July 7, 2025 • 30 mins
"Is this a business or a hobby?" That piercing question from vacation rental financial expert Ben Edwards cuts to the heart of why proper budgeting makes or breaks success in our industry.
Drawing from 25 years of experience examining hundreds of vacation rental P&Ls, Edwards delivers a masterclass in creating budgets that drive real profitability. He reveals the sobering reality that many operators work tirelessly for decades only to sell their businesses for disappointing sums - all because they failed to maintain meaningful profit margins through disciplined financial planning.
The conversation with hosts Tim Cafferty and Tiffany Edwards dives into metric-based budgeting techniques that replace guesswork with precision. Rather than copying last year's numbers, successful managers calculate occupied nights multiplied by ADR, tracking actual commission percentages that often differ from contractual rates. These seemingly small variances can represent significant lost profits over time.
Team accountability emerges as a cornerstone of effective budgeting. Cafferty shares his open-book management approach where financial results are displayed for everyone - even maintenance techs who discover they can contribute by choosing cheaper gas stations or reducing hardware store visits. Edwards recommends specific performance metrics for different departments, with maintenance measured on work order completion and reservations teams on conversion rates.
For optimal financial health, the experts suggest keeping payroll under 20% of gross revenue (ideally 15-16%) and marketing expenses between 2-4%. Many companies that expanded during peak pandemic demand haven't properly adjusted as the market normalized, maintaining costly overhead against reduced revenue.
Whether you're creating your first formal budget or refining your approach, this candid conversation provides the blueprint for transforming your vacation rental business from a break-even operation into a profitable enterprise with genuine long-term value.
Take control of your financial future - subscribe now and share this episode with fellow vacation rental professionals who deserve more from their hard work.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:10):
You're listening to the Vacation Rental Key with T&T
, the podcast for vacationrental managers by vacation
rental managers.
I'm Tim Cafferty and I managetwo companies, one in Virginia
and one in North Carolina.
I'm one of the two T's.
Speaker 3 (00:26):
And I'm the other, T Tiffany Edwards, born and raised
in the vacation rental business.
I help manage our familybusinesses from Key West all the
way to Kauai.
Speaker 1 (00:36):
In the next 30 minutes we're going to give you
our keys to success in thevacation rental business, to
success in the vacation rentalbusiness.
Speaker 3 (00:48):
Welcome back, guys, to another great episode of the
Vacation Rental Keys with TNT.
I'm one of the T's, Tiffany.
Speaker 1 (00:57):
And I'm the other T Tim, and we'll just see how
great this episode is, but wehave spared no expense today to
have an expert in our midst,Tiffany And's very difficult to
nail down in extreme high demandbut luckily we have a little
(01:34):
bit of a pull One of theabsolute best experts in terms
of budgeting and accounting inthe vacation rental industry.
Speaker 3 (01:37):
We do have Ben Edwards with us today and I
would love, ben, if you'dintroduce yourself and give a
little background about whyyou're so great at budgeting.
Speaker 2 (01:45):
Well, thank you, TNT, Appreciate being included.
I think it's out there that,Tim, you and I have worked
together.
I guess May of this year was my25th year in the vacation
rental industry and you precedeme by just a few years, right, A
few.
We've been friends for 25 yearsand Tiffany and I have only
(02:05):
been friends for about 15 yearsLegally Legally, yeah.
So Accountant by Trade startedout as a staff accountant.
I believe that accounting is thebasis for business, or at least
that's what my dad forced me tobe, and it's turned out okay.
Seemed to feed my family allright, but as a staff accountant
doing internal audit, a lot ofM&A work, pre and post
(02:28):
acquisition operational audits,it really gave me a good
understanding of the drivers atleast the financial drivers in a
vacation rental business.
So we really try to makefact-based decisions using
financial data in our businesses, because it's a completely
different industry than what Igrew up in and what you were in
the middle of when we met Tim.
(02:49):
I mean it was set it and forgetit.
Your marketing program waswhich ad are you going to put in
Southern Living?
Now it's really dynamic and youmight think about an ROI for
every dollar you spend, it needsto bring six or seven dollars
back to you.
So we're really a financiallyfocused business.
Here.
At Town Vacations I serve asits managing director.
(03:10):
Of course, Tiffany oversees afamily portfolio of Weatherby
affiliated companies, so we Ithink from a vacation rental
perspective, we've got everycorner covered at this point.
Speaker 1 (03:20):
So, yes, we go back a long way.
I remember you questioning meas Mr Cafferty back in the early
days.
Can you explain the item 14here to me?
Well, no, actually I can't.
I just stood in there I didn'tthink anybody would notice.
But Ben notices and he cutthrough some smoke pretty
quickly.
But for our folks who are outthere, some of them don't even
(03:41):
have a budget.
For our folks who are out there, some of them don't even have a
budget, ben, which is shockingto the three of us, but it is
rampant in our industry.
What do you think are thefundamentals of someone who is
trying to begin a budget?
Speaker 2 (03:55):
Well, so, first off, you've got to get out of your
own way.
You know, vacation rentalmanager.
If you were to think about thatat a macro level, vacation
rental managers are great atshaking hands, kissing babies,
signing up properties.
They want to do the fun stuffand it's not fun.
I'm here to tell you it's notfun.
But what's equally as not funor ultimately disappointing is
(04:16):
back when we did a lot of M&Awork is I would come in and I
would meet with you and you'dsay I'm ready to exit my
business.
And I would look at yourbusiness and say, oh okay, you
make $300,000 a year in yourbusiness and you've worked for
30 years for a $1.5 milliontransaction.
That's okay, but your take homeon that sub 1.2,.
(04:38):
The budget is there not toconstrain the business but to
keep you from going hard wild atthe VMA vendor showcase and buy
every shiny thing that's inthere.
You have to be diligentlyfocused on managing your
business so that you have amaterial, meaningful profit.
The key to the business, frommy perspective, is your service
to owners and guests.
(04:59):
That's what we're about.
We care what other people sayabout us.
We'll put that on the shelf fora minute.
But if you're not making ameaningful profit, what are you
doing?
Is this a business or is it ahobby?
Speaker 3 (05:10):
That's really important, that the key is to
make money, and we lose sight ofthat because of the things that
are shiny.
I think we've talked about thatin a previous podcast, but it's
extremely timely now because Ido think that, with the economy
being different and peoplelooking at things and seeing
numbers a little bit differentthan they had maybe right after
(05:32):
COVID, and having to makechanges within their system to
accommodate, ultimately, aprofit by the end of the year
Going even further, if you wereto start your drafting of your
budget, what do you really focuson?
Is it expenses, the main?
Is revenue the main?
So, when you first sit down,what is the information that you
(05:54):
utilize best to draft out thosepriorities?
Speaker 2 (05:57):
Everyone thinks the budget is a derivative of prior
year and it is to a certainextent, but not at the top line
level.
Just because you did $5 millionof gross rental revenue last
year doesn't mean you put $5million in the 2026 budget.
We build the budget from thebottom up.
In town we're driving twothings every day.
We're driving occupancy or ADRand it says occupied nights
(06:19):
multiplied by ADR, that gets tothe gross rental revenue budget.
