Growth is the objective of many entrepreneurs in the short-term rental industry and many are wondering how to grow a successful vacation rental business. Nevertheless, we can observe different levels of success and even heavily funded companies, such as Hostmaker or Stay Alfred who were growth machines for a while yet ended up closing their operation.
These examples show us that not all growth is made equal and we thought it could be useful to share some tips to help you grow your vacation rental business successfully.
In this article, we’ve listed some key considerations to guide you on your journey to growth. We’ve listed the do’s and don’ts as well as the tools you can benefit from before, during, and after scaling.
Indeed, we’ve witnessed firsthand how challenging growth can be if not prepared well and these actionable tips will support you to achieve this goal without impacting your vacation rental business negatively.
As growth for the sake of growth is more or less the mentality of a cancer cell, it’s paramount to understand what you are trying to achieve when growing your business and lay a strong foundation that will enable you to achieve the goals you have for your business.
10 Tips to grow a successful vacation rental business
Tip # 1: Automate repetitive tasks
Some tasks like processing payments or communicating with guests before and after arrival will occur with every booking.
Manually processing them will simply prevent you from growing and expose you to potential mistakes or create frustration with your customers.
Useful tools:
Guidebooks or chatbots are great to automate guest communication. You can send templated check-in instructions and give access to information about the property such as the Wi-Fi code or instructions about appliances to avoid sending them every time a guest arrives or has a question.
What to avoid:
When automating communication you need to avoid sending information too soon, for example, check-in instructions: they might get lost or could give access before the payment is confirmed.
Looking to grow your short term rental business to new heights?
AJL Atelier is your go-to partner for helping you scale your vacation rental business.
Tip # 2: Document your internal processes & create a database for employees
If you plan to grow your vacation rental business, you’ll need to onboard new employees frequently but growth also tends to put some pressure on your team.
Documenting processes and making them available to everyone is a great way to speed up the onboarding of new staff and remove some burden from your existing team members.
Useful tools:
Online databases like Notion or Airtable are great tools, additionally you can use software like Asana or even Google docs
What to avoid:
Having a database that is not up to date is perhaps the worst thing you can do here, make sure every change or new process is not only documented but also updated when required.
Tip # 3: Adopt revenue management
To ensure the performances of your portfolio of properties are maximized, revenue management is essential.
Growing your short term rental business does not have to always be synonymous with growing your inventory, you can also improve your revenue generation and increase your profitability by adopting the right revenue management strategy for your properties and the cost structure of your business.
Useful tools:
As we said in another article dedicated to this topic, you need to thoroughly analyze the cost drivers of your business to understand what is the best revenue management strategy for you, PowerBi and Excel can help with this analysis.
Additionally, if you want to automate price changes (another very repetitive task), you can rely on a dynamic pricing tool once the preliminary analysis of your cost drivers is done.
What to avoid:
Automate the wrong strategy and create loss-making bookings. If your costs are not managed and controlled it is easy to generate loss-making bookings, for example, the cost of a booking for your business is 150€ and you charge a commission of 30% on the gross booking value to the property owner, in this case, you need to ensure your commission will at the very least cover that cost, in that case, a booking of less than 500€ would make you lose money.
Tip # 4: Build a direct / repeat booking funnel
The more you grow the more guests are coming to your vacation rental properties, the more you grow the more you can invest in your direct booking channels: website and repeat guests.
When the former can represent a financial undertaking, not every business can support the latter: Repeat business can have a much lower cost for your organization.
Useful tools:
A website with a good user interface is paramount to get direct bookings and convert the traffic you will invest to generate.
A CRM enables you to store contact information about your past guests and to segment them to personalize your outreach.
What to avoid:
Shady looking websites that redirect prospective guests to an external payment page are unlikely to convert all bookings.
Generic and non-personalized retargeting campaigns will not deliver the best results either, for example targeting families for periods outside of School holidays will not yield the best results.
Tip # 5: Adopt home automation technology
Home automation is great to automate access control to the rental property and enable remote check-in.
Additionally, it can help you monitor the property for any potential misuse (such as parties or smoking inside)
Finally, it can help you reduce your impact on the environment by turning off AC and heating when guests are not on the premises.
Useful tools
Home automation software like Operto is great as it enables you to connect different types of tools such as noise censors, remote door locks, and even IoT devices.
What to avoid:
Not using home automation software and having to manage every device from a different dashboard will lower the productivity of your team and the overall efficiencies this type of technology can provide.
Tip # 6: Grow your team with a mix of in-house & outsourced workforce
When growing your short term rental business you might find Human resources to become a bottleneck if you try to in-source everything.
Building an in-house team of core employees, that you’ll supplement with additional resources, is a great way to give more scalability to your organization and avoid stopping growth initiatives as you find and train new employees.
