Lessons From the Overlook: Beware of Easy Money

Note: Lessons from The Overlook is a monthly 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.

You'd probably listen if someone offered to put an extra $5,000 in your pocket.

My wife, Sally, and I use Idyllwild Vacation Cabins to manage The Overlook. I recently received a letter from one of its competitors offering us a guaranteed $5,000 in net income during our first year if we switched.

The competitor has about the same number of rental properties under management in Idyllwild. It is also a much larger company with more resources. The kind of resources that allow them to pay $5,000 customer acquisition fees.

Should we make the switch to the new property manager? Our decision was pretty easy. We never even hesitated for a second. Nope!

Here's why you need to beware of easy money.

Our property manager keeps the shaded deck clean and inviting.

How Magazines Derailed a Catalog

Twenty years ago, I supervised the call center training team for a retail catalog company. This was back in the days when the majority of customers called in to place an order.

Our vice president of customer service one day announced a partnership with a magazine subscription company. It was an elaborate scheme that would require our call center agents to offer free trial magazine subscriptions to customers at the end of each sales call. 

It seemed like an odd fit for an apparel catalog, but our vice president was chasing easy money. The magazine company would pay a fee that could cover the cost of each phone call if we met certain performance targets for new subscriptions.

This happened during a rough period for the company and the vice president was under pressure to cut costs and turn things around. Service wasn't great, sales were flagging, and the company refused to invest in e-commerce at a time when online shopping was starting to take off.

The magazine money seemed like an easy fix. In reality, it took resources away from the training, monitoring, coaching, and other activities the company needed to improve the sales and service experience. The magazines also did nothing to address the chronic operational issues that had been plaguing the company for years.

Things eventually got worse as the company continued losing money.

Do Your Homework

There's almost always a downside to easy money.

Sally and I contacted several property management companies when we first bought The Overlook. Our goal was to set up interviews with the local property manager as part of our vetting process. The local manager for the company that sent us the $5,000 offer never returned our call.

It's easy to imagine the headaches that would come with that one-time $5,000 bonus. Decreased guest satisfaction, increased maintenance issues, and plenty of headaches all seem likely. Something tells me we would lose a lot more than we would gain over the long run.

Sticking with our property manager was an easy decision.

Idyllwild Vacation Cabins takes great care of our guests and does a terrific job looking after our cabin. Communication is incredibly responsive and we've built a strong working relationship.

Those are the things that are most important to us and we know that other company can't provide them.

Lessons From The Overlook: Why We Aren't On Airbnb

Note: Lessons from The Overlook is a monthly 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.

People often ask us how we advertise The Overlook. They want to know if they can find the cabin on Airbnb, VRBO, TripAdvisor, or other popular vacation rental websites. 

You won't find The Overlook advertised in any of those places. Our rentals are booked exclusively through our property manager, Idyllwild Vacation Cabins.

It's not uncommon to use a third party to generate sales for a business. Here are just a few examples:

• Hotels, airlines, and rental car companies all list with various travel websites. 

• Many companies use outsourced contact centers to handle sales and service. 

• Restaurants use OpenTable and Yelp to handle reservations. 

Deciding which third party to use can be tricky. Each one comes with it's own pros and cons. Here's why we decided not to list on any of the major vacation home rental websites.

Drawback #1: Owner Fees

The major third-party websites charge a guest booking fee in exchange for advertising your property. Here are the fees for three of the biggest players:

Keep in mind this fee is on top of 35 percent fee we're already paying our property management company. So we'd have to pay an additional 3-8 percent to one of those websites for each booking.

Some people don't realize that vacation rental property management is much more expensive than the typical 10 percent fee a property management might take to manage a condo or house. A normal fee for a vacation rental is 30-35 percent because a vacation rental manager handles multiple guests per month and provides more services. In our case, the fee includes a lot:

• Advertising and marketing

• Credit card fees

• Guest screening

• Cleaning

• Pre-arrival inspection

• Post-checkout inspection

• Laundering towels and sheets

• Stocking the home with toilet paper, soap, paper towels, etc.

• 24/7 guest service

• Coordination of maintenance and repair projects

Sites like Airbnb and VRBO only handle advertising and marketing plus credit card fees, so we'd still need our property manager. That means the only way to justify the extra booking fees would be to get an significant lift in occupancy. 

Keep in mind The Overlook is located in Idyllwild, where the market is typically for two and three-night weekend rentals. So the maximum expected occupancy is roughly 40 percent if The Overlook rents each weekend for three nights. The quirk is a guest who rents just Friday and Saturday nights pretty much ensures there won't be any additional rentals that week.

Here is our average occupancy for the past year.

We're just about at capacity during the busy season, so listing on another third-party site wouldn't give us any significant lift. It might even cannibalize existing rentals and just increase our costs.