So we take the occupied nightsby month and we multiply it by
the ADR, that gets to the grossrental revenue budget.
So we take the occupied nightsby month and we multiply it by
the ADR and we make assumptionsLike if we think we've got
increased net available nights,we might extrapolate the same
occupancy percentage over thenew net available nights for the
month of January to get ahigher occupied night number.
(06:41):
And then maybe ADR I expect ADRto rise in 2026 compared to
where it's been and thecalculation that produces a
gross rental revenue.
And then the other thing that'sa real eye-opener for vacation
rental managers most companies,let's say, they get a 20%
commission.
They'll budget 20% of rentalmanagement commissions.
(07:02):
Guess what?
No one takes home exactlywhat's in their contract.
It'll be 19.1, 19.3, 18.9.
And that's where a big mess ismade, because what happens over
the course of a year is yourcommission gets purified because
your frontline people aresweeping stuff under the rug, or
you're taking it on the chin ofthe business because no one is
(07:23):
really looking at that issue perse and saying, well, wait a
minute, people are sweepingstuff under the rug, or you're
taking it on the chin of thebusiness because no one is
really looking at that issue perse and saying, well, wait a
minute, time out.
Do we really have to give backour commission for that stay in
July?
Because Mr Cafferty didn'treplace the AC like we told them
to.
The AC only goes down July 4thevery year, folks, and when
you've got an AC that's 14 yearsold, replace it in December of
(07:45):
this year.
Just go ahead and do it andthey say, no, it's working fine,
okay.
Then go on record with them andsay, look if something goes
down.
I just want to make sure thatwe made you aware.
You understand, it's oursuggestion.
I mean, as a professionalvacation rental manager, this is
the stuff you're supposed to do.
So when that AC blows up inJuly and you've got to give back
(08:07):
$6,000,.
Well, that $6,000 is coming offthe owner's side of the ledger,
not ours.
We're keeping our commissionand the owner's going to say,
well, wait a minute, why didn'tyou participate?
We did participate.
Remember that hour we spentwith you in December telling you
to replace it and you chose notto do it.
And, by the way, we're notcharging you for all the time,
effort, energy that we'veexacted on this service order to
(08:29):
replace and redo and do I meanlike it's good business to make
sure you stay ahead of thatstuff.
And so budgeting appropriatelyfor the rental management
commissions is really paramount,because you have a cross
section of expenses that aredirect operating expenses, that
are tied to those rentalmanagement commissions and
ultimately the gross rentalrevenue.
I really try to look at mydirect operating expenses as a
(08:52):
percentage of gross rentalrevenue, because my owner
satisfaction expense, my guestsatisfaction expense, is
generally 0.00 whatever of mygross rental revenue and I
budget for that.
And when I do have to take ahit I charge it off so I can
keep track of it.
I don't wash it out withpayments to owners or my rental
management commission because Iwant to see it and then I start
(09:13):
going down through those otherdirect operating expenses,
making sure that they're in linewith prior year as it relates
to the percentage of grossrental revenue.
And that's how we reallydovetail the correlation, have
the proper matching principlefrom an accounting perspective
of expenses and revenue, revenueand expenses.
And then G&A is pretty wellflat, like your rent is flat,
(09:35):
things of that nature theadministrative piece is flat,
and so, at a macro level, forthe non-financial manager,
that's how we do it.
Speaker 3 (09:44):
Tim, are you similar in that and how you look at it?
I know that you're constantlydrafting, redrafting and
spending time with your team ona budget.
Speaker 1 (09:51):
We are, and accountability is another thing
that's really big for us.
We go through a three-monthprocess of budgeting every year.
It starts in September of theprevious year and each
department has their incomeitems and their expense items.
It's all derived from the start.
We always joke that the budgetis driven by our reservations
(10:11):
manager.
We all look at her and gowhat's the number?
How many occasions are we goingto have that accountability?
To make sure that is realisticand that we are going to be
committed to get to that numberis critical.
That's right.
Ben, how about?
I know, I don't know, I don'thave any idea how many budgets
(10:33):
you've seen over the course ofyour career, but what are some
of the biggest mistakes you'veseen of people in the budgeting
process?
Speaker 2 (10:42):
I think at a macro level, it's a lack of diligence
and the lack of metric-basedbudgeting.
Speaker 3 (10:49):
Blame that in a little bit more detail.
Speaker 2 (10:51):
So metric-based budgeting is taking those
occupied nights, that ADR andmaking educated assumptions
about where that's going to bein future periods.
I was in Southwest Florida andyou probably know the guy I'm
talking about, but I was handeda budget and said, look, this is
your budget.
I'm like how did we get there?
Well, I'm seeing a lot.
(11:12):
I'm more licensed place thisyear earlier in the year, like,
oh okay, I didn't know thelicense plate metric really was
a real thing.
But I think at a macro levelyou've got to have that
metric-based budget and come upwith a real number.
Because if you're not hittingthat number for January, like we
discussed, why are you nothitting it?
Is it the occupied nights or isit ADR?
(11:33):
And then you've got to go backto your rev manager and say, hey
, what's going on?
Occupancy is low.
Why are rates right now?
The entire industry right nowis reducing ADR.
Everybody trended off of 24 ADRand if you look at the 24 ADR
you think you're really loweredyour ADR.
But ADR in the first quarterfor the year was a lot higher.
(11:56):
We made a pivot in Marchprobably late February, early
March last year to reduce alittle bit, to fill up, and then
we ratcheted up ADRs, sothere's some misnomers in that
data that you've really got topay attention to.
So metric-based budgeting ispaying them out making sure that
you dial that in.
(12:18):
At the same time you can look athousekeeping cleans and you
could take them as ahousekeeping revenue, as a
percentage of gross rentalrevenue.
But difficult when you're Tim'ssize or my size to do this at
the lowest kind of denominator.
But if you've got less than 100doors you could actually build
a model.
Every vacation rental PMS canspit this out.
(12:38):
But you can take the CaffertyCottage or the Cafferty Mansion
whichever one right or thebungalow yeah, bungalow.
But you could spit this out ona monthly basis occupancy and
ADR and look at departures andactually physically calculate
out housekeeping revenue andmodel that out.
So you really get a tightnumber.
(13:00):
And what would be cool is to,as you tweak those, it flows
through the spreadsheet.
You want to increasehousekeeping fees $7 a stay or
whatever you know a stay orwhatever and you get a really
tight number there because theissue, as it relates to some of
those ancillary services beingbudgeted, you're going to budget
for them based upon thedeparture.
(13:20):
You've had 492 departures inJanuary.
Well, guess what?
The defense doesn't line upwith that.
The revenue will, because therevenue is predicated on system
closure, because at the end ofthe month you know you ring the
cash register in the system, youpay your owners, you pull your
money out of the trust account,et cetera, but your expenses
don't correlate because yourhousekeeping company is busy
(13:43):
cleaning units, they're not busydoing your accounting and they
don't get that invoice over intoFebruary and you can kind of
level set some of that stuff andunderstand where it needs to be
, and that's one thing that youraccountants really need to
focus in on.
