You’ve decided to start a vacation rental business – congratulations!
Not only have you picked the ideal location, but you’ve also put in an offer on the property of your dreams and are already thinking about the little details like which color to paint the accent wall. So what’s the next step? You need to start writing your vacation rental business plan.
Creating a business plan isn’t as daunting as it sounds – just think of it as your company road map for the next few years. Though the most important thing is that you create one, as this is where many owners fall down.
We know it can be a time-consuming task, especially if you’re not skilled with numbers, but it is an essential ingredient that you need to have if you are trying to get a mortgage or other financing for your new business.
One of the most common things that owners get wrong is including too much information – your business plan doesn’t have to be as long as the works of Shakespeare! Knowing exactly what is expected of your business plan’s contents is key – that way, you can approach it in small, digestible chunks.
Anyone who reads just the first page of your business plan should be able to grasp what your vacation rental is about, and it should excite them to read on further.
We’ve written this guide to help owners with these three specific pain points:
-Why do I need one in the first place?
-What do I need to do before I can start creating my business plan?
-What should I include in my vacation rental business plan?
Take each section step-by-step, and you’ll soon be on your way to creating a brilliant business plan for your new vacation rental venture.
Why Exactly Do You Need a Business Plan?
A business plan will be your guide: it will help outline your general aims and what you wish to achieve in what time frame.
Creating a business plan and physically putting your aspirations onto paper, alongside the numbers that are going to help make those goals happen, will be a great tool to refer back to later on to ensure your business is going in the right direction.
Plus, if you’re looking to receive investment or funding from a bank or any other third party, you’ll have to present your business plan so investors can understand exactly what the money is being used for.
Get Started: Prepare Yourself
So, you want to create a business plan for your vacation rental and you don’t know where to begin.
First off, before doing anything else, you will need to weigh up (as honestly as possible) the chances you have at making a success of your business, both personally and professionally.
Let’s take a look at what that means.
Analyze Your Business Idea
This will involve asking yourself a number of questions such as:
-How big is the demand for a vacation rental in the area you are planning to buy property in?
-What skills will you need?
-Is the property you want to buy a good fit for a vacation rental home?
-Will you have to carry out any renovations before you can start renting?
-Do you have the financial capacity to start a business?
This is also the opportune moment to check out any existing competitors (you can do this using listing sites like HomeAway and Airbnb), in order to discover if the market can support your business. There are a few things you should consider about your competitors. For example:
-Do they have their own websites?
-How do they promote their brands?
-How much do they charge?
-What are their seasonal prices?
-How do they describe their properties?
-What difference will you bring to the market?
It sounds a bit strange, we know. But analyzing yourself is an important step that many owners forget to take.
-Are you prepared – mentally and physically – for the demands that running a small business as a vacation rental entails?
-What existing skills do you have that will be an asset to a business like this?
-What skills will you need to work on/obtain? What income do you need to generate?
-What are the advantages and disadvantages of starting this type of business?
-Are you going to self-manage your vacation rental or hire a property manager?
It’s worth bearing in mind that as well as having a great customer service level for hosting those potential guests, you’re going to need some industry expertise, finance and planning abilities, management skills, marketing knowledge and even a flair for interior design! Apart from this, you’ll also need the determination, patience and capacity to think of the long-term in order to succeed.
What to Include in your Vacation Rental Business Plan
When you’ve done your research and you’re sure your business is a go-er, that’s when you can begin to think about penning your business plan.
If you’ve never written a business plan before, it can be difficult to know where to start. At Lodgify, we want to provide owners with the right tools to be able take matters like these into their own hands. That’s why we’ve prepared this useful guide explaining exactly what every owner should include in their vacation rental business plan.
A vacation rental business plan should always include the following…
1. Executive summary
This will take up the first pages of your business plan.
After you’ve dotted the I’s and crossed the T’s of your vacation rental business plan, you’ll want to summarize it all so that anyone reading can see – at a glance – what it’s all about.
As well as an introductory overview of your company and its services in the vacation rental industry, this summary should also answer the following questions:
-Why are you going into business?
-What currently unfulfilled need are you going to solve?
-Who is your target audience?
-What details can you share about the industry?
-What is the market size? What are your objectives?
-What do you hope to accomplish?
Don’t try and write this to begin with – it’s always better to leave the business summary until last. Once you know your business plan inside out, you’ll be able to pick out the most crucial details to include in your summary. If your plan might later be used to attract potential banks, investors or partners, remember it has to be succinct and persuasive.
2. Company Analysis
In the company analysis section, you should provide detailed information regarding the unique selling points (USPs) of your new vacation rental business. What does your vacation rental have that will make it a success? What will your company bring to the market?
3. Industry Analysis
In this section, divulge particulars about current vacation rental industry trends, alongside an overview of the current state of the market.
This will help you (and anyone reading) to truly understand the landscape of the industry you are entering. Furthermore, if any external party is investing in your business, it will demonstrate your knowledge and awareness in an explicit manner.
4. Customer Analysis
Painting a picture of exactly who your target market is from the outset – which type of guests you want to target – will be key in helping you attract more bookings.
Ideally, to answer this question, you will create several different buyer personas for each of your target audiences. These fictional representations of who you consider to be your ideal vacation rental guests will help you out in all aspects of your business down the line: marketing, generating bookings, customer service, even content.
For example, your buyer personas may be:
-Travelers with pets
Each vacation rental is different, and each will likely have different buyer personas, too. To create your buyer personas, you’ll need to think carefully about demographics and characteristics, socioeconomic and geographic factors, their typical needs and where you can find them from a marketing perspective (e.g. online, tourism boards, listing sites etc.).
