9 money leaks in your vacation rental business that could be impacting your bottom line
Money leaks are small recurring expenses that, if left alone, can negatively impact your business’s profitability. These kinds of small but consistent cash outflows are especially common in the vacation rental business, and they have a nasty tendency to increase the more properties you have.
Money leaks can be especially insidious since they often appear as innocuous line items on your balance sheet. Property managers often already have a lot on their plate, and this could prevent them from looking more closely into certain financial issues. Moreover, the relatively low cost of each leak is often easy to overlook as well. Collectively, however, cash drains can seriously erode your business’s positive cash flow and cause incalculable damage down the line.
Fortunately, finding and plugging these leaks is fairly straightforward. Doing a periodic audit for unnecessary spending will usually reveal a few areas for improvement, expanding your profits and giving you extra cash for minimal effort. For vacation rental businesses, money leaks are especially common in these nine key areas:
1. Administrative expenses
If you have multiple properties, administering listings across several different online travel agencies (OTAs) will consume much of your limited time, making it more difficult to manage everything else on your plate. Adopting a channel manager for vacation rentals into your system should free up time that you could then use for revenue-generating activities.
2. Energy consumption
Creating meaningful reductions in energy bills is mostly about doing a number of small things consistently. Make sure that your staff regularly replace HVAC filters, clean out refrigerator coils, and turn off any appliances that aren’t in use. If you have the budget for it, set up a smart energy management system to automate and optimize energy usage based on occupancy and usage patterns.
3. Internet data
As remote work and leisure travel continue to intersect, travelers often seek vacation properties that offer more than just a reliable internet connection for work. Many also expect the ability to stream entertainment, such as watching Netflix on their smart TVs, during their stay. Therefore, having a robust and high-speed internet connection is not only important for remote work but also for providing an all-around enjoyable experience for your guests.
Unfortunately, good data plans cost money, and the overall utilization can be poor during off-seasons. Thankfully, you can sometimes find good deals on internet data, including plans specifically designed for use cases such as vacation rentals. Check for new plans and providers a couple of times a year to see if there are better options available.
4. Software subscriptions
Paid cloud-based applications are now widely used in administration, marketing, customer service, and IT activities within the vacation rental industry. These can include tools as varied as accounting software, email marketing programs, work collaboration tools, and customer relationship management software. Though many of these tools may have been essential the first time you acquired them or subscribed to them, it’s easy to get saddled with services that no longer align with your present needs. This is especially true if you already have an integrated property management software that does all of these and more, essentially rendering many of these tools redundant. Make it a habit to go through your credit card bills and invoices every month to identify which plans need to be renewed, renegotiated, or canceled.
5. Advertising and social media promotions
Also beware of the financial pitfalls of excessive advertising and social media promotions. While creating visibility for your vacation rental property is crucial, overspending on unnecessary campaigns can drain your resources without proportional returns. As such, make sure to cut unnecessary costs by strategically targeting your audience on platforms and channels that yield the best results. Also analyze campaign performance to refine strategies and maximize ROI. Streamlining advertising efforts ensures a more cost-effective approach, preserving your bottom line without compromising your advertising.
6. Cleaning and maintenance expenses
Properties need to be kept in good shape, even during off-seasons. To trim down your cleaning and maintenance expenses, explore partnerships with vetted local services for bulk discounts. Also, don’t forget to provide guests with guidelines on the responsible use of amenities to reduce the frequency of major clean-ups and repairs.
7. Dynamic pricing
While dynamic pricing is often used for optimizing rates depending on projected demand and seasonality, not everyone is equally competent at implementing this key strategy. If it’s not done right, your business could be, at different times, leaving money on the table and pricing itself out of the market. Investing a bit more in improving your pricing tools and approaches should help prevent cash leakages while also increasing your business’s overall competitiveness.
8. Regulatory expenses
If you operate properties in different jurisdictions, the accompanying risks and complications of regulatory compliance increase, sometimes resulting in very expensive oversights. Working closely with qualified legal professionals who understand your industry and the laws your properties are located in is essential in minimizing your business’s exposure to fines and other avoidable regulatory expenses.
9. Depreciation
Failing to consider depreciation when assessing property value can lead to inaccurate financial planning, often resulting in premature or unnecessary updates that eat into your operating budget. Working with property experts lets you accurately calculate your onsite assets’ real value, allowing you to make smarter decisions about property upgrades and maintenance.
Why you should care about money leaks
Taking a more proactive stance against money leaks should fortify your rental business against preventable losses, keeping it agile and sustainable in an ever-competitive landscape. With so many new players entering the vacation rental business, there’s now intense pressure to compete on price and pursue growth on ever-dwindling margins. If you’re serious about increasing your cash flow and want to avoid compromising your brand and service quality, sealing up money leaks is a no-brainer.