Business development / finance
As a vacation rental business owner, you’re always looking for ways to improve your bottom line. One way to do this is by using ROI estimates to maximize your business forecasts. While it may seem like a lot of work upfront, taking the time to calculate your ROI can save you a lot of money in the long run. Not only will it help you make better decisions about where to allocate your resources, but it will also give you a better understanding of your business’s overall performance. In this post, we will show you how to use ROI estimates to maximize your vacation rental business forecasts.
If you haven’t already, make sure to play around with our ROI calculator before reading any further.
ROI, or return on investment, is a key metric for any business, but it's especially important for businesses that rely on capital investments, like vacation rental businesses for example. ROI measures the profitability of an investment by comparing the amount of money earned from the investment to the amount of money spent on the investment.
For a vacation rental business, ROI can be used to compare the profitability of different properties or even different types of properties. For example, you could compare the ROI of a beachfront condo to a downtown apartment. Or you could compare the ROI of a 3-bedroom house to a 2-bedroom villa.
Comparing different types of properties and create different projections for each one of them can help you make decisions about where to invest your money and how to price your rentals. It can also help you forecast your business's future profitability.
There are numerous benefits to using ROI estimates when forecasting for your vacation rental business. Perhaps most importantly, ROI estimates can help you to more accurately predict future income and expenses. This information is critical for making informed decisions about where to allocate your resources in order to maximize profits.
In addition to providing insights into future income and expenses, ROI estimates can also be used to assess the performance of past marketing campaigns and strategies. This information can be used to fine-tune your marketing efforts going forward, ensuring that you are getting the best possible return on investment.
Finally, ROI estimates can also provide valuable insights into customer behavior. This information can be used to improve the guest experience at your vacation rental property, ultimately leading to repeat bookings and referrals.
So, you now have a ROI forecast in your hands, if you have used our tool, now what?
Your goal here is to create an accurate estimate that is close to reality, but how to do that?
I suggest you use the “average expectation model”, here’s how to do it step by step:
First and foremost, download our “average expectation model” spreadsheet and be ready to start adding data from the ROI calculator to it.
In the next three steps you will have to create three different ROI projections and add the requested data into the spreadsheet.
Now, create the ideal scenario for your vacation rental business by using our ROI calculator.
What this means is that you have to picture in your mind the perfect scenario in which everything goes well, in other words, take your huge expectations and translate them into data.
Example: High nightly rate due to increasing demand of your vacation rental property, high occupancy rate and stable operational costs.
Now add the values from the calculator results into the spreadsheet under the cell “Huge expectation”
The second estimate you have to create with the ROI calculator will be your lowest expectation. What this means is that you should ask yourself what would it take for your vacation rental business.
Example: lowering the nightly rate due to lack of demand, reducing the occupancy rate because of tourism slowdowns and more financial incidence of the operating costs due to increasing costs of supply, inflation, etc.
Now add the values from the calculator results into the spreadsheet under the cell “Low expectations”.
The third estimate will be automatically calculated by the spreadsheet and your job now is to report the new inputs into the calculator to create the average ROI calculation.
It’s now time to focus on the results. What you have in front of you in the calculator is the average value of your expectations. Pretty cool uh? Your task here is to report the data needed by the spreadsheet into the “average expectation” cells.
You have completed your task, congratulations!
If you have done everything correctly the spreadsheet will now be reporting various forecasts of your vacation rental business using the average value of your expectations as a baseline to calculate best and worst case scenarios. I suggest you play around with it and get familiar with this tool and methodology as it will provide you with a solid foundation for investing.
For starters, you now own a tool and the knowledge and methodology necessary to outline financial projections of a vacation rental business. Secondly, you now have a way set with actual data, your expectations and from there starting to plan your investment activities in this field. You literally just have to follow a plan and execute it. Yes, is that simple.
If you came this far congratulations! This business isn’t for everyone, but you are here! 90% of people do not even bother engaging with planning or setting realistic expectations when they invest.
They just “go with the flow”, and it can often work, do not get me wrong, I did it myself but in the end i got the best results by planning, setting expectations and forecasting my success probabilities before dumping my cash onto an investment. I just want you to start with the right foot and avoid rookie mistakes.