Note: Lessons from The Overlook is a periodic update on lessons learned from owning a vacation rental property in the Southern California mountain town of Idyllwild. It's a hands-on opportunity to apply some of the techniques I advise my clients to use. You can find past updates here.
Back in January, we made some big changes to The Overlook.
You can read all about the changes here, but these are the highlights:
Reduced the bedrooms from four to three.
Converted the former master bedroom into a game room.
Upgraded lamps and furniture throughout the cabin.
The changes dropped our maximum occupancy to six people, down from eight. We also lowered our nightly rate from $250 per night to $225.
Our goal was to increase revenue by 10 percent. There's a bigger market for cabins that sleep six versus cabins that sleep eight. We thought we could get enough additional bookings to offset the $25 lower rate.
The big question now is whether the changes worked. The only way to find out is to conduct a business review.
Here's how we did ours and why you should do one, too.
Why should you conduct a business review?
A business review helps you evaluate your strategies, tactics, and other business decisions. It allows you to make course-corrections when things aren't working, or strengthen new initiatives that are going well.
A plan often looks very different once it's executed than it originally did on paper.
It was a year ago when we made our initial plans to reduce the number of bedrooms at The Overlook and add a second game room. (We already had a ping pong room in a converted garage.)
Our plans represented a risk even if there hadn't been a pandemic. We knew we were losing out on many potential repeat guests if we made our capacity smaller, and would have to earn a lot of new business to make up for it.
A business review helped us evaluate those decisions.
There's likely a lot of decisions in your business that could benefit from an honest review. Examples might include:
Did that new training program work?
Is the new computer system improving efficiency?
Are we getting more actionable insight from our voice of customer program?
How did adding a live chat service channel affect our phone volume?
Is our new recruiting plan yielding better hires?
Whatever you decided to do at the start of the year, now is a great time to evaluate those plans and see if they're working.
How do you conduct a business review?
There are three simple questions that can guide your review process.
What are our goals?
Are we on track to accomplish them?
Why?
That last question will help you understand whether your decisions are paying off, or if you need to make adjustments to your plan. Sometimes, you find the decision was a good one and you still need to make some changes.
That's what happened at The Overlook. Here is our revenue goal along with our results year-to-date (YTD):
Goal: 10% revenue increase
YTD Actual: 10% increase
Status: On target
Even though the results look pretty good, asking "Why?" can help you really understand what's happening and spot any signs of trouble.
One of our key performance indicators is the average number of nights booked per month. Here are our results compared to 2019:
2019: 9.3
2020: 10.4
Looks good, right? Not necessarily.
We need to average 11.4 nights per month to be on pace for a 10 percent revenue increase over the entire year. That's because we lowered our rates from $250 to $225, so we're collecting $25 less per night.
A few unusual factors initially made it difficult to hit the 11.4 mark so far this year:
We lost out on repeat customers when we converted to three bedrooms in January.
The pandemic temporarily shut us down in April.
The cabin was closed for 10 days so it could be painted in June.
This trend could spell trouble in the future if we aren't able to increase our nights per month.
Fortunately, our results have looked better lately. Here are the numbers for the past three months, including our projection for September:
July: 13 nights
August: 22 nights
September: 18 nights
When should you adjust your plans?
There are often opportunities for improvement, even when things are going well.
For example, we've decided to take another look at our rates. We initially lowered the nightly by $25 when we dropped down to a three-bedroom cabin.
A competitive analysis against similar cabins revealed that our rates are now too low for all that we offer. The Overlook has more selling features and more bookings that most of its competitors, but many other cabins still charge more. So we've just raised our nightly rate back to $250.
We'll have to evaluate that decision in a few months.
Take Action
What decisions have you made that should be reviewed?
It could be your annual business plan, a new investment, or a new strategy. Whatever it was, take the time to compare your goals to then results you achieved. Even when things look good, a business review might help you identify additional opportunities for improvement.