The entire town is slower during the off-season, so it's uncertain if listing on another website would yield a significant revenue gain.

Drawback #2: Guest Booking Fees

Idyllwild Vacation Cabins does not charge our guests a booking fee. The other sites charge a fee ranging from 8.5-12 percent, which increases our guests' costs.

Here's an example of what a guest would pay for a three night stay if we listed The Overlook on Airbnb compared to what they pay now.

Guests booking through Airbnb would pay an additional $92.50 without receiving any additional value. While we aren't trying to be the low-cost leader, our pricing strategy is designed to provide exceptional value to our guests.

Our list rental price also includes a few extras that most vacation rentals charge extra for:

• House cleaning

• Spa cleaning

• Snow removal

Pro-tip: Many vacation rentals maintain their own websites. If you find a place on Airbnb, VRBO, or TripAdvisor that you'd like to book, it's worth trying to contact the property through the owner's website so you don't have to pay the booking fee. For example, you can find our cabin here.

Drawback #3: Consistency

Idyllwild Vacation Cabins manages more than 40 rental properties in the Idyllwild area. The company's strategy is focused on direct to consumer rentals rather than relying on Airbnb, VRBO, TripAdvisor, and other sites.

This allows the company to avoid paying costly subscription and booking fees. It also means avoiding the additional administrative burden of actively managing and reconciling listings for the same property on multiple sites.

Instead, the company attracts guests through a lot of repeat business, outstanding search engine marketing, and a storefront in the town of Idyllwild. They also provide responsive, helpful, human service and take time to get to know guests so they can help them choose the ideal property to rent.

We'd be creating an exception to normal procedure if we insisted on listing The Overlook on Airbnb or a similar site. Exceptions can often lead to inconsistent results when you are working with a service provider.

Our Plan for Now

Businesses generally try to increase profits by increasing revenue and cutting costs. The Overlook is no exception. 

Last year was our first year of ownership, which brought a lot of normal startup costs such as furnishings, repairs, and extra maintenance. We also built a game room. Those costs should go down this year.

Idyllwild had a very hot summer in 2017, which drove down our bookings during the slow season because people don't flock to the mountains when it's hot. The Overlook also doesn't have air conditioning, which makes our place uncomfortable in the summer for some guests. We should get a few more bookings since we found a way to keep the house cooler.

Finally, having a year under our belts opens up the opportunity for repeat guests. We'll keep an eye on that since we expect a slight uptick in occupancy due to last year's guests making plans with us again this year.

We'll see how it goes.

Lessons From the Overlook: Interview with Dr. Fred van Bennekom

Note: Lessons from The Overlook is a monthly 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.

You can get a false sense of security when things are going well.

Sally and I have owned The Overlook for a little over a year now. Revenue is up, guests are happy, and we feel like we've gotten a handle on operations. 

That's dangerous.

Right when you think you know it all, something happens to remind you that you don't. For us, it was a group of guests in December who did some minor damage and stole a few items including a bluetooth speaker from the game room.

The damage has been fixed and the game room has a new speaker, but I still used the opportunity to seek some advice.

I called Dr. Fred van Bennekom, a customer service expert whose company, Great Brook Consulting, helps companies listen to their customers.

Van Bennekom recently sold a vacation rental property in Harpswell, Maine that he had owned for more than ten years. (You can see photos and a short video tour here.) He had plenty of lessons to share.

Before the theft.

After the theft. Why was the picture off the wall?!

Interview with Dr. Fred van Bennekom

Q: How have customer expectations changed since you first bought your property?

"Customer expectations have changed dramatically in the past ten years. Ten years ago, house rentals were a cottage industry. People did it, but it wasn't widely known.

"If there were some rough edges in the property or the furnishings, people were okay with it. I think it reinforced the idea they were getting a bargain.

"Today, HomeAway has TV ads of a family renting this gorgeous house on the ocean with an in-ground pool so they can bring their dog on vacation. How many of the homes in HomeAway's inventory actually look like the house in the ad? Probably very few, but that ad creates a certain expectation.

"People today are less tolerant of rough edges. Even kitschy furniture that used to be a plus can now be viewed as a negative. People expect to rent a 3-bedroom house on the ocean at about the same price as a hotel room—but have the amenities and services of a hotel."

Q: Have you seen a shift in guest demographics?

"In later years, I started to have more guests who didn't really understand how renting a house is different than renting a hotel room.

"For example, we provide a set of linens and towels for each guest plus a few extra towels. In a hotel, the housekeeper will come each day and change your towels or you can call the front desk and ask for more.

"It's different in a rental house. You need to wash your own towels if they get dirty and we do have a washer and dryer. 

"I got a call one Tuesday night after 10pm. My guests had checked in over the weekend and now wanted to wash the towels but they were complaining that the washing machine was not working. 