That.
The matching principle is afundamental principle then
generally accepted accountingprinciples, where you are
required to match revenues withexpenses.
(14:06):
So if you're ringing that cashregister in January, you need to
make sure that you've got thepertinent expenses tied to that
revenue so you have strongfinancial reporting.
And that's another catch key,whatever it may be, that will
help you have bettermonth-over-month accounting and
budgeting.
Speaker 1 (14:22):
Folks, you're getting a masterclass.
It's okay to hit the rewindbutton if you didn't catch
everything, but they're gettingsome nuggets here.
Ben, I have a question for youthat is very self-serving.
That is the accountability partof it, and bringing others into
the process on a whether it bemonthly, quarterly, weekly basis
.
I think one of the keys to asuccessful budget is making sure
(14:46):
everyone understands their rolein making us get to those
numbers.
Talk to us about what you'veseen in the past, where you have
a full staff engaged on thebudget rather than just the
person in the big seat.
Speaker 2 (14:59):
Yeah, I thought I did a good job at this.
I thought I was okay at it.
When I came over to town, Irealized that there are some
people that are smarter than meon our team and they are experts
at not only holding peopleaccountable but articulating the
metrics in such a way that helpthe broader team understand the
(15:20):
drivers of success.
We are constantly looking atthe lowest common denominator
and managing small.
On that front, I would tell youthat in the broader sense, our
team knows what they need to doto be successful, and if you're
a vacation rental manager, don'thave that clear conversation
with your team.
You're really missing the mark.
(15:40):
You're not doing your job as anowner or manager because the
goal is not to come in and likedo good.
It's more than don't screwsomething up.
You need to understand thedrivers of what makes the
maintenance departmentsuccessful, and that's closure
of work orders, that's billabletime.
If I'm paying you $45,000 ayear but you're billing out
(16:04):
$25,000, there's a problem thereand we need to solve for that.
Maybe you should spend lesstime at any hardware pontificate
on which screw you want to useto fix whatever.
How about we start ordering inadvance and doing some things
like that to keep the trucks offthe road and keep the trucks
going from house A to house B.
It's about closure.
I think it's Go ahead.
Speaker 3 (16:24):
Let me ask too what are some other common examples
that you see that are driverslike that that are pretty
universal throughout theindustry, where maybe someone
isn't looking so minute intothat accountability?
What are some of those commonexamples?
Speaker 2 (16:39):
I think there's hard drivers and there's soft drivers
.
The work order example is kindof a hard driver.
Another hard driver might beyour reservation conversion rate
.
You've got to hone in on thatin order to produce the
production.
If you're not making outboundcalls, that's another hard
driver we can delineate between.
It's a binary discussion.
Did you make the call?
Did you not make the call?
(17:00):
What is your conversion rate?
Same thing with the maintenanceguys.
That are soft drivers.
Soft drivers are yourinspectors.
How many properties did youinspect today?
Does that generate revenue?
Not necessarily.
Does it prevent additionalexpense?
Absolutely so.
There's a metric to theinspection team where we expect
(17:24):
you to inspect X number ofproperties, fill out the
breezeway inspection form, beheld accountable for any issues
there and close the loop onthose issues.
We're great at buying 16different softwares that overlap
16 different ways.
We don't use any of them totheir fullest extent.
I'd say start small on that.
(17:45):
Use what you've got and reallyhelp your team know how to be
successful at the lowest level,not just do good, be great
aspirational, because theindustry as a whole right now.
Some folks are better atpromoting themselves on LinkedIn
than they are running theirbusiness and I'd venture to say
a lot of those folks are outthere.
(18:06):
They're throwing their arm outso I can pat themselves on the
back.
They're not the ones with thebiggest number in the bottom
right-hand corner of theirincome statement.
That's where we are and that'sgreat if that's who you want to
be.
I'm not knocking anybody inparticular, but I measure
success by what people say aboutme, my Google ratings and how
much money I take home, and Ibelieve that we do a good job.
(18:28):
We can always do better ofmaking sure how everybody fits
in the machine and how they'repart of making the machine go
around.
Speaker 1 (18:35):
And to that end, I think you both know and the
listeners may know, I run mycompany as an open book
management company.
So we actually have meetingsevery week.
We put the numbers up on theboard and I have a story about
one of our maintenance techsthat kind of alludes to what
you're saying there.
Ben, it was Jason and he wasdiligently coming to the
meetings, obviously notunderstanding anything that was
(18:57):
on the board he's a maintenancetech, after all and he just did
his job.
But about four or five movesinto it he came up to me and
goes Mr Tim, I got it.
Okay, jason, what do you got?
I'm not buying gas at theTexaco station anymore, I'm
going to the Crown station.
It's 10 cents cheaper a gallon.
You've got it.
That is an impact you can makeon those numbers and pat on the
(19:18):
back for him to do that.
Then that also goes to how manytrips do you make to Ace
Hardware?
Well, you made four.
That's an hour ofnon-productivity.
Have your truck stocked at thebeginning of the day so you have
every battery and remote andflapper and toilet seat that
you'll ever need.
Those kinds of things make adifference and that's the things
that can really make adifference in your overall when
(19:39):
you get the whole team involvedin thinking that way.
Speaker 2 (19:43):
How about taking a look at HostGPO?
These guys are doing aphenomenal job and we're not
using them to the extent that wecan.
We've got to stop the world for15 minutes to be able to focus
and incorporate them more.
But they've now got a programwith a Lowe's Home program and
Amazon Business.
How about taking a step back,running your work orders in
total for the trailing 12 monthsand start segregating parts and
(20:08):
specific work orders and thingsof that nature and saying, hey,
why don't we buy those A4 lightbulbs in bulk?
Let's buy them in bulk, havethem shipped in and then mark
them up 10% more than what AceHardware charges and take the
difference Like nobody's sayingyou can't do that and you know
if the homeowner's happy becausethe light bulb got replaced or
whatever it may be.
Maybe do that as a part of yourdeal.
(20:28):
But batteries, light bulbs,flappers, whatever it may be,
buying in advance, having a parstock, doing inventory in the
off season once a month,inventory in season, maybe
bi-weekly or weekly, I don'tknow what you do, but have it in
order because vacation rentalmanagers be shoppers, right, I
mean, that's what it is.
If it's not software, it's like.
(20:49):
This is like miniature Walmart.
It's all where Sam Waltonfamily members here Knock it off
.
Buy what you need.
Mitigate the trips to the storebecause you just paid somebody
$25, fully loaded, to go findTiffy.
I guess, like they go into AceHardware and yuck it up.
Well, let me tell you what I'mworking on today.
And should I use a stainlesssteel screw here, or should you?
(21:12):
You know, I don't know if Iwant a quarter.
I mean, that's just like that'swhat they do.
I mean I would love to do thatif my wife would let me, but
we're always on a schedule.
We have to be timely.
Speaker 3 (21:33):
Speaking of being timely, the key takeaways that I
just took from both of thoseanswers is how important
spreading out accountabilitythrough your team and having the
buy-in with your team and so,tim, you incentivize by having
those team meetings weekly.
