in·vest v. To commit money or capital in order to gain a financial return.
“It’s all about the R.O.I: Return On Investment.”
-probably said by every capitalist, ever, according to me.
If you are not actively looking for new ways to invest money back into your vacation home business you should be! Here are just a few reasons why:
- You can ALWAYS improve. You can ALWAYS do better.
- To differentiate your home from competitors.
- To maximize the profitability of your business.
Angela and I embarked upon a new venture in recent months (totally unrelated to vacation homes) and have met with various capitalists (potential investors) along the way. We’ve noticed that they all have the same approach when evaluating whether or not to make an investment. They ask:
What is my return on the investment?
What are the risks associated with this investment?
These are the questions that we, as vacation home owner/operators, should be asking ourselves when considering making an investment back into our vacation home businesses. Investments in this case mean any money we “spend” on our business with the intention of making us more money in return. Like:
To Invest, Or Not To Invest…THAT Is the Question. Try this:
Step 1: Determine whether the expenditure will help you make more money (drive incremental revenue) or keep more of the money you are already making (reduce operating costs).
Step 2: Determine what other costs are associated with implementing the investment. Consider:
- Delivery, installation, additional components needed to complete the investment.
- Your own time to research, purchase and implement the investment.
- Ongoing maintenance required to continue making or saving money via this investment.
Step 3: Determine the amount of money to be made or saved versus doing nothing, thus saving the investment funds for another opportunity.
Step 4: Evaluate the riskiness of the investment. How sure are you that you will realize your expected return?
Step 5: Decide for yourself whether or not the risk is worth the return. If it is, implement. If it isn’t, don’t.
Some real life examples:
A Good Investment We Made: $450 on a Power Flush Toilet. After the umpteenth $150 “emergency” call to RotoRooter for a majorly clogged toilet in our guest bathroom we decided to try a Power Flush Toilet. Actual Return: We haven’t had to call RotoRooter again for that toilet in the four years we’ve had it, and have since replaced three other clog-prone toilets with power flushers. PLUS, happy guests who don’t have to endure the awkward conversation with us first and then the plumber about how the toilet got clogged.
A Bad Terrible Investment We Made: $3,000 on a Full Page Color Newspaper Ad. With a large % of Canadian guests we thought an ad in an Alberta, Canada vacation real estate special edition would generate at least one incremental booking. Maybe even two bookings? Actual Return: ZERO! Not even one inquiry that tied back to our special “promo offer” from the ad. Ouch! Lesson learned.
Our Most Recent Investments: $250 on Pool Rafts. Angela’s idea, I needed convincing. Anyone with a pool knows that rafts need replacing usually once a season or more. These $120 pool rafts supposedly do not tear or puncture; plus they don’t need to be filled with air. Expected Return: No more replacing pool rafts ($25-40 each), no more paying our PM’s to fill rafts, check for leaks and purchase replacement rafts. Perhaps most importantly, our guests won’t be burdened with filling/patching/replacing pool rafts.
$250 on Melamine Outdoor Dinnerware. A line item in our annual budget is to replace all outdoor dinnerware for eating on the patio because, well, it gets nasty. The plastic shows knife cuts and wear from dishwashing after only a few uses. Expected Return: Melamine is way more durable than plastic so it should last multiples seasons, show less wear and tear and give our guests a more pleasant outdoor dining experience. Plus, one less thing for our PM’s to manage.
The Bottom Line: It takes money to make money and the minute a business stops investing money in its future it begins to die. As vacation home owners we should always be looking for the next great investment for our business. Once you have one, figure out what it will cost to implement, what it will cost to maintain, and how much extra revenue it can generate. If the return looks good after considering all of the risks then pull the trigger and maximize your R.O.I.
Here’s to many positive returns on our investments!
Michael Smith: Michael and his wife Angela happened into vacation home ownership in April 2007 when a relocation nudged them toward the idea of short-term renting. Within months of establishing Ultimate SoCal Vacation Homes, they began making plans to expand their business. Having combined backgrounds in sales, marketing, business development and hospitality helps them to create guest experiences that exceed expectations. Today, more than 3,500 guests later, Michael and Angela are operating three profitable vacation homes in Anaheim.