"The washing machine worked just fine, but they didn't know how to turn on the water shut off valve. I think they rented an apartment and weren't familiar with how things work in a house.

"I put instructions for things like this in the house guide and even email a copy to guests at booking, but they don't always read it. By the way, two days later this guest called because the dishwasher wasn’t working. The kitchen is directly over the washer, and he had apparently turned off the hot water valve to the kitchen sink when trying to get the washer working and didn’t turn it back on."

Q: Did you do anything different over the years as guest expectations changed?

"When I first bought the house, it was not customary to provide guests with consumables such as paper towels, toilet paper, and dish soap.

"The next year, I went on a trip to Ireland with my family where we rented a house. The very first thing we had to do was go out and buy consumables; there were none in the house. I realized this was a hassle for guests so I decided to provide all the basic consumables at my rental property. You can buy these pretty cheaply in bulk at Costco. 

"That year, the Costco-size supply of toilet paper was left in plain view and someone took it all! People would also throw smaller bottles of laundry detergent into their car. After that, I started providing “starter supplies” of consumables. I put two rolls of toilet paper in each bathroom, and I bought a really big laundry bottle and kept refilling it."

Q: Speaking of taking things, what was your experience with theft and damage?

"The first year we had the place we outfitted it with cute little knickknacks, but we quickly realized things get lost, damaged, or stolen—not sure which. My wife and I played a game called, “What ever happened to the…?” You shouldn't put anything in your vacation rental that you really don't want to lose.

"The one I really remember was my Maine Gazetter—a large, detailed atlas of the state. I’d owned it for decades and had my own notations on the map, so I was really disappointed to lose it."

"One summer, someone once forgot to lower the umbrella on the deck table. There was a major windstorm and the whole table blew off the deck! I put a picture of that on the front cover of the house guide as if to say, 'this is why you need to know this information.'

"An off-season renter got into some sort of fight with her boyfriend and he broke four of the rugged dining chairs and damaged several walls. She tried to glue the legs back on one of the chairs but it completely fell apart. 

"I also found coins and sand in the dryer, as if someone had gotten their pants wet and then just tossed them in the dryer without cleaning them off or emptying the pockets. The dryer’s bushings died a few months later, no doubt from the sand.

"Those experiences reinforced the practice of communicating with guests and having your property manager inspect the place so you can charge the guest out of their security deposit when there is damage or theft."

Q: What was the toughest part about owning a vacation rental property?

"The stress of having to deal with crisis situations when you don't have resolutions and knowing at any time the phone might ring with some new crisis.

"I once got a call on Monday that there was no water at the house. I live 2.5 hours away, so I had to work with my property manager to diagnose the problem. We had guests arriving that Thursday for their kid’s college graduation, so I had to reach out and tell them I wasn't sure whether there would be running water when they arrived.

"It turned out that the well pump had died. Fortunately, I was able to get it fixed in 24 hours, but the work pales in comparison to the stress."

Q: What did you like best about owning a vacation rental property?

"I actually enjoyed interacting with renters during the sales process. It was nice having conversations with people about the local area and helping them make plans.

"Maybe only one out of ten guests was a major headache. The rest were really enjoyable. But, boy, those ‘ones’ wear on you after a few years. That’s why we sold."

Lessons From The Overlook: Give Customers Subtle Nudges

Note: Lessons from The Overlook is a monthly 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.

There are certain things at The Overlook that require an explanation.

For example, guests need to know how to connect to the WiFi network, operate the television, or follow the checkout procedures.

Sally and I have seen other vacation rental properties take various approaches to this type of guest communication. Some post large signs throughout the house that are unsightly and feel a little unfriendly. Others bury the information in guest books that people rarely read. Still others rely on long-winded instructions sent via email prior to arrival.

We've chosen a communication strategy that we hope is a little better for our guests—the gentle nudge.

The Problem with the Hard Shove

To understand the gentle nudge, it's helpful to consider the hard shove.

Many companies take this opposite approach with their customers. It often involves a large, unfriendly sign. Here's an example from a convenience store:

It sometimes involves a small, unfriendly sign, like this one in a frozen yogurt shop:

This restaurant used multiple, unfriendly signs to greet customers:

All of these felt like a hard shove. These signs were all erected in an attempt to combat a problem that someone in management did not like. The signs are universally unfriendly and make customers feel unwelcome.

The Art of the Gentle Nudge

There are a few principles we follow to give our guests gentle nudges.

Principle #1: Appear at the moment of need. A good nudge appears unobtrusive until a guest needs it. Then the nudge suddenly appears to help.

For example, pine sap is a fact of life in the mountains. Go outside and there's a good chance you'll get a little sap on your shoe or on your fingers. So our guests are likely to be thinking about pine sap removal as they enter the house.

