Ben Edwards
Sports and business have unlimited comparisons. The obvious similarities are team work, focus and a desire to win. When playing a ball game the scoreboard clearly depicts the winner and the loser. However, success in a vacation rental business is often difficult to discern.
The primary litmus test for success is a company’s net income, but reputation management, business statistics and operations management also play an important role. Of course, there are a myriad of other key performance indicators, but no matter the measurement point, many vacation rental professionals are not focused on the scoreboard and playing a winning game. For the purposes of this article, we’ll focus on a few tangible techniques to increase net income.
In addition to managing multiple short-term and long-term rental management companies, we’re involved in numerous consulting and accounting engagements as well as closing a large number of buy/sell transactions in the vacation rental industry. My experience over the past 18 years in this industry, coupled with the fact that we’ve operated in more than 200 vacation rental markets, has allowed us the opportunity to see a number of trends adversely affecting our ability to operate successfully or play to win.
There are two ways to increase net income in the vacation rental business: increase revenue and decrease expenses. Most vacation rental managers are focused on certain high-level areas or accounts and seem to overlook less prominent areas where net income may be increased. We’ve found general fee revenue, that is reservation fee revenue excluding rental management commissions, should be reviewed and compared to the market to ensure proper monetization of reservation fees. In short, we’re finding a tremendous amount of money being left on the table and it is rare that we do not find an opportunity to increase fees. Most fees are low as compared to the market or not being charged at all. As you look at the specifics, please note that we prefer a percentage based administrative processing fee, a flat rate damage waiver fee and, if feasible, a flat rate guest service fee designed to offset the cost of guest management while in-house. In addition to the reservation fees, many companies are not properly pricing housekeeping and maintenance fees. Specifically, housekeeping and maintenance rates are not set at a rate that provides a reasonable amount of profit. Ensuring appropriate revenue account margins in your revenue accounts is an excellent way to increase net income and offset the countless expenses incurred, but often not billed to an owner or guest.
Diligent expense management continues to produce meaningful returns for vacation rental companies. Payroll and marketing/advertising expense are two of the largest expenses in a vacation rental operation and while they require constant review and management, there continue to be numerous, less polarizing expenses that combine to diminish net income. These expenses seemingly represent small amounts, but in the aggregate can plague an income statement and prevent a company from reaching its full profit potential. When reviewing the income statement, it is important to determine if each expense is necessary and imperative to the success of the business. Utilize a general ledger or posting journal to review items at a more granular level. In addition to strict management of payroll and marketing/advertising, general expense management across the entire company could produce material increases in net income.
Generating a material bottom line is more important than ever. Increased earnings can help weather periods of economic downturn or unfavorable market conditions. Having a reserve or simply banking higher profits is prudent business management and communicates an intent that you are playing to win by increasing the value and success of your business.