Overwhelming your existing team can also lead to quality issues that will not support growth either.
Useful tools:
You can use different providers to find the external resources you need for your business either locally or internationally in case a service, for example, 24/7 guest support, is too costly to implement in your destination.
Doinn and TurnoverBNB are great to find operational staff in Europe and the US, for customer support you can also look into call centers to gain the flexibility and capacity the growth of your organization requires.
What to avoid:
Not complying with employment laws in the country you operate, especially if you might be looking to raise money or exit your business in the future as it can justify a discount on your valuation or prevent any transaction from happening if the problem is too widespread.
Tip # 7: Optimize demand generation channels
Similar to revenue management, optimizing your distribution channels are also a great way to support the growth of your business.
All the major OTAs are providing you with invaluable information about the performances of your listings and how to improve them and you should follow their advice.
Useful tools:
All the Extranet of the OTAs and their optimization tools
What to avoid:
Procrastinating on this is not a good idea, you don’t want to go over 100 listings at once and in a hurry as you’ll not be able to give the right level of attention to this very important work.
Tip # 8: Perform an audit of your vacation rental business
Are you sure your current organization can support growth? If the answer is not a strong yes then auditing your business to reinforce its foundation is a great way to prepare for the next stage and will also enable you to have more resources (human or financial) to grow even further.
Useful tools:
We’d recommend you pick the right consultants to support you in this endeavor.
What to avoid:
Burying your head in the sand and brushing every issue under the “boot strapped” or “growth mode” excuses will only make the issues amplify.
Tip # 9: Build KPIs and track them
One of the main reasons to grow a vacation rental business is to create efficiencies.
If you want to make sure you are reaching this goal you need to create the right KPIs, track them, and analyze them.
This will help you adopt a data-driven approach and enable you to understand what initiatives are bringing the best results.
Useful tools:
Any data analytics tool will help you in this endeavor, additionally external help such as consultants or data analysts will also be beneficial.
What to avoid:
Having a KPI for everything in your vacation rental business and seeing your team spending more time reporting than executing.
Tip # 10: Renegotiate terms with external providers
If you are using external providers, for example for laundry or cleaning, and you’re planning on requiring their services in a higher volume you should think of renegotiating the terms and conditions of your contract with them.
Almost every business provides volume-based discounts and you should leverage that to enhance further efficiencies as you grow.
Useful tools:
Beyond your own negotiation skills, putting your provider in competition with others can be a great way to get the best possible conditions during your contract renewal.
What to avoid:
If you put your provider in competition, you need to make sure you’ve done your due diligence about their competitors. Usually, offers that are too good to be true are the sign of another potential issue further down the road and it is recommended to ask for sample work and customer testimonials before making a decision that could have tough consequences on the quality of the service provided to your customers.
Why does this matter so much for your vacation rental business?
As a final note, the success of your growth strategy will depend on the quality of your preparation and subsequent execution.
We see well-prepared businesses deliver amazing results and achieve their goal more rapidly than others who jump headfirst into adding more units to their portfolio without plugging the holes in their organization first.
This is why we always recommend our clients are well prepared and support them in building a growth strategy that is not only the most adapted to their capacity but also aligned with their goals as entrepreneurs.
We then support them as they execute their plan to solve challenges immediately and make the right decisions for themselves and their organizations.
Looking to grow your short term rental business to new heights?
AJL Atelier is your go-to partner for helping you scale your vacation rental business.
Frequently asked questions about growing a vacation rental business
How do I make my vacation rental business successful
You make your vacation rental business successful by ensuring a balanced approach between your two customers: owners and guests. You do this by making sure you deliver the best returns for the former and a great experience to the latter.
You also need to have clearly established processes to support your operations, make good use of technology, and understand your cost structure to ensure profitability.
Is the vacation rental business profitable?
Yes, the vacation rental business is profitable. But for your business to be profitable you need to have stringent cost control in place and the right revenue management strategy added on top of it.
Not all bookings have a positive contribution and assessing the performance of your business looking only at occupancy and revenue can be disastrous.
How much is the vacation rental business worth?
There’s no, one-size-fits-all answer to the question of how much the vacation rental business is worth, as multiple factors enter into consideration when building the valuation of your vacation rental business.
Nevertheless, the most common method is to apply a multiple on your EBITDA, this multiple can range from 3 to 6 in most cases.
How much should a rental property make?
How much a rental property should make will depend on a variety of factors: first of all, the location of your property, then its capacity, bed distribution, and design.
Additionally, the performances will be conditioned by the review score on the OTAs, whether or not you practice revenue management.
We recommend you investigate the market you’re interested in and use some market data providers such as AirDNA or Transparent to understand what is the potential of a property.