Hand sanitizer gets sap off quite easily. So we've stationed bottles by the front and back doors and put a small label on each one.

Principle #2: Get to the point. A good nudge gets straight to the point. Customers really won't read anything that's too long.

We put up a sign with WiFi instructions right over the kitchen counter. Getting online is one of the first things many people do when they enter a vacation home. Many people will beeline it to the counter to put down their stuff when they arrive, so we put the WiFi sign there.

The challenge was our first sign was too wordy and WiFi instructions were buried in the middle:

We learned through guest feedback that the sign just blended in to the scenery. Keep in mind that guests have just arrived and they are distracted. So we made a new sign with clearer wording. We'll see how this one works.

Principle #3: Guide people to the next step.

We provide a television, DVD player, bluetooth speaker, and even the ability to connect to your Netflix account via our small media center.

It would be unsightly to post the instructions for all of these on outside of the media cabinet, so we opted for a smaller sign leading people inside. There, our guests will find instructions along with the remotes for each device.

One small thing to note is a nudge doesn't necessarily need to be a sign. It can be anything that gently points your customer in the right direction. 

For instance, we recently put power strips underneath the beds in two rooms. Neither of these rooms has an outlet conveniently located next to the bed. We plugged alarm clocks into the power strips to make it easy for guests to find the power and for guests to unplug the alarm clocks (some guests do this to darken the room).

Find Your Nudges

Gentle nudges can give your guests a more frictionless, enjoyable experience.

The key is to see things through your customer's eyes. Experience your product or service the way a customer would. Observe how customers interact with your product or service. Listen carefully to feedback.

I'll be the first to admit we haven't figured everything out yet. It is a constant, ongoing process to adapt to customer needs. Then again, that's part of the fun!

Lessons From The Overlook: Know Where to Cut Corners

Note: Lessons from The Overlook is a monthly 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.

This time of year is budget season for many companies.

Many customer service leaders find themselves under pressure to keep costs flat for next year, despite expected growth in support volume. Or worse, expense reductions are required for an operation that's already lean.

The Overlook is no different. 

Sally and I are looking for ways to reduce expenses in 2018 while providing a consistently good guest experience. Here's how we manage that tricky balancing act.

The Overlook after a winter snow. Photo credit: Jeff Toister

Avoid Bad Cost Cuts

A bad cost cut is something that reduces the value proposition for our guests. Let me give you an example. 

Snow makes Idyllwild a more attractive destination for Southern Californians who don't often experience cold climates. It can also be a danger, especially for people who are inexperienced with wintery conditions.

Our property management company keeps walkways shoveled to ensure our guests' safety. We also pay to have the driveway plowed. Other rental owners pass the snow plow cost along to their guests but we decided to pay for snow plowing ourselves.

The rationale is safety. Sally and I would not want a guest to skimp on snow plowing in an effort to save a few bucks and then get into an accident. That makes the snow instantly less interesting.

Another example is our dishes and glassware.

At the Overlook, we recognize that having a full, matching set of dishes and glasses creates a more welcoming experience. Our maximum number of guests is eight, so we've stocked our kitchen with ten of everything.

We also bought extras, so when one breaks we can quickly replace it with a dish or glass from the same set.

Does it cost a little extra? Yes and no. 

In the short-run, it does cost more to buy extra dishes and glassware. In the long-run, it is cheaper to buy dishes and glasses by the set rather than individually. 

The immediate benefit is our fully-stocked kitchen is consistently mentioned in guest feedback. That little extra expense has become a point of difference that will hopefully contribute to more word-of-mouth referrals and return guests.

If you're planning your 2018 budget, consider the impact that any cost cuts will have on your value proposition.

• Will the cost cut hurt your customers' experience?

• Will service quality likely diminish?

• Will other costs arise as a result?

Making Smart Cuts and Investments

We have generally used three criteria when trying to save money.

The first is the impact on our customer service vision. Our vision at The Overlook is welcome to your mountain retreat. We don't want any cost cut to take away from that.

The second consideration is the impact on our basic promises. For example, a clean and well-maintained cabin is clearly expected. So we have the cabin cleaned and inspected after every guest and immediately address maintenance issues. Trust me when I tell you not every vacation rental owner does this.

The third consideration is how our cost-saving measure will impact long-term costs. This often leads you to making a smart investment rather than an immediate cut.

Our propane bill provides a good example. Last winter, we spent $531.85 on propane over four months to heat the house. We received a 50 percent new customer discount the first time our tank was filled, so the same amount of propane would cost $676.98 assuming a constant per-gallon rate (it actually fluctuates). 

It gets fairly cold in the mountains and we want our guests to be comfortable. What we don't want to do is heat the cabin when nobody is there. The Overlook is typically a weekend rental, so the cabin is often unoccupied three to four days per week. 