How important is it to offer abonus, or include a bonus, to
incentivize on keeping thebudget exceeding the budget when
it comes from a revenueperspective?
And I'll even follow up and askare there other ways to
(21:53):
incentivize your team members tocreate greater accountability
to the budget?
Speaker 1 (21:58):
We didn't rehearse this question, but I think you
know the answer here.
It's critical From mystandpoint.
With an open book managementcompany Ben, close your ears I
have a profit share programwhere when you hit our quarterly
numbers, everyone on staff getsa share of that profit to give
(22:18):
them that physical pat on theback and they absolutely know
what their impact is on thatnumber every week.
I think it's critical.
You can't just talk the walk,you have to walk the talk, and
that's how you do it.
Speaker 2 (22:32):
I think I really applaud you for doing that.
We have different derivativesof bonus structures from res to
management or whatever.
But the thing that'sinteresting is why wouldn't you
bonus a maintenance guy on workorder closure rates?
You bonus your res agents.
Same thing with inspectors orwhatever it may be.
I think there's different waysto do that.
I'm seeing entirely too manyvacation rental company owners
(22:53):
not run the business like abusiness and the business is
usually a piggy bank.
There's not a way to do that ina commercial fashion that makes
sense.
It needs to be structured likea business.
You've got to open it up insuch a way that the business can
be understood at the lowestlevel and again, these people
know how they can be successfulor accretive to the overall
(23:15):
operation.
Speaker 1 (23:17):
To your earlier point , ben, I think it's also
important that they get thatday-to-day recognition.
So one of the things I haveimplemented here is every
department has their ownscoreboard right up on the wall.
Number of work orders completedis right there in the
maintenance office.
Number of reservations goal,number of reservations taken
right there on the wall.
On the wall Our marketing teamhas photography goals.
(23:39):
Everybody has a board.
I invite anybody.
You can come see our operationanytime.
I'd love to show you around,show you our P&L.
Come to one of our huddles.
The vibe we have here is justso good and I'll stop, ben said
throwing my arm out of thesocket, patting myself on the
back but it works.
Speaker 3 (24:00):
That's how you get the Cafferty mansion and not the
Cafferty bungalow.
So one of my other questions,which I think is really
important and more so becauseI've been a plus one to many of
Ben's sessions and conversationsas it relates to budget, and
one of the most common questionsthat I have heard you get, ben,
is what are the percentagesthat you need to look at for
your budget, and one of thebiggest ones is what is your
(24:22):
payroll percentage?
So I would love for you to talkthrough a little bit more of
how you look at that, what itshould be to your bottom line
percentage in differentcategories and what really
stands out to you that ourlisteners should be looking at
for their budget.
Speaker 2 (24:37):
Yeah, well, you say plus one.
I was on the phone withsomebody yesterday and I said,
hey, have we met?
And she said, well, I came to aget-together that your wife
hosted and you're having, so I'mthe plus one.
I'm taking the time in thisdeal.
As far as percentages, covidreally threw those out of whack,
but I think everything's beenreset and it's really predicated
(24:58):
on which region you're in.
If you're in Maine and you'vegot a peak season, that's 15
minutes long.
It's a different deal.
We want to be sub-20% on payroll.
I really would like to be 15%,16%, if I could.
If you think about youroverarching revenue, 20% of it
generally is managementcommission.
Maybe you get another 10, 15points of fees.
(25:21):
You can't have a 25% payroll ina 35% business because
marketing is going to be 2% to4%.
If you're some of thesecompanies that are spending 5%
7% on marketing, that doesn'twork.
Your customer acquisition costis entirely too high.
You might want to look at yourROI on ad spend, et cetera and
make some fundamental changes.
(25:41):
Outside of that, it's reallynuanced.
We're fortunate because priorto me taking the town hall, you
and I had nine companies tocompare against and I've seen
hundreds, literally hundreds ofP&Ls over 25 years and maybe a
thousand Like I've seeneverything.
You can kind of measure it outfrom that perspective, but it
gets more nuanced and moredifficult to compare apples to
(26:02):
apples, simply because the wayin which people structure their
P&L is all across the board.
I like top line as being grossrental revenue, that's under
payment, plus managementcommission.
That's it.
And then we run a contrarevenue account, that's an
account with brackets around it,which is payments to owners and
what falls out of that isrental management commission,
(26:24):
and I can see a percentage ofrental management commission to
grow.
So I constantly am watchingwhether we're at 18.9 or 19.1 or
19.6.
And if we're 18.9, I can saywhat happened.
Why are we there?
Because those hints of a pointon 20, 30, $40 million are a lot
of money that you're missingout on.
I think at the end of the day,starting with your business
working macro, setting up somebenchmarks or goals, like Tim
(26:48):
and his business do, and thenworking down from there, because
every business out there hasgot three to five basis points
of cuts that they can make andyou're going to say, oh well, I
can't cut these people, I can'tdo that.
Look, there's stuff in yourbusiness and you're going to say
, oh well, I can't cut thesepeople, I can't do that.
Look, there's stuff in yourbusiness that you're paying for
right now that you hadn't usedthe last year.
Get it off the P&L.
(27:08):
We were looking at a businessrecently that had 22 Adobe Pro
licenses and I'm like there's noway.
No, it's $7,700.
You know we cut it $7,700,.
You know we cut it.
But like stuff just gravitatesover time.
And if you look at thesebusinesses as a whole, you've
still got the same business fromCOVID.
Now you staffed up, bulked up,beefed up during COVID because
(27:31):
you had this peak pandemicoccupancy.
You haven't retracted.
Post-covid you got the sameexpense structure with less
revenue and less profit as aresult.
So you need to think about thatand start trimming the fat.
Speaker 1 (27:44):
My last question category, if you will, is once
you're in the midst.
I've created my budget ninemonths ago.
Whatever the case might be,it's clear that I misdiagnosed
some areas.
What's your thought onre-forecasting and re-budgeting
as the year is underway?
Speaker 2 (28:03):
I mean, that's something that we do a lot of.
Our working forecast issomething that we're constantly
wrenching.
I'm glad we've got a great teamthat does it, because it
requires a lot of energy.
I think it's fine tore-forecast particularly top
line revenue and let it filterdown.
I think if you are savvy enough, you can dial up certain
(28:26):
expenses in order to accentuatethe revenue component.
We, in certain instances, frontloaded more marketing at the
onset of 25 to deliver theresult we wanted than had that
straight line number across theyear.
I think it just really dependson how savvy you are.
The budget there is there foryou to deliver a meaningful
(28:48):
profit and you to stick to yourguns when something pops up.
You've got to manage to thebottom line, and so I think
that's where the fundamentalfocus should be.
Speaker 3 (28:57):
So keys being budget is accountability and is there
for you to make money at the endof the day.
So putting in as manyparameters as you can of making
yourself accountable, yourteammates and your staff
accountable, and driving in thatbottom line for this year and
then for in the future, to yourearlier point that you don't
want to work 30 yearspotentially for that end result
(29:19):
of the 1.5, that you worked toohard to not have a good sell-off
.
Any other keys did I miss Tim?
