what I plan to do with this blog.

     

    To start with, I’m a bit dysfunctional and really bad with names, but on the upside, I’m good with concepts and systems and I’ll remember your business issues even when I can’t remember your name.  I can say (modestly) that I have as comprehensive an understanding of this industry as anyone, because of the time spent talking to rental managers about the business.

     

    I pour over industry statistics.   I’ve written white papers and delivered hundreds of educational seminars over the years on virtually all industry topics.  I love this industry.

     

    What I enjoy most is figuring out how everything about this industry interacts with everything else. I like questions like:

     

    • “What is more important to rental managers--inventory or renters?” 
    • “How can you change your fee structures to insulate you from discounting?”
    • “When is it better to omit add-on fees from your advertised price?”
    • “Which markets are best and worst to compete in?”
    • “How should you compete with hotels and cruise lines?”
    • “How do you deal with competitors who cut commissions and rents?”
    • “How fast can a rental manager grow?”
    • “How do you compete with a competitor that has more money, homes, etc.?”
    • “What does the growth of rent-by--owner mean for the future of rental managers?

     

    In my blog, I’ll be talking about issues like these--as well as about issues you raise in the forums.

     

    Many vacation rental managers have already attended my seminars at national or state association meetings, software user conferences, regional seminars hosted by vendors and webinars.  For you, I hope to continue sharing my perspectives about our changing industry and your options for adapting.

     

    But there are literally thousands of rental managers who are not active in industry events.  For you, I hope to share insights that have evolved from the collective wisdom of your colleagues.  It is my hope that these insights will help you grow, increase your revenue, and navigate the Internet and competitive challenges that are shaking up the vacation rental industry.

     

    Anyway, back to the main topic for this blog--ME.

     

    My first job out of college was as a transportation industry analyst, where I worked with government analysts and economists, learning about travel economics, and this led to too many years as an attorney, setting up and working with airlines (I still apologize for those years and am grateful that bankers have taken up their share of the burden as public targets). 

     

    My first job after leaving the law was as a vacation rental manager on the Outer Banks, where I dove into the company’s reservation data in an effort to learn in a few years what took eight years for vacation rental managers.  Anyway, I started talking about my discoveries, and this led to a 12-year term as a consultant.  I have worked closely with many of the nation’s leading vacation rental companies, large and small, in all areas of the country.

     

    I’ve studied the competitive and pricing strategies of competitors in entire markets, valued companies for purchase or sale, designed decision support software, projected the economic impact of vacation rentals on state and local economies, and served as industry consultant for the 2008 PhoCusWright study that sized and valued the vacation rental industry. 

     

    I currently monitor industry statistics and do monthly trend reports.  I have served as Director of Research for the nation’s leading reservation software companies, Instant Software and Escapia, which, as of October 2010 were acquired by HomeAway.

     

    I’ve now said “I” enough times that I can only bear to say it thrice more in this blog:

     

    • I’m looking forward to sharing my views and
    • I hope, over time, to get the benefit of yours;
    • I’ll share my next blog in time to wish you a happy holiday.

     

    Geo

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    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.

    

     

     

     


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    In a recent blog, I suggested that you look for ways to become more efficient in five categories. In this blog, I include my thoughts on“Changing your business model.”

     

    For years, I’ve joined the rest of you in following the role of rent-by-owner. RBOs are simply one facet of changes arising from the Internet that are responsible for many new expense categories and more pervasive discounting.  Among my conclusions is this:

     

    The legacy of the Internet (and Rent-By-Owner) evolution will not cause the eradication of mainstream rental managers but will result in the fundamental changes in what managers do and how they do it.

     

    Taking a Lesson from the Real Estate Industry

    We have seen a trend similar to rent-by-owner in real estate sales, when FSBO’s (“For Sale By Owner”) came into prominence on the back of new consumer-friendly Internet technology.

     

    In the early years, real estate agents worried that FSBO would put them out of business.  They saw FSBO as the enemy, and worked actively to oppose it.  In extreme examples, the government took action to prevent the industry from relegating FSBOs in the context of multiple listing services. 

     

    Before long, the National Association of Realtors was advising sales agents to find ways to work with FSBOs.  Their polls concluded that the vast majority of homeowners were reluctant to price their home on their own, market it properly, and do the related paperwork.  The FSBO trend peaked, and trailed off to occupy a fraction of the industry’s annual sales.

     

    The FSBO trend changed the industry.  Many real estate agents began to offer services a la carte. They let FSBOs pay them to do almost any aspect of the sale:  provision of signs, marketing, MLS listings, and the like.  The industry also departed from its commission structures to become much more competitive.

     

    Changes in Our Industry

     

    Today, there are many new rental managers who began by renting their own homes.  They started out as rent-by-owners and evolved into a new breed of rental managers.  Such companies have leveraged the Internet to redefine the way they do business.  Many do not have central offices and don’t require renters to check in and check out.  Many are able to service far larger geographical areas.  Some rely primarily on the Internet for bookings and/or allow their reservations staff to work from home.