Our regular observations revealed guests did not always turn down the heat when they checked out. The house cleaners or our property manager might do this, though they might not visit the cabin until a day or two later.

To fix this issue, we installed an ecobee3 Lite smart thermostat. 

We can control the temperature settings remotely, so it's easy to lower the temperature when The Overlook is unoccupied. We project the thermostat will cut our propane bill by 40 percent, which will pay for the thermostat in less than three months.

It has also improved our guests' experience.

Our old thermostat had a confusing array of buttons. The ecobee allows guests to adjust the temperature with a swipe of a finger, making it easier for people to adjust the cabin's temperature to a comfortable level.

And, every guest who has stayed at the cabin since we installed the ecobee in October has remembered to lower the temperature when they checked out!

Conclusion

It makes sense to find ways to save money while creating your budget for next year. Be sure to set some criteria for making smart cuts. Those same criteria can help you determine when an investment is worthwhile.

• What's the impact on your customer service vision?

• What is the impact on your basic promises?

• How the cut (or investment) impact long-term costs?

Lessons From The Overlook: Review Your Vision

Note: Lessons from The Overlook is a monthly 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.

"We've implemented a customer service vision, now what?"

That's a question I frequently receive from customer service leaders. A customer service vision is a shared definition of outstanding customer service. It's one thing to have one (here's my guide to writing yours). It's another thing to make it stick.

My wife, Sally, and I created a customer service vision when we bought The Overlook a year ago.

Welcome to your mountain community retreat.

Each word was carefully chosen. Looking back a year later, we're solidly executing 75 percent. Yet there's still 25 percent that needs work.

That's why it's important to do a vision review.

View from Suicide Rock, a popular hiking destination near The Overlook. Photo credit: Jeff Toister

Gut Check Your Customer Service Vision

The first step is to discuss the vision with a sample of key stakeholders. The goal here is to do a gut check and make sure it still resonates.

Our vision has four critical pieces:

• Welcome: guests should feel at home during their stay.

• Mountain: guests should enjoy what the mountain has to offer (ex: our view).

• Community: guests should experience small-town hospitality where people know people.

• Retreat: guests should have a relaxing visit at the cabin.

That was pretty easy to do with The Overlook, since it's really Sally and me. All four pieces definitely still resonate. We do have a conversation planned with the owner of our property management company since she and her employees are critical stakeholders, too.

It doesn't have to be a formal process. You can have these discussions in one-on-one conversations, team meetings, or even focus groups. 

Who to include can vary. Think of key people whose opinion is really crucial to the vision having widespread support. Here are a few you should consider:

• Senior leadership

• Middle management

• Frontline employees, especially experienced team members

• Vendors and contractors

• Shareholders

OK, you probably notice that's just about everyone except for customers. That's an intentional omission, which we'll get to in a moment.

Review Employee Engagement

The next step is to make sure your employees are still engaged with the vision.

An engaged employee is someone who understands what makes the organization successful (i.e. the vision) and is committed to helping achieve that success.

Employee engagement means employees will be able to give consistent answers to three questions.

1. What is the customer service vision?

2. What does it mean?

3. How do I personally contribute?

Our memories fade over time. Your employees may have been able easily answer these questions a year ago, but that's no guarantee the vision has stuck.

Doing this routine check-up will help you identify any opportunities to re-engage people.

Believe it or not, it was helpful for Sally and me to have this conversation. We exchanged our thoughts about question number three and renewed our commitment to achieving the vision.

Which led us to the next step in our review.

Evaluate Your Execution

Remember we initially left customers out of the discussion? Now it's time to include them. 

Here is where we gather customer feedback and other data to see how well it matches our vision. You can use your existing survey, customer interviews, and other data.

For example, we have a guest book at The Overlook. Our guests also receive a survey after their stay. It's fun to see what comments guests leave and see if there are any particular themes.

Our evaluation told us we're hitting 75 percent of our vision. Here are the high points:

• Welcome: guests consistently feel at home during their stay.

• Mountain: many comments and feedback focus on the mountains.

• Retreat: our guests really enjoy relaxing at the cabin.

The one missing piece is community. Our goal here was to find ways to connect guests to the surrounding community of Idyllwild. We want people to feel a part of this small town.

So our focus for Year 2 of owning The Overlook will be forging stronger connections between our guests and the town.

---

Lessons From The Overlook: Pricing Strategy

Note: Lessons from The Overlook is a monthly 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.

Pricing strategy can be tricky.

One thought is customers naturally want to pay as little as possible. So you can bring in more customers if you cut your prices. That's what Amazon is betting on by dramatically cutting prices at newly acquired Whole Foods. The challenge is lower prices equal lower profit margins, so you'll need to sell a lot more to make more money.

Another approach is to charge a premium. This way you can sell to fewer customers and still make money. Of course, you want to avoid raising prices so high that nobody will pay them.

