How to Create a Rock-Solid Vacation Rental Business Plan
Working as a property manager or a vacation rental operator can be very lucrative. But in order to ensure the success of your property, you first have to invest time into creating a vacation rental business plan.
It can be challenging to figure out where to start and it’s easy to get overwhelmed. This is why we created an actionable, step-by-step guide to creating your vacation rental business plan. Here, you’ll learn:
- Why it’s important to write a business plan
- How to establish your business goals and vision
- How to identify your best customers
- How to analyze your competition
- How to map out and organize your business resources and your tech stack
- How to create a marketing plan
- How to create a revenue management plan
- How to avoid the most common mistakes
Find out how RueBaRue can help you cut down on guest calls and messages and deliver fantastic vacations: Schedule a demo.
The purpose of your vacation rental business plan
The core purpose of your vacation rental business plan is to establish your entrepreneurial vision. Investors need to know that you thought everything through, that you have a structure in place, and that you know what you’re doing. That’s how they can make an educated decision about financially supporting your business.
Here’s a summary of the value a vacation rental business plan can bring:
- It’s the key document that will help you get buy-in from key stakeholders.
- It brings clarity about the business areas where you might need extra help.
- It helps you break down everything into milestones you can effectively manage.
- It’s a valuable source you can reference at any time to see if your business is on the right track.
- It’s a great way to evaluate your ideas and focus on those that have the best chance of success.
Let’s move on to explaining the first step of creating a plan.
1. Establish your business goals and vision
Writing a business plan comes down to asking yourself meaningful strategic questions and moving through the different segments we lay out here. There are two main paths
you can take:
Both paths are legitimate business approaches, but they do require different roadmaps. Here are some questions you can ask yourself to figure out where to begin:
- Do you want to own all properties or just manage them?
- Do you see the vacation rental business as your side gig or your full-time job?
- What are the pros and cons of outsourcing your business operations?
- What are the pros and cons of handling things in-house?
- Will you use the properties or are they purely an investment?
It’s also smart to think about where you want to be in the foreseeable future
. Think about the first five years of your business and ask yourself:
- How much would you ideally want to grow?
- What are the barriers to this growth?
- What are the upsides and downsides to starting as a small player?
After you look inwards and understand the overall path you’d like to take, it’s time to evaluate your capabilities and identify possible deficiencies. There are several different frameworks you can use, but SWOT is one of the most popular ones—and for a good reason.
A SWOT analysis helps you take a realistic look at your strengths, weaknesses, opportunities, and threats. Here’s what it could look like for your vacation rental property:
A SWOT analysis encourages strategic and critical thinking, and helps you prevent more serious issues down the road. Look at your list of threats to address them proactively. In the example above, this could mean:
- Doing extensive research on tax regulations depending on the planned location for your short-term rental
- Researching software that can help you automate parts of your business and manage your property more efficiently
- Setting a competitive pricing strategy until you build more brand awareness
RueBaRue allows you to scale your short-term rental business the right way by automating parts of your everyday operations such as guest communications. Schedule a demo.
2. Determine and research your target audience
Your vacation rental business plan needs to have a defined target audience. It’s important for all your marketing communications and for your positioning on the market. However, be aware of the difference between your target customers and your ideal guests (or Ideal Customer Profiles—ICPs).
As you can see from the visual above, your target customers are those your short-term rental business CAN serve. However, your Ideal Customer Profiles (ICPs) are just a fraction of the total market you want to enter. Those are the customers you would ideally WANT
Guests will choose one property over another by looking at several different factors such as:
- Property type
- Comfort and design
- Special offers and discounts
- Reviews (on Google, on your own website, Tripadvisor, or OTA listings such as Airbnb, Vrbo, booking.com, and others)
To discover who your best customers are, you need to describe them in as much detail as possible. Below you can see a list of questions you can use for customer analysis. Identify their motivations, goals, triggers, and objections, the potential relationship you can develop with them, their challenges, and additional insights that can help you build buyer personas by looking at their characteristics and buying power.
