I stumbled into vacation rentals a few years ago and had no idea what I was doing. Yet, the transition wasn't too tricky coming from a hospitality background. What was difficult was the transition from amateur to professional.
My business partner and I got started with one owned property in Nashville. It performed well, so we told people about it. Soon enough, they started asking us to manage theirs. This is was the birth of our company, Savvy Travels.
As with many informal business endeavors, we began by saying "yes" first and asking questions later. This led to us getting started without management contracts, without systems or processes, and without any idea of how to run a management company. Our offer was simple: we'll do everything in exchange for X% of all income generated.
Two years later, we learned how to value management companies thanks
JamesO I started having conversations with other operators, vendors, service providers, and even former employees of big-box managers. The more I learned, the more I realized there were many ways to structure fees, and the way we were doing it wasn't ideal. We'd shot ourselves in the foot from the very beginning.
We started having candid conversations with owners to raise our management fee rates. After the first few, it was clear no one supported the idea despite our competitive rates (for example, 15% vs. 30% in some markets).
I remember thinking, "We're providing better service at lower rates—don't we deserve a raise?"
We ended up biting the bullet to keep our portfolio revenue strong and resolved to figure out an alternative solution. So the new question became, "How can we increase our revenue without increasing our rates?"
What follows are some of the answers we came up with that resulted in favorable increases to our top and bottom lines without compromising Owner or Guest satisfaction...
I was on the phone with a former Vacasa employee who helped analyze M&A deals for the company. His knowledge and experience were invaluable. Of the many insights gleaned from our conversation, an important one was how large managers structure their cleaning fees.
Instead of including the "cleaning fee" as a part of generic "rental income," he said it's actually excluded and considered separate. Managers offer to pay for the cost of cleaning with the condition that they collect the entire cleaning fee. In hindsight, this seems obvious, but it never occurred to me to view these as distinct from one another.
After running the numbers, I realized this was a huge opportunity. Not to mention, we can slide the cleaning fee up and down as needed to adjust for seasonality, the type of clean that's needed, and any other housekeeping-related expenses (deep cleans or add-ons like windows and BBQs, linens, lost and found, etc.). It may be worth noting that our field staff is all currently 1099, and we pay flat rates per turn. If you employ your staff and/or pay them hourly, the margins may vary.
We re-worked our contract to accommodate the new structure. Then we revised our pitch deck for prospective owners. The process takes a few extra minutes to account for during month-end, but it's well worth the change.
Before:
Management fee of 15% assessed on cleaning fee revenue of $250 per reservation. Average of 4 reservations per month = $1,000. Management Income = $150
After:
Management fee of 0% assessed, instead collecting the $1,000 and paying cleaners directly. Cleaning costs: $175 x 4 = $700. Income of $1,000 - $700 costs = $300. Rate of change = +100%.
This one is a winning solution that benefits all stakeholders in our operation.
In the beginning of 2021, I did a deep dive into insurance. What started as a simple question of "how do we best protect ourselves as a management company" turned out to be a long, complicated answer that took more than 3 months from research to implementation. While creating a plan for 360-degree coverage for ourselves, owners, and guests, I discovered a hidden opportunity to increase our company's revenue.
The multi-pronged approach comprised separate—but complementary—coverage for each party: management, owners, and guests. It wasn't until I compared products from a dozen insurance providers that I saw untapped potential on the guest front.
We ended up putting together a plan that covers guests for up to $2,500 of accidental damage during their stay. If (and when) something breaks in the house, gets damaged, lost, stolen, or otherwise is not in the condition we need it to be in, we can file a claim in 60 seconds to get the money for it.
The insurance company charges a flat rate per reservation, and we add a small surcharge to the rental rates above the actual cost that yields a 64% margin. The guest pays the charge, which is lumped into the general category of "Rent." So it's not readily distinguishable from the "Accommodations" charge on their invoice (the way taxes or credit card processing fees might be). Then we added a simple disclaimer on the listing as an extra perk that lets guests know they're covered for accidents (within reason, of course).
It's a win for us because it's a new, high-margin revenue stream that scales easily with our portfolio. The extra money pays us for the recovery process of fixing and replacing items when it inevitably happens (and also helps make up for a lower management fee).
It's a win for guests because they're covered for accidents that occur. For example, they don't feel nickel and dimed when the owner insists that we collect $75 for a broken lamp. In fact, they get to avoid the awkward and sometimes confrontational incidental discussion altogether.