Speaker 1 (29:27):
No, I think you just covered the episode in 45
seconds where Ben and I dronedon for about 32 minutes.
So that's excellent work, asalways, but Ben's used to that
and I'm getting used to it, sogreat job.
Thanks for having me Next time.
I have an idea why don't wedive into some of the stuff Ben
was talking about the wholeproduction of amenities and
(29:47):
things that you offer and howyou can plan on that.
How about that for an idea,tiffy?
Speaker 3 (29:52):
I love that and we can get a little bit deeper into
the logistics of how you keepyourself accountable, budgeting
and then making sure that yourstaff also follows that line of
thought.
Speaker 1 (30:03):
Thank you, Mr Edwards .
Thank you, Mrs Edwards.
Appreciate both of you anduntil next time, folks.
So long, everybody.
Speaker 3 (30:11):
Bye everyone, See you next time.
You're listening to the Vacation Rental Key with T&T
, the podcast for vacationrental managers by vacation
rental managers.
I'm Tim Cafferty and I managetwo companies, one in Virginia
and one in North Carolina.
I'm one of the two T's.
Speaker 3 (00:26):
And I'm the other, T Tiffany Edwards, born and raised
in the vacation rental business.
I help manage our familybusinesses from Key West all the
way to Kauai.
Speaker 1 (00:36):
In the next 30 minutes we're going to give you
our keys to success in thevacation rental business, to
success in the vacation rentalbusiness.
Speaker 3 (00:48):
Welcome back, guys, to another great episode of the
Vacation Rental Keys with TNT.
I'm one of the T's, Tiffany.
Speaker 1 (00:57):
And I'm the other T Tim, and we'll just see how
great this episode is, but wehave spared no expense today to
have an expert in our midst,Tiffany And's very difficult to
nail down in extreme high demandbut luckily we have a little
(01:34):
bit of a pull One of theabsolute best experts in terms
of budgeting and accounting inthe vacation rental industry.
Speaker 3 (01:37):
We do have Ben Edwards with us today and I
would love, ben, if you'dintroduce yourself and give a
little background about whyyou're so great at budgeting.
Speaker 2 (01:45):
Well, thank you, TNT, Appreciate being included.
I think it's out there that,Tim, you and I have worked
together.
I guess May of this year was my25th year in the vacation
rental industry and you precedeme by just a few years, right, A
few.
We've been friends for 25 yearsand Tiffany and I have only
(02:05):
been friends for about 15 yearsLegally Legally, yeah.
So Accountant by Trade startedout as a staff accountant.
I believe that accounting is thebasis for business, or at least
that's what my dad forced me tobe, and it's turned out okay.
Seemed to feed my family allright, but as a staff accountant
doing internal audit, a lot ofM&A work, pre and post
(02:28):
acquisition operational audits,it really gave me a good
understanding of the drivers atleast the financial drivers in a
vacation rental business.
So we really try to makefact-based decisions using
financial data in our businesses, because it's a completely
different industry than what Igrew up in and what you were in
the middle of when we met Tim.
(02:49):
I mean it was set it and forgetit.
Your marketing program waswhich ad are you going to put in
Southern Living?
Now it's really dynamic and youmight think about an ROI for
every dollar you spend, it needsto bring six or seven dollars
back to you.
So we're really a financiallyfocused business.
Here.
At Town Vacations I serve asits managing director.
(03:10):
Of course, Tiffany oversees afamily portfolio of Weatherby
affiliated companies, so we Ithink from a vacation rental
perspective, we've got everycorner covered at this point.
Speaker 1 (03:20):
So, yes, we go back a long way.
I remember you questioning meas Mr Cafferty back in the early
days.
Can you explain the item 14here to me?
Well, no, actually I can't.
I just stood in there I didn'tthink anybody would notice.
But Ben notices and he cutthrough some smoke pretty
quickly.
But for our folks who are outthere, some of them don't even
(03:41):
have a budget.
For our folks who are out there, some of them don't even have a
budget, ben, which is shockingto the three of us, but it is
rampant in our industry.
What do you think are thefundamentals of someone who is
trying to begin a budget?
Speaker 2 (03:55):
Well, so, first off, you've got to get out of your
own way.
You know, vacation rentalmanager.
If you were to think about thatat a macro level, vacation
rental managers are great atshaking hands, kissing babies,
signing up properties.
They want to do the fun stuffand it's not fun.
I'm here to tell you it's notfun.
But what's equally as not funor ultimately disappointing is
(04:16):
back when we did a lot of M&Awork is I would come in and I
would meet with you and you'dsay I'm ready to exit my
business.
And I would look at yourbusiness and say, oh okay, you
make $300,000 a year in yourbusiness and you've worked for
30 years for a $1.5 milliontransaction.
That's okay, but your take homeon that sub 1.2,.
(04:38):
The budget is there not toconstrain the business but to
keep you from going hard wild atthe VMA vendor showcase and buy
every shiny thing that's inthere.
You have to be diligentlyfocused on managing your
business so that you have amaterial, meaningful profit.
The key to the business, frommy perspective, is your service
to owners and guests.
(04:59):
That's what we're about.
We care what other people sayabout us.
We'll put that on the shelf fora minute.
But if you're not making ameaningful profit, what are you
doing?
Is this a business or is it ahobby?
Speaker 3 (05:10):
That's really important, that the key is to
make money, and we lose sight ofthat because of the things that
are shiny.
I think we've talked about thatin a previous podcast, but it's
extremely timely now because Ido think that, with the economy
being different and peoplelooking at things and seeing
numbers a little bit differentthan they had maybe right after
(05:32):
COVID, and having to makechanges within their system to
accommodate, ultimately, aprofit by the end of the year
Going even further, if you wereto start your drafting of your
budget, what do you really focuson?
Is it expenses, the main?
Is revenue the main?
So, when you first sit down,what is the information that you
(05:54):
utilize best to draft out thosepriorities?
Speaker 2 (05:57):
Everyone thinks the budget is a derivative of prior
year and it is to a certainextent, but not at the top line
level.
Just because you did $5 millionof gross rental revenue last
year doesn't mean you put $5million in the 2026 budget.
We build the budget from thebottom up.
In town we're driving twothings every day.
We're driving occupancy or ADRand it says occupied nights
(06:19):
multiplied by ADR, that gets tothe gross rental revenue budget.
So we take the occupied nightsby month and we multiply it by
the ADR, that gets to the grossrental revenue budget.
So we take the occupied nightsby month and we multiply it by
the ADR and we make assumptionsLike if we think we've got
increased net available nights,we might extrapolate the same
occupancy percentage over thenew net available nights for the
month of January to get ahigher occupied night number.
(06:41):
And then maybe ADR I expect ADRto rise in 2026 compared to
where it's been and thecalculation that produces a
gross rental revenue.
And then the other thing that'sa real eye-opener for vacation
rental managers most companies,let's say, they get a 20%
commission.
They'll budget 20% of rentalmanagement commissions.
(07:02):
Guess what?
No one takes home exactlywhat's in their contract.
It'll be 19.1, 19.3, 18.9.
