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Profit Center Logic

Matt Landau

Ambassador
Staff member
With shrinking margins becoming a real concern (it seems like every new service takes a piece of the pie) owners and managers can compensate by either increasing profit or decreasing costs. This post is about decreasing costs in the form of a "profit center" -- a strategic way to leverage economies of scale.

A profit center is a division of a vacation rental business that reduces a previous cost by effectively bringing it "in-house."
  • Let's use laundry as an example, since that's an area where a lot of our members have high costs.
  • A third-party laundry service may cost $1/pound and you may spend $3,000 per month for 3,000 pounds of laundry.
  • Creating a laundry "profit center" would mean creating your own laundry facility that could do laundry for less than $1/pound.
  • This profit center would be treated as its own separate, standalone business. And the capital expenses (in creating it) would be amortized over time. A solid financial model would show the significant savings of a laundry profit center over time.
"Dude, I don't want to build a freakin' laundry facility," you may be saying, "I'm a hospitality specialist!"

Fair enough...

Let's explore some smaller, unsuspecting areas of the business where profit center logic could be used:

Activities/Transport: At Stay Lake Norman, @ShariT and Lawrie looked at the amount of money they were paying out to boat rental companies each year. And they created a profit center by purchasing their own boats (here's the short interview). If you are paying for some vehicle rentals, what would it look like to buy one?


Niche Listing Site: @Nancy felt she was paying too much to listing sites so decided to build FLARBO and now runs it like an independent business with its own revenue and expenses. If you have rentals in Florida, how could you not want to sign up for that?

Concierge: Stephanie Farr from MayaLuxe in Mexico chose not to depend on third party companies for her in-country guest services so instead she created her own.


Home Owners Association Management: This one is a little different, because Jeanne Dailey wasn't paying exorbitant costs to HOA Management companies for their terrible service -- her property owners were. And so she built her own. Here's a breakdown of that model (she also has a laundry center).


Travel Insurance: This one is a bit different too because if you're not selling travel insurance already, you don't have any revenue or expense to start with. But any owner or manager who sells travel insurance will tell you about the welcomed revenue streams. Here's Mike Harrington explaining the importance of it during the hurricanes in North Carolina.

Permitting/Licensing: @KyleF decided to turn the pain point (of getting your vacation rental permitted in Miami) into a new unit of his business when he built LegalBnB


Some of these are probably not what Peter Drucker originally had in mind when he invented the term "profit center" 50 years ago.

But I like to think that all these little revenue streams in a new industry are just sitting there for VRMB Communities members to uncover.

QUESTION: What profit streams work might work for you?
 
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Catherine

Envoy
Inner Circle
A dog-sitting service for guests who don't want to take their dogs around with them. It just hit me. I could find someone who wants to partner with me, and we could offer it to other dog-friendly properties around Atlanta!
 

Nancy

Ambassador
Inner Circle
Yellow Jersey
I absolutely hate leakage especially when it affects my guest's experience.
Looking for ways to increase your dollar per transaction by looking outside of the four walls of your rental is the best way to gain affiliate marketing, and even expand your business in many cases.
The vacation rental industry is exploding with opportunity.
Just this past year I saw many valuable new businesses created that fill the needs in the industry. There are no boundaries!
 
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