This of course is not set in stone. In fact, it’s wise to add things like demographics, guest background, reasons for stay, among others. This will be crucial for crafting your financial plan and setting your marketing foundations properly. It will also impact such things as:
- How you position your short-term rental on the market
- The type of guest experience you design
- How you furnish your properties
To summarize, who you are trying to reach has to be included in your vacation rental business plan. The more details you can gather on your ideal guests, the better.
3. Conduct competitive analysis
Competitive analysis should be included in your vacation rental business plan for several reasons:
- You need to know what you’ll be competing against
- As a new business, you need to gain a full understanding of the vacation rental market you want to enter
- You need to analyze how your competitors are marketing their properties to find a way to communicate your value proposition in a compelling way
Here’s an example of information you can gather to form a bigger picture about your competitors:
||List of properties
|– How is the competitor positioning themselves?- What are their key value points?
||– What are their main marketing channels?- What sort of campaigns do they invest in?
– Are they investing in content marketing and SEO?
– Have they set any paid campaigns?
||– Can you conclude who they are trying to reach?- Are they targeting the same guest profiles that you plan to?
||– What are the listing sites they rely on? (Airbnb, Vrbo, booking.com, or other OTAs)- Have they invested in PR activities?
||– What are some of the ways they introduce upsells?- How do upsells contribute to bettering the guest experience?
||– What is their pricing strategy?- Would you say their rentals are affordable or high-end?
||– What is the full list of their properties?- Are they your direct competitor or just someone you should keep an eye on?
||– How would you score their website (copy, design, user experience)?- Is it easy for guests to book or do they experience some friction?
– What do their listings look like?
– What are their online reviews?
– What are some things guests have complained about?
– What are their occupancy rates?
4. List your resources
Your vacation rental business plan also needs to include your resources. This includes your team, how you’ll handle your internal operations, and your chosen tech stack. This segment of your business plan is important because it gives a clear overview of what you need to achieve your business goals.
Assemble your team
Your team is likely to consist of two main employee groups:
- Management team
- Staff on the ground (cleaning and maintenance)
You should think about the number of employees you need per rental unit. At this point, it’s smart to introduce a team structure and think about how you would organize shifts. This will inform your hiring strategy and help you assess how many full-time and part-time employees you would need. Bear in mind that every team member’s gross salary (or a rough estimation of it) has to be included in the financial plan.
Build your tech stack
The vacation rental technology
stack you build will directly impact the efficiency and scalability of your short-term rental business and the guest experience you create. The software tools you choose should help you build automated workflows, stay on top of everything that’s going on across all your rentals, and manage guest communications efficiently.
There are many PMS solutions on the market, which makes it challenging to pick the one that’s most suitable for your business needs. Here are some of the things you should take into account while evaluating different options:
- Create a list of everything you might want from a PMS
- Create a list of potential bottlenecks you anticipate in your internal operations
- Have a clear budget you’re willing to allocate
- Evaluate your top options by looking at key criteria (user experience, features, customer support, pricing, key differentiators)
- Read online reviews to see what existing or past users had to say
Modern vacation rental properties rely on keyless entry systems to ensure maximum security and a seamless check-in experience. Keyless entry can cost you anywhere from around $250 per rental unit, depending on the type of system you choose. It’s more expensive compared to a traditional lock that’s about $50 per door.
Benefits include preventing situations like guests getting locked out or losing the physical key, as well as simplifying access and giving guests more independence over their arrival.
Tackling how you’ll handle guest communications is another thing you should define within your “Team and Operations” section inside your vacation rental business plan.
Here’s what your guest communication solution should cover:
- Schedule texts to be automatically sent to your guests
- Answer texts instantly and delight your guests
- Create user-friendly surveys guests will want to answer
- Capture website leads and answer visitor questions via SMS
To summarize, you need a tool that will allow you to immediately assist your guests and exceed their expectations. You can do that if there’s automation
allow you to provide a home and area guide in a single place. On one hand, this helps your guests navigate your property easier and creates a seamless guest experience. On the other hand, it can save your rental staff a significant amount of time (up to 50%), which they can invest elsewhere.