And that's where a big mess ismade, because what happens over
the course of a year is yourcommission gets purified because
your frontline people aresweeping stuff under the rug, or
you're taking it on the chin ofthe business because no one is
(07:23):
really looking at that issue perse and saying, well, wait a
minute, people are sweepingstuff under the rug, or you're
taking it on the chin of thebusiness because no one is
really looking at that issue perse and saying, well, wait a
minute, time out.
Do we really have to give backour commission for that stay in
July?
Because Mr Cafferty didn'treplace the AC like we told them
to.
The AC only goes down July 4thevery year, folks, and when
you've got an AC that's 14 yearsold, replace it in December of
(07:45):
this year.
Just go ahead and do it andthey say, no, it's working fine,
okay.
Then go on record with them andsay, look if something goes
down.
I just want to make sure thatwe made you aware.
You understand, it's oursuggestion.
I mean, as a professionalvacation rental manager, this is
the stuff you're supposed to do.
So when that AC blows up inJuly and you've got to give back
(08:07):
$6,000,.
Well, that $6,000 is coming offthe owner's side of the ledger,
not ours.
We're keeping our commissionand the owner's going to say,
well, wait a minute, why didn'tyou participate?
We did participate.
Remember that hour we spentwith you in December telling you
to replace it and you chose notto do it.
And, by the way, we're notcharging you for all the time,
effort, energy that we'veexacted on this service order to
(08:29):
replace and redo and do I meanlike it's good business to make
sure you stay ahead of thatstuff.
And so budgeting appropriatelyfor the rental management
commissions is really paramount,because you have a cross
section of expenses that aredirect operating expenses, that
are tied to those rentalmanagement commissions and
ultimately the gross rentalrevenue.
I really try to look at mydirect operating expenses as a
(08:52):
percentage of gross rentalrevenue, because my owner
satisfaction expense, my guestsatisfaction expense, is
generally 0.00 whatever of mygross rental revenue and I
budget for that.
And when I do have to take ahit I charge it off so I can
keep track of it.
I don't wash it out withpayments to owners or my rental
management commission because Iwant to see it and then I start
(09:13):
going down through those otherdirect operating expenses,
making sure that they're in linewith prior year as it relates
to the percentage of grossrental revenue.
And that's how we reallydovetail the correlation, have
the proper matching principlefrom an accounting perspective
of expenses and revenue, revenueand expenses.
And then G&A is pretty wellflat, like your rent is flat,
(09:35):
things of that nature theadministrative piece is flat,
and so, at a macro level, forthe non-financial manager,
that's how we do it.
Speaker 3 (09:44):
Tim, are you similar in that and how you look at it?
I know that you're constantlydrafting, redrafting and
spending time with your team ona budget.
Speaker 1 (09:51):
We are, and accountability is another thing
that's really big for us.
We go through a three-monthprocess of budgeting every year.
It starts in September of theprevious year and each
department has their incomeitems and their expense items.
It's all derived from the start.
We always joke that the budgetis driven by our reservations
(10:11):
manager.
We all look at her and gowhat's the number?
How many occasions are we goingto have that accountability?
To make sure that is realisticand that we are going to be
committed to get to that numberis critical.
That's right.
Ben, how about?
I know, I don't know, I don'thave any idea how many budgets
(10:33):
you've seen over the course ofyour career, but what are some
of the biggest mistakes you'veseen of people in the budgeting
process?
Speaker 2 (10:42):
I think at a macro level, it's a lack of diligence
and the lack of metric-basedbudgeting.
Speaker 3 (10:49):
Blame that in a little bit more detail.
Speaker 2 (10:51):
So metric-based budgeting is taking those
occupied nights, that ADR andmaking educated assumptions
about where that's going to bein future periods.
I was in Southwest Florida andyou probably know the guy I'm
talking about, but I was handeda budget and said, look, this is
your budget.
I'm like how did we get there?
Well, I'm seeing a lot.
(11:12):
I'm more licensed place thisyear earlier in the year, like,
oh okay, I didn't know thelicense plate metric really was
a real thing.
But I think at a macro levelyou've got to have that
metric-based budget and come upwith a real number.
Because if you're not hittingthat number for January, like we
discussed, why are you nothitting it?
Is it the occupied nights or isit ADR?
(11:33):
And then you've got to go backto your rev manager and say, hey
, what's going on?
Occupancy is low.
Why are rates right now?
The entire industry right nowis reducing ADR.
Everybody trended off of 24 ADRand if you look at the 24 ADR
you think you're really loweredyour ADR.
But ADR in the first quarterfor the year was a lot higher.
(11:56):
We made a pivot in Marchprobably late February, early
March last year to reduce alittle bit, to fill up, and then
we ratcheted up ADRs, sothere's some misnomers in that
data that you've really got topay attention to.
So metric-based budgeting ispaying them out making sure that
you dial that in.
(12:18):
At the same time you can look athousekeeping cleans and you
could take them as ahousekeeping revenue, as a
percentage of gross rentalrevenue.
But difficult when you're Tim'ssize or my size to do this at
the lowest kind of denominator.
But if you've got less than 100doors you could actually build
a model.
Every vacation rental PMS canspit this out.
(12:38):
But you can take the CaffertyCottage or the Cafferty Mansion
whichever one right or thebungalow yeah, bungalow.
But you could spit this out ona monthly basis occupancy and
ADR and look at departures andactually physically calculate
out housekeeping revenue andmodel that out.
So you really get a tightnumber.
(13:00):
And what would be cool is to,as you tweak those, it flows
through the spreadsheet.
You want to increasehousekeeping fees $7 a stay or
whatever you know a stay orwhatever and you get a really
tight number there because theissue, as it relates to some of
those ancillary services beingbudgeted, you're going to budget
for them based upon thedeparture.
(13:20):
You've had 492 departures inJanuary.
Well, guess what?
The defense doesn't line upwith that.
The revenue will, because therevenue is predicated on system
closure, because at the end ofthe month you know you ring the
cash register in the system, youpay your owners, you pull your
money out of the trust account,et cetera, but your expenses
don't correlate because yourhousekeeping company is busy
(13:43):
cleaning units, they're not busydoing your accounting and they
don't get that invoice over intoFebruary and you can kind of
level set some of that stuff andunderstand where it needs to be
, and that's one thing that youraccountants really need to
focus in on.
That.
The matching principle is afundamental principle then
generally accepted accountingprinciples, where you are
required to match revenues withexpenses.
(14:06):
So if you're ringing that cashregister in January, you need to
make sure that you've got thepertinent expenses tied to that
revenue so you have strongfinancial reporting.
And that's another catch key,whatever it may be, that will
help you have bettermonth-over-month accounting and
budgeting.
Speaker 1 (14:22):
Folks, you're getting a masterclass.
It's okay to hit the rewindbutton if you didn't catch
everything, but they're gettingsome nuggets here.
Ben, I have a question for youthat is very self-serving.
That is the accountability partof it, and bringing others into
the process on a whether it bemonthly, quarterly, weekly basis
.
I think one of the keys to asuccessful budget is making sure
(14:46):
everyone understands their rolein making us get to those
numbers.