It's a win for our Owners because now they're not paying out of pocket for things that break or go missing. And this fee is structured in such a way that their bottom line payout is unaffected.
Before:
Incidentals occur. Management chases guest, sometimes ending with guest having negative feelings about us (and often threatening with bad reviews). Owner is paying out of pocket for replacements if not covered by 3rd parties. Manager is paid $0 for efforts involved in the resolution process.
After:
Incidentals occur. Management files claim to recover. Guests get a better experience. Owner maintains a healthy house. Managers get paid extra revenue at no expense to Owners.
If I had to boil down guest satisfaction to its simplest version, I'd say there are three steps:
One of the things we learned last year is that our guests needed rental cars. Some destinations you can travel to and get away with not having one, whereas it's almost a requirement in other destinations (i.e., Hawaii).
So we decided to consult our owners and see if we could get buy-in. When they met us with rejection due to costs, we took it upon ourselves to cover the costs.
After rolling this out, we found an unintended benefit: renting to guests we weren't hosting. Now, we rent the car to both our vacation rental guests and other transient guests who need their own transportation. One of the renters actually turned out to be a homeowner that later enlisted our services!
In the first few months of operation, we found the car to be generating income equal to what a new property would be generating, but with a much higher profit margin (72%) and a lot less work. We're now looking to see which of our other markets would be a good fit to replicate this strategy. The car rental operation is a different kind of business in itself, but you don't have to go as far as to buy a new vehicle to realize the benefits of this strategy.
One VRMB member
Robin decided to buy AC units for his owners' properties and created a lease program that ended up being a win-win-win for everyone. Cost-prohibitive owners, communicative guests, and savvy vacation rental managers make for an excellent recipe for a healthy bottom line!
When you spot unfulfilled guest needs, you can shrug it off or you can take it upon yourself to go the extra mile. After all, someone will likely fill those needs anyways. Why can't it be you?
Before:
Guests find other ways to meet their needs with no benefit to Management or Owners.
After:
Management takes on the upfront cost to meet guest needs and collects the proceeds at 72% profit. Guests are happier. Owners benefit from increased occupancy due to the unique value-adds of the property.
In the hotel industry, a "room night" is the core product. Operators do their best to sell this product. If they fail, the product is considered waste because it cannot be resold.
In the restaurant industry, the core product is food. Similarly, if operators don't sell their product, the food is usually tossed right into the garbage. There's actually a line item on financial statements that account for this waste.
In the vacation rental industry, I've started to see an evolution of the core product, from "room nights" to "experiences." Looking at our business through the lens of the sharing economy has helped align our product strategy with our product philosophy, which is to minimize waste and maximize utility.
While AirBnB has come a long way since its inception, the origin story is actually rooted in the sharing economy: turn your extra space into extra cash. The platform gave people a way to increase the utility of their homes. The 'wasted space' they weren't otherwise using could now be used as an additional source of income.
When I see a booking calendar that looks like a slice of Swiss cheese, I see a wasted space and, subsequently, a whole lot of opportunity. And wherever's there's waste, there's an opportunity to make money (case in point: 1-800-GOT-JUNK). Every gap in the calendar is an opportunity to increase utility. Whereas some managers ask, "How do we get these nights booked?" we ask a different question entirely: "How can we make the property more useful to others?"
This curiosity has led us to discover unconventional ways to book our properties leading to increased revenue.
One example is production shoots. Think about every TV show or movie you've ever watched... every scene that's filmed takes place in a setting that fits the storyline. When that setting is a residential home, the production team is paying somebody somewhere to use a home.
Platforms like Giggster and Peerspace make it easy to advertise your home to those people tasked with coordinating sets. The best part is, the budget for these bookings is typically much larger, and their occupancy is much shorter than, say, a family going on vacation for a weekend. For example, we booked a full-day shoot during a gap day at 3x our typical ADR for overnight accommodations (and they didn't even use the beds!).
Since learning about how profitable these opportunities are, we've implemented design and furnishing strategies that make our homes more attractive (and more suitable) for these kinds of bookings. They're a bit more involved operationally speaking, but it certainly pays off.
"Turning Dust Into Dollars" was our original tagline at Savvy, highlighting our ability to transform waste into high-utility, high-profit opportunities. We ended up changing this after realizing it didn't land as well with prospective owners. Despite having to re-work our marketing language, the core concept remains a key function of our business.