My wife, Sally, and I decided on a third pricing strategy. We wanted The Overlook to be an excellent value for the customer we wanted while appearing too pricey for customers we didn't want.

Here's what we did and how you can do it, too.

We like to think The Overlook is a little nicer than our competitors. Image courtesy of JoniePhoto.

Define Your Target Customer

One thing you'll notice about The Overlook is each room has just one bed.

There are no side-by-side twin beds. No bunk beds. The sofa isn't a pullout sleeper. We have four bedrooms and four beds (two king, two queen). Our advertised guest limit is eight.

This is very intentional.

We want a certain customer who will enjoy the peacefulness of our cabin. It's often extended families (mom and dad, the kids, plus grandparents), a couples weekend, or two families meeting in the mountains. Our guests enjoy the cabin's amenities plus a little elbowroom.

There's also a customer we don't want—the bargain hunter who is looking to cram as many people as possible into a cabin to maximize the cost per person. 

Those guests create extra wear and tear without any extra revenue. More things go missing and more damage occurs. We've had a couple of renters sneak in more than eight guests and the cleaning alone was always a challenge after these guests had gone.

Other cabins in Idyllwild pack 'em in. Guests sleep on bunk beds, in lofts, or air mattresses in the living room. These cabins typically offer fewer amenities. We think the bargain hunters are willing to make that trade-off and will stay in those places instead of ours.

A good pricing strategy starts with your target customer. What are the characteristics of the customer you want and can you serve them profitably?

Competitive Analysis

Serving customers profitably brings us to the next step: conducting a competitive analysis of your pricing.

This means comparing your prices to what your competitors are charging. We started with the other cabins managed by our property manager that slept six or more guests with three or more bedrooms.

The Overlook was the least expensive of the four-bedroom cabins. While our cabin also sleeps fewer people than the other four-bedroom options, it also has more amenities.

For example, our cabin is the only one with a view. And only one other four bedroom cabin has a spa. Our research shows that our guests want a spa, good views, a nice fireplace, and it should be pet-friendly. The Overlook checks all four boxes.

Here's how our pricing looks compared to just those cabins with the same amenities:

Not as many options! And the lower-priced cabin is much smaller and is really only comfortable for two couples. 

We also compared The Overlook to cabins in the area that weren't managed by our property manager. There were plenty of lower-priced options, but The Overlook was on the low-end of the scale when you just compared cabins with similar amenities.

And our price includes the cleaning fee, which can be $100 or more at other vacation rentals.

Our Pricing Decision

We ultimately decided to raise our nightly rate to $325 for the first two nights, $275 for each additional night.

Here was our new positioning when compared to our property manager's other cabins:

We wanted to price on the higher end of the market to deter bargain-hunters who were not our ideal customer, while remaining an exceptional value for the customers we were trying to attract.

The results have been good so far. Our guests have been very pleased with the cabin and the amenities. They've consistently commented on enjoying a peaceful and relaxing stay.

Best of all, revenue is up 5 percent over last year and none of our guests have trashed the place.

Lessons From The Overlook: Go and See the Problem

Note: Lessons from The Overlook is a monthly 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.

Our property manager called with a problem.

The Overlook was too hot. A summer heat wave caused temperatures to soar in Idyllwild and our cabin doesn't have air conditioning. Even at night, the house was still hotter than 80 degrees. 

One group of guests asked to move to a different property. Our property manager convinced them to stay after she managed to borrow a couple of portable air conditioners for the weekend. We weren't so lucky with another group of guests who wanted to stay at The Overlook, but decided to book another property when they learned about the heat.

My wife, Sally, and I were presented with three options:

1. Spend $800 to install window-mounted air conditioners.

2. Spend several thousand to install central air conditioning.

3. Do nothing and accept a decline in revenue until the weather cooled.

We decided to investigate the issue before jumping to solutions. In the end, we identified a great solution that cost just $119.27.

The Problem With Solutions

It's instinctive to skip the investigation and jump to solutions.

That can sometimes be a liability, especially if the solution is offered without first observing the problem and identifying the root cause.

One of my favorite examples comes from a client who hired me to train his employees on phone skills. He felt they weren't friendly at times and assumed that training would fix the problem. 

I spent just 15 minutes talking to his customer service team and found the real issue. Customers sometimes had to wait on hold for as long as 30 minutes during peak times. This caused employees to rush through calls which inevitably created a perception that they were brusque and unfriendly.

A simple adjustment to align the schedule with call volume eliminated the long wait times. Employees were suddenly friendly with no training required.

When we applied this principle to The Overlook, it's hard to choose from three crummy options without first understanding why the place is too hot. 

Go and See

There's a concept in process improvement called Gemba. 

