Tortoise or the Hare? Who Wins When It Comes to Property Acquisition Strategy?
In the race to grow your inventory should you sprint to the finish line or go the extra distance? Here’s the math, science and art of winning the growth game.
No one would argue that adding a new property to a vacation rental management program delivers incredible value. Depending on the location and property type, most vacation rental properties add $5,000 – $20,000 per year to the bottom line. It doesn’t take complicated math to understand the compounded value of adding properties under management. Increasing your inventory not only creates immediate cash flow improvements but also creates significant increases to the overall company value.
So when it comes to building out a property acquisition strategy is the best approach slow and steady or aggressive and quick?
How a fast start can cause a slow finish
What do Car Dealerships, Insurance Companies and Lawyers all have in common?
Other than making a big dent in your pocket-book – do you know what all three of these industries have in common?
Consistency, consistency, consistency is key to building a long-term successful home owner acquisition marketing plan.There’s a reason why car dealerships, insurance companies, and lawyers are ruthless with consistent advertising. The reason is developing memorable moments over long periods of time that create actionable triggers at the time when needed.
These industries would miss out on the majority of new business opportunities if they were inconsistent with marketing. Would the Geico Gecko be remembered if they ran a commercial once a year with the expectations of continual success? We can all agree this would not have the same outcome, but yet is similar to what some property management companies expect from inconsistent marketing strategies.
The Gap of Disappointment graph below shows the importance of long-term consistency for marketing.
It is not uncommon to see an immediate boost in ROI when starting a new marketing campaign and then going through the Gap of Disappointment time period. This period of time is when many businesses stop investing in marketing and give up.
The reason for this lengthy gap makes perfect sense when taking a step back and evaluating human nature. Most humans need a period of time to warm up to brands. They will start noticing a brand slowly over time and confidence in the brand strengthens as marketing pieces are seen consistently. Few will make decisions to use anything offered by this brand during this gap period of time. Many times potential customers see a brand for the first time and are not ready to dive into the offer, yet. The more a brand is seen (with good messaging), the stronger the confidence builds with potential customers. Fast forward a few months, or years, and the brand that has done the best job of creating a warm and fuzzy feeling wins the customer (or homeowner).
Companies that stick with it – are steady and persevere – will win the race. These companies budget in the cost of marketing over long periods of time to reap big rewards that compound continuously in the future.
Another way to look at how marketing works can be understood when comparing marketing to investing for your retirement. When starting to invest in a retirement plan with small amounts of money it is difficult to keep it going as it feels like it never grows. Fast forward 10, 15, 20 years and these tiny amounts grow into large sums of money.
In both of these cases, slow and steady wins the race.
So how do you budget for the “long race” of Homeowner Acquisition?
Most VR property managers use significant resources and budgeting for guest acquisition, but neglect the side of the business for obtaining new properties under management.
Focusing on only one side of the business typically stalls out growth, which in turn causes guest frustration when sufficient inventory is not provided. Past guests that are forced to look elsewhere for rentals will likely be lost in the future. Acquiring guests is important, but retaining them for future stays has the greatest compounding effect for higher year over year (YOY) occupancy.
Consistent inventory growth takes a lot of careful planning and budgeting. Developing a healthy growth plan, based on realistic metrics, is vital to the health of any property management company.
Develop a Healthy Customer Acquisition Cost (CAC)
Taking into consideration the average value of each property added under management, it is a healthy process to determine your willing Cost to Acquire Customer (CAC),or homeowner in this case. Each property manager will have drastically different expectations and willingness to pay for each new property acquired.
Anybody investing in the stock market would be thrilled to see 10% compounded annual returns, but when it comes to our spending willingness for finding new homeowners we should take into consideration the long term ROI. If you can spend $100 to make $200 (or 100%), there would be little thought towards deciding that this is a great investment. The same method should be applied when developing a realistic CAC goal.
Sample CAC calculation:
- Expected annual rental commission income: $10,000
- Marketing cost to find a new property owner: $2,500
- Break even time frame: 3 months
- Annual ROI in Year One: 300%
- Lifetime Value (based on 5 years): $47,500
- Lifetime ROI: 1,900%
Setting realistic expectations when deciding on a fair CAC should involve more than just pulling a number out of thin air. Many factors can change a CAC goal, but over time the investment should become lower based on continual marketing improvements and efficiencies.