Many new sharing economy platforms, services, and business models have surfaced in the past decade. Some are gaining more traction than others, but ultimately you'll have to decide what makes sense for your business based on the mix of properties you manage and your owners' sentiment. (Note: look out for a separate post with additional ways to utilize these unconventional strategies to drive occupancy and booking revenue)
Are there any sharing economy platforms out there that you haven't yet used but could be benefitting from? Short-term rentals can be your bread and butter, but that shouldn't stop you from having soup and salad, too!
Before
Standard overnight bookings sell at an ADR of $400.
After
Fitting production shoots into our calendar yields an ADR of $1,200 (an increase of 200%).
One lesson I've learned in business is that profit is a habit. Staying Savvy means baking it into the business every day, with every transaction, instead of merely looking to see what you came out with at the end of the month.
Stay curious, be open-minded, and experiment. When questions become answers, and problems become solutions, there's money to be found. If our owners wouldn't have pushed back, we may have never found these opportunities. Challenge your team to look for untapped goldmines in your operation. You can theorize and crunch numbers all day. But until you get on the ground and start swinging the pickaxe, you can't know if there's anything there.
StaySavvy I adore this piece and wish I had your wisdom at my disposal running my vacation rentals back in 2006. I also now know the origins of your username!
I was NOT (am not) a numbers guy. Money, details, financials occupy a messy and oft-ignored corner of my head. And so my first remedy to this weakness was to partner with a numbers guy (and eventually hire a full-time numbers gal!) and get organized. Note: Community members, if you haven't done this yet, it's your first step!
The second step? Begin improving our numbers based on best practices, which in many cases means lots of experiments, which lead to small and pinpointed adjustments with meaningful returns. That was my own slow and circuitous learning process.
What your piece encapsulates for me is a principle: that thinking about profit must come first always. For passionate creators, this doesn't necessarily come naturally. BUT if you are putting profit first and regularly, your craft will never get into trouble. This is true independence for me: making enough money to do exactly what we love for as long as we want. Thank you for explaining a few levers to get there.
My business partner and I got started with one owned property in Nashville. It performed well, so we told people about it. Soon enough, they started asking us to manage theirs. This is was the birth of our company, Savvy Travels.
As with many informal business endeavors, we began by saying "yes" first and asking questions later. This led to us getting started without management contracts, without systems or processes, and without any idea of how to run a management company. Our offer was simple: we'll do everything in exchange for X% of all income generated.
Two years later, we learned how to value management companies thanks
JamesO I started having conversations with other operators, vendors, service providers, and even former employees of big-box managers. The more I learned, the more I realized there were many ways to structure fees, and the way we were doing it wasn't ideal. We'd shot ourselves in the foot from the very beginning.We started having candid conversations with owners to raise our management fee rates. After the first few, it was clear no one supported the idea despite our competitive rates (for example, 15% vs. 30% in some markets).
I remember thinking, "We're providing better service at lower rates—don't we deserve a raise?"
We ended up biting the bullet to keep our portfolio revenue strong and resolved to figure out an alternative solution. So the new question became, "How can we increase our revenue without increasing our rates?"
What follows are some of the answers we came up with that resulted in favorable increases to our top and bottom lines without compromising Owner or Guest satisfaction...
#1: Increase revenue by 100% with a simple change in cleaning fees
I was on the phone with a former Vacasa employee who helped analyze M&A deals for the company. His knowledge and experience were invaluable. Of the many insights gleaned from our conversation, an important one was how large managers structure their cleaning fees.
Instead of including the "cleaning fee" as a part of generic "rental income," he said it's actually excluded and considered separate. Managers offer to pay for the cost of cleaning with the condition that they collect the entire cleaning fee. In hindsight, this seems obvious, but it never occurred to me to view these as distinct from one another.
After running the numbers, I realized this was a huge opportunity. Not to mention, we can slide the cleaning fee up and down as needed to adjust for seasonality, the type of clean that's needed, and any other housekeeping-related expenses (deep cleans or add-ons like windows and BBQs, linens, lost and found, etc.). It may be worth noting that our field staff is all currently 1099, and we pay flat rates per turn. If you employ your staff and/or pay them hourly, the margins may vary.
We re-worked our contract to accommodate the new structure. Then we revised our pitch deck for prospective owners. The process takes a few extra minutes to account for during month-end, but it's well worth the change.