It's a Japanese term that means, "the real place." In business, you can often solve problems by taking what's called "a gemba walk" to go and see the issue first-hand. This often reveals unexpected causes and solutions.

Sally is fanatical about this. She's a process improvement expert whose Twitter handle is @gembagirl. I've learned a lot from her about the value of observation.

Fortunately, we had a long-planned visit to The Overlook in July that allowed us to experience the heat first-hand. 

The first thing we noticed was the ceiling fan in the family room. It was set in winter mode, which draws air up and pushes warm air down. It was actually heating the room rather than cooling it!

The fan should have been set to summer mode, which pushes cool air down. I see how this could easily be missed. You look at the fan spinning like crazy and naturally assume it's doing its job. I only realized the problem when I stood directly under the fan and felt the warm air.

The room instantly started feeling cooler once the fan was on summer mode. We'll be adding this item to our inspection checklist so it doesn't happen again!

Next, we opened up windows to let the cool air in. The night air was a cool 65 degrees when we arrived at 9:30pm. Inside it was 82, so the cool air could help lower the inside temperature if we could find a way to pull the cool air in.

Sally and I once lived in Massachusetts without air conditioning, so we've experienced hot summers. We learned that a window fan can cool a room better than an oscillating fan, because it pulls cool air into the room at night and can be set to expel warm air during the day. So we spent $119.27 at Home Depot to purchase three units of a highly-rated model. Home Depot has a generous 90-day return policy, so buying the fans ahead of time wasn't a risk.

The fans have three big advantages over window-mountained air conditioners. First, they're much less expensive. Second, they can quickly be taken out of the window when the weather turns cold. And third, they're much less unsightly than bulky window box ac units.

We installed the fans in three of the four bedrooms and they instantly worked! The master suite is on the bottom floor and has twin ceiling fans, so was already much cooler than the rest of the house.

Just one hour later, the temperature inside The Overlook was a pleasant 70 degrees.

Check Again

It would be easy to think the problem was solved.

As I wrote in this post, you can learn a lot by experiencing what your customers experience. We decided to keep an eye on the thermostat throughout our stay.

It was good that we did. The temperature started to rise steadily at mid-morning, even with the fans running. By mid-afternoon, it was back up to 80 degrees in the house. It was tough to keep the cabin cool when the air outside was warm. 

That's when we noticed the sun pouring in from our large windows. We had closed the blinds on the lower windows, but there was still a lot of heat coming through the upper windows. I closed those blinds, too, and the temperature began to cool again.

Photo credit: joniephoto

Now we hoped the problem was really solved, but there was only one real way to check. We had to hear from actual guests.

Sally and I waited anxiously to hear from our property manager the next time we had guests booked for the weekend. We wanted to get guest feedback on the temperature.

Good news! Our solutions worked!

Lessons From the Overlook: Some People Suck

Note: Lessons from The Overlook is a monthly 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.

My monthly inspections of The Overlook have revealed a sad fact: each and every month, something is broken or stolen. 

The snow shovel went missing. The ice scraper we left for guests went missing two months later. People repeatedly steal batteries out of the alarm clocks. Three flashlights were absconded. Even our American flag disappeared.

Our flag?!

There's also been some damage, some of which was unreported to our property manager. A few broken glasses. A broken drawer dislodged from a chest (how?). The broom was broken in half. 

Luckily, it hasn't been anything major so far. Everything has been quickly repaired or replaced.

I won't lie. It's frustrating to see the damage and find that items have gone missing. It's also a reminder of a universal truth in customer service.

Some people suck.

Some of our tupperware went missing.

The Wrong Solution

It's tempting to implement a heavy-handed solution.

Many businesses go this route. They overtly mistrust their customers and institute restrictive policies and unreasonable fees as a result.

Here's an example from a frozen yogurt place that I no longer frequent:

Photo credit: Jeff Toister

The sign was clearly intended to thwart would-be free sample abusers.

One might imagine roving hoards of sample bandits descending upon the shop and draining the yogurt machines of free samples and then merrily tromping out without ever spending a dime.

More likely there were a few frustrating abusers.

The rest of us who are mature enough to handle the heavy responsibility of self-policing our free sample usage feel penalized by a sign like this. It's uninviting and discourages people from trying new flavors.

Here's an example from another vacation rental.

My wife, Sally, and I have rented the same condo in Napa, California twice a year for the past couple of years. We drive up, bring our dog, and enjoy a week-long working vacation in wine country. 

Earlier this year, the owner suddenly decided pets were no longer welcome.

Apparently, some pets made a mess and few were even destructive. But not ours. Not even once. Would the owner make an exception for our well-behaved dog who has stayed at the condo multiple times without incident?

Nope.

And with that, the condo lost a regular customer and the many referrals we've given. Which brings us back to The Overlook. 

