By Karen Fleck, Rented Chief Financial Officer
Revenue management, as a discipline, has been used for decades in the hotel and airline industries. Since the vacation rental industry is a newer field, revenue management is a newer discipline for us—and one that can be quite complicated given that each rental property is unique.
Luckily, the vacation rental world is full of fast-moving innovators that have started implementing revenue management quickly. However, as a longtime CFO, I believe many companies are missing a critical piece of the puzzle: bringing the finance and revenue management teams together to work as a cohesive team.
What is revenue management—and how does finance fit in?
I define revenue management as increasing a company’s revenue without increasing the products or services sold. For vacation rental businesses, this includes getting more cash in the door from guests staying in the properties you already have—instead of adding more properties that may not be profitable. Here at Rented, we consider revenue management both an art and a science.
While revenue management specialists focus on optimizing per-unit earnings, finance brings the big-picture perspective. They review the company’s historical performance and current insights to assist in planning the company’s financial future—on both the revenue and expense side.
Connecting the dots between revenue management and finance is critical to ensure your company is performing at its best. Whether you are a small shop doing everything yourself or employ a separate team of specialists, considering the impacts of revenue management throughout your business will give you a leg up on the competition.
Five reasons why revenue management and finance are a perfect pairing
1) You get your very own crystal ball.
Maybe it’s a crystal ball with some slight flaws, but a crystal ball all the same! Finance should surface insights about your past, current, and future state. Were all your rentals booked 6 months in advance for the last two years, but so far this year, you only have 60% capacity 3 months out? How are your important metrics like ADR and RevPar tracking? Knowing these metrics inside and out will give you advance notice when you need to start making adjustments, and is always a great way to anticipate demand. As an added plus, homeowners will be impressed when you can easily reference important data points while reviewing their performance.
2) You’ll get the best possible financial results for your business.
Remember that revenue management is a focus on increasing revenue with the services and products you already have, versus adding new products and services. Increasing your revenue via revenue management will increase your earnings, enabling you to achieve your best possible financial results. You will also be in a better position to plan for variable expenses by downgrading, upgrading, or pausing services in advance.
3) There will be less need to cut expenses.
I’ve always been a believer that the way to a cash-generating business should be to increase revenue instead of cutting expenses. Revenue management is the surest way to ensure that happens.
While your expenses should be reviewed regularly to ensure you aren’t paying for things you don’t need, the ability to forecast revenue accurately takes the stress out of having to cut expenses you really do rely on.
4) You will be able to determine the viability of your products early.
After living through 2020, we all know how uncertainty can affect our businesses. Focusing on revenue management compared against budgets will help you determine if you’ll be able to generate cash to survive as a company, or whether you need to adjust your model or services. This principle doesn’t just apply during a pandemic—your finance team can help forecast success from new marketing campaigns or during a change in market conditions. In any scenario, you get to spend less time grappling with the uncertainty itself and more time working on driving revenue.
5) Everyone will have a better understanding of the business.
When you live and breathe the numbers, you know what you need to make your business successful—and the levers you can pull to start bringing in more money for you and your homeowners.
Bottom line (finance pun fully intended): If you have separate revenue management and finance teams, it’s imperative they work together as a cohesive team. They often have and need separate skill sets, and will bring different information to the table that will help optimize financial performance. When revenue management and finance collaborate, you’ll experience less overlap of the same activities—saving time and money—and will ultimately benefit from the winning combination your business needs to thrive.
About the Author
Karen Fleck has spent her entire career in the finance and operational world, starting as an auditor in the fifth-largest firm in the country and moving on to become CFO at an investment firm and hedge fund. She then worked as the COO at a real estate startup, overseeing sales, customer support, accounting and finance, HR, legal, and compliance. Early in her career, Karen learned the importance of structure at each stage of a company’s development. As CFO of Rented, she focuses on financial planning and structure, working to set the company up for success as it grows. Find her on LinkedIn.