Before:
Management fee of 15% assessed on cleaning fee revenue of $250 per reservation. Average of 4 reservations per month = $1,000. Management Income = $150
After:
Management fee of 0% assessed, instead collecting the $1,000 and paying cleaners directly. Cleaning costs: $175 x 4 = $700. Income of $1,000 - $700 costs = $300. Rate of change = +100%.
#2: Create a new high-margin revenue stream with damage protection
This one is a winning solution that benefits all stakeholders in our operation.
In the beginning of 2021, I did a deep dive into insurance. What started as a simple question of "how do we best protect ourselves as a management company" turned out to be a long, complicated answer that took more than 3 months from research to implementation. While creating a plan for 360-degree coverage for ourselves, owners, and guests, I discovered a hidden opportunity to increase our company's revenue.
The multi-pronged approach comprised separate—but complementary—coverage for each party: management, owners, and guests. It wasn't until I compared products from a dozen insurance providers that I saw untapped potential on the guest front.
We ended up putting together a plan that covers guests for up to $2,500 of accidental damage during their stay. If (and when) something breaks in the house, gets damaged, lost, stolen, or otherwise is not in the condition we need it to be in, we can file a claim in 60 seconds to get the money for it.
The insurance company charges a flat rate per reservation, and we add a small surcharge to the rental rates above the actual cost that yields a 64% margin. The guest pays the charge, which is lumped into the general category of "Rent." So it's not readily distinguishable from the "Accommodations" charge on their invoice (the way taxes or credit card processing fees might be). Then we added a simple disclaimer on the listing as an extra perk that lets guests know they're covered for accidents (within reason, of course).
It's a win for us because it's a new, high-margin revenue stream that scales easily with our portfolio. The extra money pays us for the recovery process of fixing and replacing items when it inevitably happens (and also helps make up for a lower management fee).
It's a win for guests because they're covered for accidents that occur. For example, they don't feel nickel and dimed when the owner insists that we collect $75 for a broken lamp. In fact, they get to avoid the awkward and sometimes confrontational incidental discussion altogether.
It's a win for our Owners because now they're not paying out of pocket for things that break or go missing. And this fee is structured in such a way that their bottom line payout is unaffected.
Before:
Incidentals occur. Management chases guest, sometimes ending with guest having negative feelings about us (and often threatening with bad reviews). Owner is paying out of pocket for replacements if not covered by 3rd parties. Manager is paid $0 for efforts involved in the resolution process.
After:
Incidentals occur. Management files claim to recover. Guests get a better experience. Owner maintains a healthy house. Managers get paid extra revenue at no expense to Owners.
#3: Make purchases your owners aren't willing to make
If I had to boil down guest satisfaction to its simplest version, I'd say there are three steps:
- Host the guest to the best of your ability
- Learn everything you can from each experience
- Take action to make changes based on what you've learned
One of the things we learned last year is that our guests needed rental cars. Some destinations you can travel to and get away with not having one, whereas it's almost a requirement in other destinations (i.e., Hawaii).
So we decided to consult our owners and see if we could get buy-in. When they met us with rejection due to costs, we took it upon ourselves to cover the costs.
After rolling this out, we found an unintended benefit: renting to guests we weren't hosting. Now, we rent the car to both our vacation rental guests and other transient guests who need their own transportation. One of the renters actually turned out to be a homeowner that later enlisted our services!
In the first few months of operation, we found the car to be generating income equal to what a new property would be generating, but with a much higher profit margin (72%) and a lot less work. We're now looking to see which of our other markets would be a good fit to replicate this strategy. The car rental operation is a different kind of business in itself, but you don't have to go as far as to buy a new vehicle to realize the benefits of this strategy.
One VRMB member
Robin decided to buy AC units for his owners' properties and created a lease program that ended up being a win-win-win for everyone. Cost-prohibitive owners, communicative guests, and savvy vacation rental managers make for an excellent recipe for a healthy bottom line!When you spot unfulfilled guest needs, you can shrug it off or you can take it upon yourself to go the extra mile. After all, someone will likely fill those needs anyways. Why can't it be you?
Before:
Guests find other ways to meet their needs with no benefit to Management or Owners.
After:
Management takes on the upfront cost to meet guest needs and collects the proceeds at 72% profit. Guests are happier. Owners benefit from increased occupancy due to the unique value-adds of the property.