In the customer analysis, you should also explain what you will do to ensure your vacation rental meets the requirements of each of these main groups. Put yourself in your prospective guests’ shoes and ask, “why should I stay at this vacation rental?”. This could take into account its location, amenities and any additional services offered.
5. Competitive Analysis
Carry out an extensive study of your direct or immediate competitors (e.g. other vacation rentals in your area with similar amenities and features). There are plenty of listing sites such as Airbnb, HomeAway or Booking.com which you can use to find your competitors quite easily.
Then, analyze them using the SWOT method – note down their strengths, weaknesses, opportunities and threats – so you can use this as ammo for your own business. Here are some things to think about:
-Who are my current competitors? How many properties do they have? How successful are they?
-What do they do to promote their vacation rental? Have a look at their marketing strategies.
-What kind of guests (or buyer personas) do current competitors target? Do they focus on a specific customer type; on serving the mass market; or on a particular niche? For example, high-end market, young families, etc.
-How will your company be different from the competition? What competitor weaknesses can you exploit? What competitor strengths will you need to overcome to be successful
-How will competitors respond when you start your business?
-What will you do if competitors drop out of the marketplace? How will you take advantage of the opportunity
-What will you do if new competitors enter the marketplace? How will you react to and overcome new challenges?
6. Operations Plan
Sometimes referred to as the management plan, the operations plan will need to be comprised of the finer details about how you aim to run your new business.
Try to answer questions such as:
-Where is your vacation rental business located?
-Who will be in charge of its day-to-day running?
-How many additional staff members will you need to employ?
-What will their responsibilities be?
-What are your service standards?
-Which manuals will you need to develop?
-Which suppliers will you use?
-How will you control inventory?
Think about who the operations plan is for before you write it. If it has multiple purposes, or other parties (such as staff) will be reading it, this can help you when addressing certain topics.
7. Marketing Plan
You’ll already know who your target markets are, so now is your chance to explain the strategies you will use to reach these targets and achieve bookings. Take these questions into consideration:
-What will you do to attract guests?
-What is your marketing message?
-How will this vary depending on each target market/buyer persona?
-What will you do in terms of direct marketing?
-What plans do you have for your vacation rental website?
-What will you do in terms of online marketing?
-How will you perform SEO, SEM, and social media marketing tasks?
-What offline promotions will you do?
If you don’t know much about marketing yet, there are plenty of resources available to help you. Our free eBook about online marketing for vacation rentals is a great starting point.
8. Distribution Plan
While established vacation rental businesses are more accustomed to getting direct bookings and may even achieve listing site independence, for those hosts who are starting out, diversifying your channels and having presence on the top OTAs is going to be key in bringing those first bookings in.
Take a look around the market and decide which third-party channels you will use for distribution, some of the most popular choices are:
-HomeAway (and any of its sister companies)
If you’re not sure where is best to advertise your property, check out our extensive guide to the different vacation rental listing sites, which includes information about their fees and charges where applicable. Furthermore, if you are planning to list your property on multiple sites, it is also vital to have a good channel manager in place. A channel manager takes the time and hassle out of managing external listings by synchronizing calendars and reservations across all platforms, ensuring all information is up-to-date.
9. Revenue Management Plan
One of the most difficult things to get right when starting your vacation rental business is setting your rates. Undershoot your market and you might attract guests who are more likely to damage your rental. Overestimate fees and you may end up with high vacancy rate. In this section of the business plan, you should outline any pricing or yield management techniques or tools you will use. It is also useful to note your payment and cancelation policies here.
10. Financial Plan
Numbers are very important in your business plan. In this section, you’ll have to include details on how you are going to finance your business, plus any estimates of expenditure and revenue projections for the future.
Remember to include, for example:
-Any start-up costs of the vacation rental (capital investment)
-Ongoing business costs for maintenance, repairs, housekeeping
-Estimated revenue projections for the next five years KPIs to track such as expected occupancy, ADR (average daily rate) and RevPAR (revenue per available room).
-Costs of any permits and licenses
-Costs of extra services you might hire (e.g. cleaning, key management)
Don’t be afraid to ask for help! If you’ve never forecasted finances for business before, or aren’t that confident with numbers and figures on your own, you can easily recruit a professional accountant to do the work for you!
-What are your plans for the future?
-Do you have a vision statement?
-Where do you see your business in five years? In 10?
Include these in your business plan along with any milestones you will achieve. These could include things like:
-Obtain permits and licenses
-Create a website and open for business
-GOP break even
-NOI break even
-Achieve 10% EBITDA
Whenever a milestone is achieved, the risk to lenders decreases. At the moment when your last milestone is accomplished, it means your business has a very good chance of succeeding in the long term.
If you want to include relevant information to support anything else you’ve mentioned in your business plan, it is a good idea to include this documentation in the appendix section. This way, your overall business plan will be free from clutter and too many details – but at the same time, if whoever is reading wants more details, they’ll know where to find them.
What to take away
Writing your vacation rental business plan needn’t be a stressful process, and it really will help you gain some perspective about your business’ potential for success.
Even if you’ve never written a business plan before, by following the steps outlined above, you should find it easy work.
The most important thing to remember is that every business plan is different, so you might not even need to answer all the questions proposed in every section – there is no harm in customizing these ideas to fit your business needs better.
Now it’s time to get your business plan off the ground! Use the checklist below to tick off each section as you complete it:
-Revenue Management Plan
-Key Milestones and Business Future
We hope this guide will give you the confidence you need to develop your own vacation rental business plan and achieve your goals, with the assurance Lodgify will be there to help you along the way!