Here are some of the benefits of using a tool that allows you to easily add digital guidebooks:
- Add all the information your guests might need upfront (for example, arrival times, door codes, and interesting places to see in the area)
- Cut down the time your staff spend answering guest questions
- Make guests feel welcome by providing them with WiFi details, parking information, recommendations for local dining experiences, and more
By learning more about how much software solutions can benefit your short-term rental, you can include them in your strategic planning.
Reduce repetitive guest calls by more than 70% and delight your guests with RueBaRue. Schedule a demo.
5. Create a marketing plan
Now comes the tricky part—creating a marketing plan. It’s tricky in the sense that you have to engage both your guests and property owners.
But there’s also good news. By now, you’ve already taken a major step toward creating a marketing strategy: Your defined your business goals and your target audience.
Setting the marketing foundations
Check the table below for questions that can help you out. It will help you dive in deeper to more fully define your value propositions, unique selling points, mission, vision, and values.
||Core company values
|What is the promise you make to your guests?
||What do you as a company believe in?
||What evidence do you have to prove you can deliver on your promise?
||Why did you start your property management company?
|What makes you unique on the market?
||What values do you nurture when it comes to managing relationships with your guests?
||Would people recognize your brand if you’d strip your entire visual identity?
||What are 5 adjectives that describe what your company is and what it’s not?
|Why should guests care about your rental business and your offer?
||What is the nature of your organizational and people culture?
||Is your tone of voice and communication style appropriate for your target audience?
||How would you like to be perceived?
After finding the answers to these questions, you should be able to formulate your unique selling proposition and your positioning statement.
There are several ways to come up with a positioning statement, but the most effective one is also the most concise. It helps you to truly strip down all the unnecessary word clutter and leave only the essential information:
Our [OFFERING] is the only [CATEGORY] that [BENEFIT].
For example, your positioning statement could be something like this:
Our vacation home is the only short-term rental in California that provides complimentary 50% off for first-time guests who are business travelers.
When it comes to defining your mission, vision, and values, it comes down to answering three key questions:
- Why are we here? (MISSION)
- Where do we want to be? (VISION)
- What do we stand for? (VALUES)
Defining marketing channels
An important part of your business plan has to include at least a rough sketch of the marketing channels you would focus on. Here’s how to get started:
- Commit to creating a website for your vacation rental property (should include an option to directly book a stay)
- Consider content marketing and local SEO as parts of your marketing strategy
- Explore which social media your target audience uses (great for community building and expanding your reach)
- Identify the best listing sites for your business (OTAs like Airbnb, Vrbo, and booking.com)
There are benefits of adopting the startup mindset here. It’s good to test what reach you can achieve organically, i.e. without investing too much into paid advertising. Of course, if you do have the budget, paid advertising tactics can complement your organic efforts.
|Pro tip: If you plan on listing your property on multiple sites, invest in a channel manager, which will seamlessly connect your property to OTAs and synchronize availability.
6. Lay out your revenue management plan
Your revenue management plan is going to be of special interest to your potential investors or business partners. It can be challenging to set your pricing strategy perfectly right from the very start, especially because you cannot fully predict how successful your rental business will be when you launch.
Still, doing some projections and coming up with a financial plan is necessary to ensure healthy cash flow and sustainability for your business.
Here are some of the key questions you need to ask yourself:
- Will you use fixed or dynamic pricing?
- What’s the total amount of taxes you need to pay for each rental unit?
- What are the utility bills for each rental unit?
- What amount per month goes to gross salaries for each team member?
- What are the upsell opportunities you can introduce? What’s my estimate for monthly revenue coming from upsells?
- What’s your target monthly income?
- What’s the minimum amount of revenue you need to generate in order to break even?