#4: Turn dust into dollars using unconventional booking strategies
In the hotel industry, a "room night" is the core product. Operators do their best to sell this product. If they fail, the product is considered waste because it cannot be resold.
In the restaurant industry, the core product is food. Similarly, if operators don't sell their product, the food is usually tossed right into the garbage. There's actually a line item on financial statements that account for this waste.
In the vacation rental industry, I've started to see an evolution of the core product, from "room nights" to "experiences." Looking at our business through the lens of the sharing economy has helped align our product strategy with our product philosophy, which is to minimize waste and maximize utility.
While AirBnB has come a long way since its inception, the origin story is actually rooted in the sharing economy: turn your extra space into extra cash. The platform gave people a way to increase the utility of their homes. The 'wasted space' they weren't otherwise using could now be used as an additional source of income.
When I see a booking calendar that looks like a slice of Swiss cheese, I see a wasted space and, subsequently, a whole lot of opportunity. And wherever's there's waste, there's an opportunity to make money (case in point: 1-800-GOT-JUNK). Every gap in the calendar is an opportunity to increase utility. Whereas some managers ask, "How do we get these nights booked?" we ask a different question entirely: "How can we make the property more useful to others?"
This curiosity has led us to discover unconventional ways to book our properties leading to increased revenue.
One example is production shoots. Think about every TV show or movie you've ever watched... every scene that's filmed takes place in a setting that fits the storyline. When that setting is a residential home, the production team is paying somebody somewhere to use a home.
Platforms like Giggster and Peerspace make it easy to advertise your home to those people tasked with coordinating sets. The best part is, the budget for these bookings is typically much larger, and their occupancy is much shorter than, say, a family going on vacation for a weekend. For example, we booked a full-day shoot during a gap day at 3x our typical ADR for overnight accommodations (and they didn't even use the beds!).
Since learning about how profitable these opportunities are, we've implemented design and furnishing strategies that make our homes more attractive (and more suitable) for these kinds of bookings. They're a bit more involved operationally speaking, but it certainly pays off.
"Turning Dust Into Dollars" was our original tagline at Savvy, highlighting our ability to transform waste into high-utility, high-profit opportunities. We ended up changing this after realizing it didn't land as well with prospective owners. Despite having to re-work our marketing language, the core concept remains a key function of our business.
Many new sharing economy platforms, services, and business models have surfaced in the past decade. Some are gaining more traction than others, but ultimately you'll have to decide what makes sense for your business based on the mix of properties you manage and your owners' sentiment. (Note: look out for a separate post with additional ways to utilize these unconventional strategies to drive occupancy and booking revenue)
Are there any sharing economy platforms out there that you haven't yet used but could be benefitting from? Short-term rentals can be your bread and butter, but that shouldn't stop you from having soup and salad, too!
Before
Standard overnight bookings sell at an ADR of $400.
After
Fitting production shoots into our calendar yields an ADR of $1,200 (an increase of 200%).
In Summary
One lesson I've learned in business is that profit is a habit. Staying Savvy means baking it into the business every day, with every transaction, instead of merely looking to see what you came out with at the end of the month.
Stay curious, be open-minded, and experiment. When questions become answers, and problems become solutions, there's money to be found. If our owners wouldn't have pushed back, we may have never found these opportunities. Challenge your team to look for untapped goldmines in your operation. You can theorize and crunch numbers all day. But until you get on the ground and start swinging the pickaxe, you can't know if there's anything there.
Final Thoughts by Matt Landau
StaySavvy I adore this piece and wish I had your wisdom at my disposal running my vacation rentals back in 2006. I also now know the origins of your username!I was NOT (am not) a numbers guy. Money, details, financials occupy a messy and oft-ignored corner of my head. And so my first remedy to this weakness was to partner with a numbers guy (and eventually hire a full-time numbers gal!) and get organized. Note: Community members, if you haven't done this yet, it's your first step!
The second step? Begin improving our numbers based on best practices, which in many cases means lots of experiments, which lead to small and pinpointed adjustments with meaningful returns. That was my own slow and circuitous learning process.
What your piece encapsulates for me is a principle: that thinking about profit must come first always. For passionate creators, this doesn't necessarily come naturally. BUT if you are putting profit first and regularly, your craft will never get into trouble. This is true independence for me: making enough money to do exactly what we love for as long as we want. Thank you for explaining a few levers to get there.
