The Bottom Line on Vacasa: When Should Vacation Rental Managers Prioritize Margin Over Top-Line Growth?

“Growth is great and important especially during the good times. Do what you have to do, but don’t lose sight of the bottom line.” Luke Bujarski, Head of Growth at Extenteam

In this article, I analyze Vacasa’s recently published financials and highlight why your vacation rental business needs to prioritize cost management over top line growth initiatives.

These are some of the best times for vacation rental managers, and the market is currently awash with off-the-shelf business solutions promising to grow your revenue.

It’s a reflection of the current state of the industry. It is a great time to scale, but in ways that improve both the top and bottom line.

Vacasa’s Big Announcement

A treasure trove of strategic insights is materializing as Vacasa’s financials go public. The company launched in 2009 and now has 30,000+ properties under management (mostly in the U.S).

It could become a household consumer (and owner) brand in a category that has exploded in step with recent trends.

Going public will allow the vacation rental management (VRM) company to accelerate supply growth and – according to a recently published investor deck – drive crucial operational efficiencies and economies of scales.

The Vacasa Model

Vacasa essentially does the same thing that other VRMs do – namely, it operates vacation rentals. The fully-integrated model is a rollup strategy; the company will need to scale fast and cheap in order to hit its 2023 margin targets.

Here are some reasons why size matters:

Proprietary technology stack (Property Management, Revenue Management, Channel Management, Security, Operations, Payroll, etc.) i.e. no SaaS fees.

National brand potential with potentially lower cost of customer acquisition over time via loyalty and direct marketing efforts;

Negotiating leverage on reoccurring costs e.g. toiletries, linens, food stuffs, etc.

Cost efficiencies on market and distribution costs via third-party marketplaces; i.e. more direct bookings but also negotiating leverage with OTAs on commission rates. In certain markets, as in Destin, Florida, Vacasa manages close to 50 percent of Airbnb listings.

Competitive with owners offering lower management fees compared to local VRMs. Vacasa can a) lower management fees across the board in exchange for market dominance or b) take a loss leader position in certain markets while remaining profitable in others.

Ability to pay higher wages for operations support as top employer in its category; labor market shortages will remain a challenge in the mid-to-long term for the industry

Room rate leadership in dominant markets i.e. ability to influence supply & demand

Why Is Vacasa Still Losing Money?

It takes money to make money. The company has scaled to over 30,000 properties in just over 10 years. Capitalizing on economies of scale requires (in this case) significant mobilization of land, labor, and capital – particularly with the vacation rental management model, compared to other accommodations types e.g. hotels, motels, and resorts.

Some challenges to building a VRM brand beyond a single market include owner management, distance between properties (higher operations costs), unit variabilities requiring specialized inputs to maintain amenities, and others.

All of that hard work comes with a reward. Vacasa estimates an average $319 gross booking value per night sold in 2021 – an increase of 11 percent from 2019.

Recently published financials do suggest that efforts are beginning to bear fruit for Vacasa.

Revenue: Leadership expects the company to break even by 2023. Top-line growth is expected to come almost exclusively from a huge jump in the total number of room nights sold – a 64 percent increase over the next two years.

This is ambitious. Higher occupancy on new and existing homes could help, but the brunt of this expansion will need to come from new supply growth, either organically or via acquisition.

We estimate that the company would need to increase its supply by 15,000 to 20,000 units to reach its target (30,000 existing units *1.64 = 49,200).

Furthermore, GBV Per Night Sold is expected to stay level during this period. This further highlights its straightforward growth strategy going forward i.e. add more units, cut costs.

Profit: Longer term, the company aims to reduce costs (as a share of revenue) by 11 to 15 percent overall – with deepest cost cuts across Operations & Support and Sales & Marketing functions. Indeed, the company’s efforts in reducing costs will fall under heavy scrutiny with investors.

Takeaway for VRMs: Focus on Cost Management

We see how important cost management is to Vacasa. The entire business model depends on its ability to reign in costs. Leadership talks a lot about technology as a competitive differentiator, but scale and efficiency will ultimately get it to where it needs to go.

The same applies to your VRM.

Grow your supply, work on your branding & direct marketing strategy, tweak you distribution mix with new software packages, equip your acquisition team with good data. Do all that, but don’t lose sight of the bottom line.

Whether your intention is to scale and sell, or to lead a successful property management business, eventually you will – just like Vacasa – be put to task on costs.

Payroll Is Your Biggest Cost Factor

Smaller VRMs many not be able to capitalize on economies of scale like Vacasa claims that it can, but they can work towards lowering costs in other ways.

Being smart about staffing is critical.

Payroll is your single biggest controllable cost factor. Top-line strategies are an investment and, contrary to popular belief, direct business is never free.

A mismanaged brand & marketing strategy can end up costing you more than it saves on distribution costs with third-party marketplaces.

Vacasa is big enough and integrated enough to where direct marketing can meaningfully reduce its costs. While an imperative for the ambitious Vacasa, building proprietary systems is often overkill and prohibitively expensive for most operators.

For smaller VRMs, reducing staffing costs is  among the ways to meaningfully and directly improve margins.

The current labor market compounds the challenge. Wages across the workforce are expected to rise. Operations costs for housekeeping can pass on to the guest, but this exposes your top-line strategy to risk during leaner times.

Demand markets are fickle, and wages tend to stay up once they go up.

Consider Direct and In-Direct Costs

With Extenteam, we help our vacation rental partners eliminate different types of staffing costs. Direct costs include wages, employment taxes, training, data security, and more. Indirect costs usually translate into opportunity costs e.g. lost time spent on in-house staffing i.e. hiring, training, and re-hiring staff and misallocation of time i.e. having senior team members doing repetitive tasks when they should be focused on more strategic, growth-focused aspects of the business.

Summary

There is nothing intrinsically unique about Vacasa’s business model. It’s all about the roll-up. Cost reduction will be crucial in keeping shareholders happy. The same applies to your rentals business. At some point, you will need to prioritize cost management over top line growth. Competitive and market forces always change. Furthermore, reducing costs is a long game. Start now with staffing and build a support structure that can scale (up or down) with you.

Why Work With Extenteam

Extenteam is an end-to-end staffing solutions provider and the only vacation rental management vendor laser-focused on growing your bottom, line rather than your top line. Our partners enjoy staffing cost reductions of upwards of 70 percent. Schedule a call to discuss your coverage gaps and long-run staffing strategy.