Questions to consider when determining a fair CAC
- How competitive is my market?
- How established is my company?
- What is the total market size in my target market?
- How aggressive is our growth plan?
- How do my services compare in pricing/commissions?
- If a homeowner was to compare three different companies in my market who would stand out and why? (hint: this should be you)
- What is my conversion rate from lead inquiries?
- How strict are my property requirements?
Taking these questions into consideration with honesty and accuracy will help determine an educated decision on a starting CAC. The more competitive the market, the more strict parameters preferred for properties, the less established company, and other reasons could result in much higher expectations for CAC. Keep in mind that the average CAC ranges from $750 – $5,000 for most property management companies.
Once an estimated CAC is determined, companies can start establishing marketing budgets based on growth goals.
A successful race plan is all about the pace
Architecting a Homeowner Acquisition Marketing Plan Steve Jobs Would Be Proud Of
Taking time to develop a successful game plan for marketing is the foundation of future growth. The foundation will lay out the plan, budget and goals for homeowner acquisition.
The foundation of this process starts with setting realistic goals. Although many factors need to be used when establishing goals, being realistic is the key to success. A small property management company with 10 properties located in a small town cannot realistically set a goal of growing by 100 properties the first year.
A healthier and more realistic growth plan would be to grow using a tiered plan as brand awareness grows over time.
- Current Properties Under Management: 25
- Future Growth Goal in 5 Years: 100
- Year One Goal: 6
- Year Two Goal: 12
- Year Three Goal: 15
- Year Four Goal: 20
- Year Five Goal: 22
5 Year Growth Plan Total Additional Properties: 75
*This sample does not take into account churn. If you churn 10% per year this would need to be added to the annual growth goal.
Creating a well-thought out and realistic plan will help reduce frustration and build a compound effectiveness for homeowner acquisition for future years.
Once a realistic acquisition goal has been determined, it is then time to create the most effective marketing plan that aligns with your vision.
Here is a list of optional marketing methods/channels to consider in your planning process:
- Google Pay Per Click (PPC)
- Social media marketing
- Direct Mail
- IP Targeting
- Custom Homeowner Landing Pages
- Email Marketing
The most effective marketing involves multiple sources that become an Omni-Channel marketing plan. Considering your growth goals, and how aggressive they may be, will help determine how many marketing channels may be needed to achieve success.
Property management companies that are less aggressive may only need to use 1 -3 options to hit their goals. Growing by 3 – 5 properties a year may require a simple PPC and email marketing plan. Companies that are in a highly competitive region wanting to grow by 30 – 40 properties a year will need to implement a robust Omni-Channel marketing plan maximizing output budget.
Let’s look at two omni-channel models
|Conservative Plan to Grow 5 Properties||Aggressive Plan to Grow 30 Properties|
|Google PPC Marketing||Google PPC|
|Social Media PPC Marketing||Social Media Marketing|
|Email Marketing||Monthly Direct Mail|
|Quarterly IP Targeting|
|Custom Microsite for Homeowners|
|Est. Monthly Budget: $750 – $1.5k||Est. Monthly Budget: $4k – $8k|
|Est. Annual Budget: $9k – 18k||Est. Annual Budget: $48k – $96k|
|Est. CAC: $1.8k – $3.6k||Est. CAC: $1.6k – $3.2k|
|Annual Comm Rev: $50k – $150k||Annual Comm Rev: $300k – $900k|
These two models show two realistic marketing programs depending on growth goals.
Treat Marketing as an Investment Not an Expense
If you’ve gotten anything from this article, I want you to take away these three key points:
- Strategic marketing plans our what you want to achieve for the long term
- Know which homeowners you are looking to acquire and work out your cost to acquire them
- Understand and stay focused on the long-term returns you should expect from your marketing investment
Instead of “flash in the pan” marketing, or looking for “quick wins” – get strategic, play the long game and keep your eye on the finish line…because we all know who wins the race in the Tortoise and the Hare.
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Author: Randy Bonds
Randy is the COO and instrumental part of Vintory's operations and long-term strategy. Randy has been in the vacation rental and property management industry for decades, as well as having vast knowledge in the digital marketing landscape, making him a perfect fit for Vintory.