Talk to us about what you'veseen in the past, where you have
a full staff engaged on thebudget rather than just the
person in the big seat.
Speaker 2 (14:59):
Yeah, I thought I did a good job at this.
I thought I was okay at it.
When I came over to town, Irealized that there are some
people that are smarter than meon our team and they are experts
at not only holding peopleaccountable but articulating the
metrics in such a way that helpthe broader team understand the
(15:20):
drivers of success.
We are constantly looking atthe lowest common denominator
and managing small.
On that front, I would tell youthat in the broader sense, our
team knows what they need to doto be successful, and if you're
a vacation rental manager, don'thave that clear conversation
with your team.
You're really missing the mark.
(15:40):
You're not doing your job as anowner or manager because the
goal is not to come in and likedo good.
It's more than don't screwsomething up.
You need to understand thedrivers of what makes the
maintenance departmentsuccessful, and that's closure
of work orders, that's billabletime.
If I'm paying you $45,000 ayear but you're billing out
(16:04):
$25,000, there's a problem thereand we need to solve for that.
Maybe you should spend lesstime at any hardware pontificate
on which screw you want to useto fix whatever.
How about we start ordering inadvance and doing some things
like that to keep the trucks offthe road and keep the trucks
going from house A to house B.
It's about closure.
I think it's Go ahead.
Speaker 3 (16:24):
Let me ask too what are some other common examples
that you see that are driverslike that that are pretty
universal throughout theindustry, where maybe someone
isn't looking so minute intothat accountability?
What are some of those commonexamples?
Speaker 2 (16:39):
I think there's hard drivers and there's soft drivers
.
The work order example is kindof a hard driver.
Another hard driver might beyour reservation conversion rate
.
You've got to hone in on thatin order to produce the
production.
If you're not making outboundcalls, that's another hard
driver we can delineate between.
It's a binary discussion.
Did you make the call?
Did you not make the call?
(17:00):
What is your conversion rate?
Same thing with the maintenanceguys.
That are soft drivers.
Soft drivers are yourinspectors.
How many properties did youinspect today?
Does that generate revenue?
Not necessarily.
Does it prevent additionalexpense?
Absolutely so.
There's a metric to theinspection team where we expect
(17:24):
you to inspect X number ofproperties, fill out the
breezeway inspection form, beheld accountable for any issues
there and close the loop onthose issues.
We're great at buying 16different softwares that overlap
16 different ways.
We don't use any of them totheir fullest extent.
I'd say start small on that.
(17:45):
Use what you've got and reallyhelp your team know how to be
successful at the lowest level,not just do good, be great
aspirational, because theindustry as a whole right now.
Some folks are better atpromoting themselves on LinkedIn
than they are running theirbusiness and I'd venture to say
a lot of those folks are outthere.
(18:06):
They're throwing their arm outso I can pat themselves on the
back.
They're not the ones with thebiggest number in the bottom
right-hand corner of theirincome statement.
That's where we are and that'sgreat if that's who you want to
be.
I'm not knocking anybody inparticular, but I measure
success by what people say aboutme, my Google ratings and how
much money I take home, and Ibelieve that we do a good job.
(18:28):
We can always do better ofmaking sure how everybody fits
in the machine and how they'repart of making the machine go
around.
Speaker 1 (18:35):
And to that end, I think you both know and the
listeners may know, I run mycompany as an open book
management company.
So we actually have meetingsevery week.
We put the numbers up on theboard and I have a story about
one of our maintenance techsthat kind of alludes to what
you're saying there.
Ben, it was Jason and he wasdiligently coming to the
meetings, obviously notunderstanding anything that was
(18:57):
on the board he's a maintenancetech, after all and he just did
his job.
But about four or five movesinto it he came up to me and
goes Mr Tim, I got it.
Okay, jason, what do you got?
I'm not buying gas at theTexaco station anymore, I'm
going to the Crown station.
It's 10 cents cheaper a gallon.
You've got it.
That is an impact you can makeon those numbers and pat on the
(19:18):
back for him to do that.
Then that also goes to how manytrips do you make to Ace
Hardware?
Well, you made four.
That's an hour ofnon-productivity.
Have your truck stocked at thebeginning of the day so you have
every battery and remote andflapper and toilet seat that
you'll ever need.
Those kinds of things make adifference and that's the things
that can really make adifference in your overall when
(19:39):
you get the whole team involvedin thinking that way.
Speaker 2 (19:43):
How about taking a look at HostGPO?
These guys are doing aphenomenal job and we're not
using them to the extent that wecan.
We've got to stop the world for15 minutes to be able to focus
and incorporate them more.
But they've now got a programwith a Lowe's Home program and
Amazon Business.
How about taking a step back,running your work orders in
total for the trailing 12 monthsand start segregating parts and
(20:08):
specific work orders and thingsof that nature and saying, hey,
why don't we buy those A4 lightbulbs in bulk?
Let's buy them in bulk, havethem shipped in and then mark
them up 10% more than what AceHardware charges and take the
difference Like nobody's sayingyou can't do that and you know
if the homeowner's happy becausethe light bulb got replaced or
whatever it may be.
Maybe do that as a part of yourdeal.
(20:28):
But batteries, light bulbs,flappers, whatever it may be,
buying in advance, having a parstock, doing inventory in the
off season once a month,inventory in season, maybe
bi-weekly or weekly, I don'tknow what you do, but have it in
order because vacation rentalmanagers be shoppers, right, I
mean, that's what it is.
If it's not software, it's like.
(20:49):
This is like miniature Walmart.
It's all where Sam Waltonfamily members here Knock it off
.
Buy what you need.
Mitigate the trips to the storebecause you just paid somebody
$25, fully loaded, to go findTiffy.
I guess, like they go into AceHardware and yuck it up.
Well, let me tell you what I'mworking on today.
And should I use a stainlesssteel screw here, or should you?
(21:12):
You know, I don't know if Iwant a quarter.
I mean, that's just like that'swhat they do.
I mean I would love to do thatif my wife would let me, but
we're always on a schedule.
We have to be timely.
Speaker 3 (21:33):
Speaking of being timely, the key takeaways that I
just took from both of thoseanswers is how important
spreading out accountabilitythrough your team and having the
buy-in with your team and so,tim, you incentivize by having
those team meetings weekly.
How important is it to offer abonus, or include a bonus, to
incentivize on keeping thebudget exceeding the budget when
it comes from a revenueperspective?
And I'll even follow up and askare there other ways to
(21:53):
incentivize your team members tocreate greater accountability
to the budget?
Speaker 1 (21:58):
We didn't rehearse this question, but I think you
know the answer here.
It's critical From mystandpoint.
With an open book managementcompany Ben, close your ears I
have a profit share programwhere when you hit our quarterly
numbers, everyone on staff getsa share of that profit to give
(22:18):
them that physical pat on theback and they absolutely know
what their impact is on thatnumber every week.
I think it's critical.
You can't just talk the walk,you have to walk the talk, and
that's how you do it.
Speaker 2 (22:32):
I think I really applaud you for doing that.
We have different derivativesof bonus structures from res to
management or whatever.