     

    The net effect is a category of vacation rental companies that have lower costs than mainstream competitors (and provide less service).  They are able to charge lower commissions, or spend more money on Internet marketing.  This new breed is growing, proving that mainstream rental managers have many homeowners and renters who would accept less service in order to get lower prices.  This new breed is steadily stealing inventory and market share from mainstream managers.

     

    There will be many markets in which there is no discernable change from the Internet.  But you cannot afford to take this for granted.  Change can occur if one of your mainstream competitors is sold to a new-breed rental manager. Rental managers must always have a contingency plan.

     

    1. Think about ways your company can profit by providing services to RBOs;
    2. While you are at it, consider services to vacation home owners who do not rent;

     

    Also consider whether it can be in your company’s interest:

     

    • To specialize in a type of vacation rentals that is efficient (high-end luxury homes; or more basic “Motel-6” type properties, etc.);
    • If you are large and secure in your market, split your operations into two or more distinct businesses;
    • To offer a la carte services so the renter and homeowner need only pay for services they really want.

     

    As farfetched as some of these ideas sound, we are seeing similar trends in industries where the business models were so perfected that such changes would have been considered unthinkable ten years ago.

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    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!

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    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 third of these.

     

    Elimination of Unwanted Services. Would even one of your renters or homeowners volunteer to accept fewer services in return for a price discount? 

     

    If so, you are “over-serving” that customer.

     

    This generally happens when rental managers build up their services over the years to attract and keep their best (most profitable) customers. 

     

    If you only serve luxury homes or economy homes, you may be okay. 

     

    But we can take a lesson from hotel executives, who have learned that you can’t be all things to all people.  Hotels create multiple “brands” that allow customers to pay for the services and level of luxury they want.   If your competitive position is secure, consider splitting your program into two branded operations, one focusing on your high-end properties.  This will allow both groups to be more profitable.

     

    Or we can take a lesson from the airlines, which are lowering the base price of air travel by asking customers to pay extra for each accommodation they want.  I’ll cover this in a future blog titled, “This is a Good Time to Take a New Approach to Add-On Fees in Vacation Rentals.”

    If your rental program includes homes that run the full range of price and quality, you probably “over-serve” a good number of guests and homeowners who feel they are forced to pay for services they don’t need. 

     

    Your risk is that over-served renters and homeowners will leave your program to try a competitor who offers lower prices for less service.  So your best chance of protecting your existing customer base is to look for ways to appease renters or homeowners who will take less service in return for lower prices. 

     

    Don’t overlook opportunities just because they weren’t viable in the past.  For example, revisit questions like the following after doing some research on the Internet to see how new or innovative competitors are reshaping their business models.

     

    • Do you provide linens for all renters?  Or can they pay less money to rent a home that doesn’t have linens (or made beds)? 
    • What about designating homes that offer lower rents because they are “cleaned but not inspected” (“call for immediate response if you are dissatisfied”).  I know very good companies who have found ways to eliminate the cost of inspections.
    • Do you provide a welcome basket or special products (coffee, cookies, wine) to renters who might be willing to go without?
    • If you print a brochure, are all the homes paying their fair share of the costs?  What about revising your processes to include only those that do?
    • Do you require all guests to check in at your office?  “Express” check-in can free up staff time.

     

    You get the idea.  During a time of change, you have to be flexible and innovative to protect your customer base.  Get the staff together and revisit old assumptions

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    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!

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    In my first blog, I suggested that you look for ways to become more efficient in five categories. Today’s blog expands on the last of these:  trimming fat to become more lean and fit.

     

    During prosperity, companies, like people, tend to buy things they don’t absolutely need. 

     

    Sometimes, the purchase looked like it could produce great benefits, and the buyer gave it a chance because he could afford to experiment.  Sometimes, the purchase generates tools the manager loves but fails--when the numbers are examined—to generate enough new bookings, homeowners or savings to justify the program’s cost.

     

    When prosperity disappears, it can be difficult to re-evaluate the cost-effectiveness of expensive systems we formerly celebrated as a generator of competitive advantage.  All programs benefit someone, and any effort to eliminate them generates pushback, especially if they have been integrated into the company culture.

     

    No one can help you find the fat.  But I can offer this encouragement to do so:

     

    As much as you might hate to reduce services, amenities, or staff, you have a duty to your company’s employees, renters, and homeowners to generate enough profit during slow times to meet your company’s cash flow needs and pay for new initiatives that may be needed to retain and attract homeowners and renters.  By becoming lean, you free up money that can be redirected to buy more service than your competitors (allowing you to offer customers a better value).  Conversely, you will lose renters and homeowners if you allow a competitor to become leaner (more efficient) than you are.

     

    Failure to trim fat jeopardizes the major stakeholders in your business, all of whom depend on you.

     

    • Unneeded “fat” translates to lower productivity for each dollar of expense;
    • When customers think they can get better value elsewhere and start to leave, others start thinking about doing so;
    • Once homeowners and renters feel that another company offers a better value, it takes years to turn that perception around.

     

    Being a manager means making the hard decisions.  This is a time of change in our industry, which makes it the time to revisit all the assumptions behind major expenses.

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