It’s also smart to outline pricing or yield management techniques in this section, along with the software you plan to use.
Pro tip: If you don’t have much experience in finance, consider hiring a professional accountant to help you out with financial planning.
7. Write your executive summary
Although it might seem counter-intuitive, you should write your executive summary only after you’ve finalized your business plan. When you think about it, it makes sense to do so because only then will you have all the information ready.
Here are the key elements you should include in your executive summary:
|Your positioning statement and mapped business opportunity
||To prove that you’ve done your homework, that you know the value you can bring, and that you’re familiar of the level of competition you’ll face in the vacation rental industry
|Your business model
||To prove that you’ve figured out how to create a win-win situation that both your ideal guests and your business will benefit from
|Capabilities and resources
||To prove that you have the skills to launch a successful short-term rental business, or the knowledge to hire the right experts who can help you out
|Overview of the competitive analysis
||To showcase you have a solid understanding of what your competitors have to offer and how you can still succeed in the market
|Your ideal guest profile
||To prove that you have a detailed description of your target audience and therefore can figure out how to adjust your marketing communications to attract them
||To explain how you think about the steps and actions that need to take place in order for you to achieve set business goals
||To explain how you see the team structure and the tech stack that will ensure the success for your short-term rental
|Summary of the financial plan
||To explain how you plan on spending the money and how you think about long-term financial sustainability
|Pro tip: Your executive summary should highlight the key points of your business plan and extend to a maximum of two pages.
Mistakes to avoid
To wrap up, let’s take a look at the most common mistakes rental property businesses make when they are just starting out:
- Being overly ambitious instead of taking baby steps
- Lacking specificity and creating a brand that’s too general and bland
- Failing to fully contextualize your plan and vision
- Getting impatient to launch instead of taking the time to think things through
- Rushing things and missing key elements in the financial plan
- Ignoring or underestimating the competition
- Skipping the key step of defining your target customers
- Choosing the wrong software solutions
As you can see, writing a business plan requires a lot of work. However, it gets a lot simpler and more manageable when you have all the steps mapped out.
The most important areas to get right are those that have the biggest influence over your operations and the guest experience:
- Building a team you can trust
- Creating a tech stack that helps your team do their best work
After all, if you don’t have a great management team, reliable staff on the ground, and the right tools in place to help support their work and automate key processes, you’ll struggle to meet guest expectations and, ultimately, you won’t have a scalable business model.
But, by utilizing hospitality software solutions and demonstrating your commitment to facilitating great performance throughout your STR business, you can create a business plan that achieves its aims, whether that’s to get buy-in from a third party or solidify your own entrepreneurial vision.
Writing a business plan requires laying down what systems, processes, and technology will optimize your operations and guest experiences.Find out how RueBaRue can help you cut down on guest calls and messages and deliver fantastic vacations: Schedule a demo.
Frequently asked questions about vacation rental business plans
What are the expenses of running a Vrbo?
Vrbo offers two types of pricing models. You can either pay for an annual subscription fee of $499 that covers the whole year, or choose the pay-per-booking listing model. In this case, you get charged a 5% commission per booking, plus a 3% payment processing fee.
What are the best areas to start a Vrbo?
According to the most recent AirDNA short-term rental analysis
, the best areas offering the highest potential profits include Maui (Hawaii), Kenai Peninsula (Alaska), and Chattanooga (Tennessee).
How much does the average vacation rental business owner make?
The average vacation rental business owner makes anywhere between $11,000 and $33,000 according to data provided by Airbnb and Vrbo. This figure can get significantly higher if you invest in marketing and have a detailed operations plan in place.
What’s the difference between a revenue management plan and a financial plan?
Revenue management plan
takes into consideration your pricing strategy, inventory management, long-term planning, revenue and demand forecasting, sales strategy, etc. In a way, it’s more high-level and more strategic compared to a financial plan
, which includes projections based on trends and lists all costs (capital investments, operational expenses, costs of permits and licenses, salaries, etc.).