But the thing that'sinteresting is why wouldn't you
bonus a maintenance guy on workorder closure rates?
You bonus your res agents.
Same thing with inspectors orwhatever it may be.
I think there's different waysto do that.
I'm seeing entirely too manyvacation rental company owners
(22:53):
not run the business like abusiness and the business is
usually a piggy bank.
There's not a way to do that ina commercial fashion that makes
sense.
It needs to be structured likea business.
You've got to open it up insuch a way that the business can
be understood at the lowestlevel and again, these people
know how they can be successfulor accretive to the overall
(23:15):
operation.
Speaker 1 (23:17):
To your earlier point , ben, I think it's also
important that they get thatday-to-day recognition.
So one of the things I haveimplemented here is every
department has their ownscoreboard right up on the wall.
Number of work orders completedis right there in the
maintenance office.
Number of reservations goal,number of reservations taken
right there on the wall.
On the wall Our marketing teamhas photography goals.
(23:39):
Everybody has a board.
I invite anybody.
You can come see our operationanytime.
I'd love to show you around,show you our P&L.
Come to one of our huddles.
The vibe we have here is justso good and I'll stop, ben said
throwing my arm out of thesocket, patting myself on the
back but it works.
Speaker 3 (24:00):
That's how you get the Cafferty mansion and not the
Cafferty bungalow.
So one of my other questions,which I think is really
important and more so becauseI've been a plus one to many of
Ben's sessions and conversationsas it relates to budget, and
one of the most common questionsthat I have heard you get, ben,
is what are the percentagesthat you need to look at for
your budget, and one of thebiggest ones is what is your
(24:22):
payroll percentage?
So I would love for you to talkthrough a little bit more of
how you look at that, what itshould be to your bottom line
percentage in differentcategories and what really
stands out to you that ourlisteners should be looking at
for their budget.
Speaker 2 (24:37):
Yeah, well, you say plus one.
I was on the phone withsomebody yesterday and I said,
hey, have we met?
And she said, well, I came to aget-together that your wife
hosted and you're having, so I'mthe plus one.
I'm taking the time in thisdeal.
As far as percentages, covidreally threw those out of whack,
but I think everything's beenreset and it's really predicated
(24:58):
on which region you're in.
If you're in Maine and you'vegot a peak season, that's 15
minutes long.
It's a different deal.
We want to be sub-20% on payroll.
I really would like to be 15%,16%, if I could.
If you think about youroverarching revenue, 20% of it
generally is managementcommission.
Maybe you get another 10, 15points of fees.
(25:21):
You can't have a 25% payroll ina 35% business because
marketing is going to be 2% to4%.
If you're some of thesecompanies that are spending 5%
7% on marketing, that doesn'twork.
Your customer acquisition costis entirely too high.
You might want to look at yourROI on ad spend, et cetera and
make some fundamental changes.
(25:41):
Outside of that, it's reallynuanced.
We're fortunate because priorto me taking the town hall, you
and I had nine companies tocompare against and I've seen
hundreds, literally hundreds ofP&Ls over 25 years and maybe a
thousand Like I've seeneverything.
You can kind of measure it outfrom that perspective, but it
gets more nuanced and moredifficult to compare apples to
(26:02):
apples, simply because the wayin which people structure their
P&L is all across the board.
I like top line as being grossrental revenue, that's under
payment, plus managementcommission.
That's it.
And then we run a contrarevenue account, that's an
account with brackets around it,which is payments to owners and
what falls out of that isrental management commission,
(26:24):
and I can see a percentage ofrental management commission to
grow.
So I constantly am watchingwhether we're at 18.9 or 19.1 or
19.6.
And if we're 18.9, I can saywhat happened.
Why are we there?
Because those hints of a pointon 20, 30, $40 million are a lot
of money that you're missingout on.
I think at the end of the day,starting with your business
working macro, setting up somebenchmarks or goals, like Tim
(26:48):
and his business do, and thenworking down from there, because
every business out there hasgot three to five basis points
of cuts that they can make andyou're going to say, oh well, I
can't cut these people, I can'tdo that.
Look, there's stuff in yourbusiness and you're going to say
, oh well, I can't cut thesepeople, I can't do that.
Look, there's stuff in yourbusiness that you're paying for
right now that you hadn't usedthe last year.
Get it off the P&L.
(27:08):
We were looking at a businessrecently that had 22 Adobe Pro
licenses and I'm like there's noway.
No, it's $7,700.
You know we cut it $7,700,.
You know we cut it.
But like stuff just gravitatesover time.
And if you look at thesebusinesses as a whole, you've
still got the same business fromCOVID.
Now you staffed up, bulked up,beefed up during COVID because
(27:31):
you had this peak pandemicoccupancy.
You haven't retracted.
Post-covid you got the sameexpense structure with less
revenue and less profit as aresult.
So you need to think about thatand start trimming the fat.
Speaker 1 (27:44):
My last question category, if you will, is once
you're in the midst.
I've created my budget ninemonths ago.
Whatever the case might be,it's clear that I misdiagnosed
some areas.
What's your thought onre-forecasting and re-budgeting
as the year is underway?
Speaker 2 (28:03):
I mean, that's something that we do a lot of.
Our working forecast issomething that we're constantly
wrenching.
I'm glad we've got a great teamthat does it, because it
requires a lot of energy.
I think it's fine tore-forecast particularly top
line revenue and let it filterdown.
I think if you are savvy enough, you can dial up certain
(28:26):
expenses in order to accentuatethe revenue component.
We, in certain instances, frontloaded more marketing at the
onset of 25 to deliver theresult we wanted than had that
straight line number across theyear.
I think it just really dependson how savvy you are.
The budget there is there foryou to deliver a meaningful
(28:48):
profit and you to stick to yourguns when something pops up.
You've got to manage to thebottom line, and so I think
that's where the fundamentalfocus should be.
Speaker 3 (28:57):
So keys being budget is accountability and is there
for you to make money at the endof the day.
So putting in as manyparameters as you can of making
yourself accountable, yourteammates and your staff
accountable, and driving in thatbottom line for this year and
then for in the future, to yourearlier point that you don't
want to work 30 yearspotentially for that end result
(29:19):
of the 1.5, that you worked toohard to not have a good sell-off
.
Any other keys did I miss Tim?
Speaker 1 (29:27):
No, I think you just covered the episode in 45
seconds where Ben and I dronedon for about 32 minutes.
So that's excellent work, asalways, but Ben's used to that
and I'm getting used to it, sogreat job.
Thanks for having me Next time.
I have an idea why don't wedive into some of the stuff Ben
was talking about the wholeproduction of amenities and
(29:47):
things that you offer and howyou can plan on that.
How about that for an idea,tiffy?
Speaker 3 (29:52):
I love that and we can get a little bit deeper into
the logistics of how you keepyourself accountable, budgeting
and then making sure that yourstaff also follows that line of
thought.
Speaker 1 (30:03):
Thank you, Mr Edwards .
Thank you, Mrs Edwards.
Appreciate both of you anduntil next time, folks.
So long, everybody.
Speaker 3 (30:11):
Bye everyone, See you next time.
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