- November 8, 2018
- Posted by: Ben Edwards
- Category: Blog
Sports and business have unlimited comparisons. The obvious similarities are team work, focus and a desire to win. When playing a ballgame 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 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 provide numerous consulting and accounting services and facilitate a large number of buy/sell transactions in the vacation rental industry. This experience, 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 revenues 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. Most fees are low as compared to the market or not being charged at all. More specifically, 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 aforementioned 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 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. In addition to strict management of payroll and marketing/advertising, general expense management across the entire company offers the opportunity to produce material increases in net income.
With all the changes across the industry, 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.