We could implement a more stringent damage policy, raise the security deposit, or put up nasty signs all over the house to remind people of the rules.

But that would suck, too.

Get Some Perspective

A couple of months ago, I wrote about the importance of knowing your numbers. 

It's infuriating to discover theft or unreported damage. While that's an emotional reaction, a rational review of the numbers reveals its not such a big deal.

Let's start with damage.

Dishes and glasses will break. Heck, I accidentally broke a glass at The Overlook on a recent visit. So we've stockpiled extra dishes and glasses so that when one does break, we can quickly replace it with a matching item. 

The cost per incident is typically less than $5.

Replacing a few dishes and glasses is part of the cost of doing business. Spread out over the many guests who don't break or steal anything, that cost is minimal. 

Side note: Having clean, matching, undamaged dishes and glassware is a surprisingly simple point of difference between The Overlook and the typical vacation rental.

What about theft? Empathy has given me a new perspective.

The Overlook attracts families, which means we often have young children staying at the cabin. Have you ever seen a couple of harried parents trying to corral their kids on vacation? Stuff gets scooped up and shoved in bags.

I'm convinced a lot of the minor thefts are unintentional.

For example, I can imagine a guest using the ice scraper to scrape their car windows on a cold morning. Perhaps they toss it in their car while they're driving around town in case they get more ice. The ice scraper eventually gets forgotten in the trunk until they arrive back home and unload their car. 

Should they have alerted our property manager and offered to pay for a replacement? Of course they should have. But replacing that ice scraper cost less than $10. I gladly replaced it so there's one available to the next guest who gets ice on their windows.

So far, there really is only one big problem with damage and theft.

My True Worry

The biggest concern I have with theft and damage is the impact on the next guest.

We try to minimize this issue. Our property manager inspects the property before and after each guest stays there. The cleaning crew also alertly spots problems. Sally and I personally inspect The Overlook at least once per month.

The challenge is its tough to spot everything in a house.

A damaged glass was put back in a cupboard behind other dishes. The weather turned warm right after the ice scraper went missing and nobody thought to look for it. Our property manager didn't realize we had an American flag, so how could she know it was gone?

For now, we try to put everything in perspective.

We keep extra supplies at the house. We inspect everything regularly. We react quickly to guest feedback when they alert us to a problem caused by another guest.

And we avoid the temptation to penalize our many wonderful guests for the actions of a few people who suck. Over time, we think this will help us build a steady clientele of repeat guests who will treat our cabin with respect.

The few guests we know who take items or cause damage and try to hide it just won't be invited back. So much for 100 percent repeat business.

Lessons from The Overlook: Patience

Note: Lessons from The Overlook is a monthly 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.

Rentals at The Overlook started with a bang.

My wife, Sally, and I bought the place in October 2016, took a month to do some light upgrades, and put it on the rental market in November. It immediately started renting nearly every weekend, a torrid pace that kept up through April.

That was the busy season.

Now we've hit the slow season and things are a bit different. The cabin is rented every other weekend. Monthly revenue is down 50 percent from our peak month.

There's also a to-do list piling up as small maintenance issues naturally arise with any house. Some outdoor lights needed to be replaced. We had to get some pictures to hang in our new game room. There's some exterior painting that needs to get done.

When are we going to find time to do it all? And how can we book more rentals so our revenue doesn't dip so much this time of year?

Deep breath...

We also bought the place to enjoy it ourselves. It's pointless if all we do is visit the cabin to do chores. There's nothing like enjoying a cup of coffee out on our deck on a crisp mountain morning and remembering why the cabin is called The Overlook.

Photo credit: Jeff Toister

How Impatience Kills Business

So many business objectives are undermined by impatience.

Want to fix poor customer service? Leaders often ask for customer service training without understanding the root cause. The laziest managers automatically default to incentives, which routinely fail to solve the problem and often make it worse.

Want to improve employee engagement? The go-to move is to hire a consulting firm to conduct a one-time survey, form a committee to analyze the results, and then do nothing.

Want to improve the customer-focused culture? Write a half-hearted vision statement at an executive retreat and then never speak of it again.

Impatience even tempts us to make poor decisions at The Overlook. 

Rentals are down, which is normal for this time of year, but we'd like more revenue. We could cut our nightly rate and spend more money on advertising. Both might help us get a few more bookings, but that tactic would also eat into our profits while straying from our year one goal.

In year one, we want to build a loyal guest following by making them feel welcome, connecting them to the mountain community, and providing a wonderful place for a retreat. 

We definitely don't want to be the Cut-Rate Discount Chalet, which is the image that lower rates and lots of advertising would create.

The Value of Patience

Patience was a consistent theme among the many customer-focused companies I profiled in The Service Culture Handbook.

One example is Clio, a leading provider of cloud-based legal practice management software. I worked with the company in 2014 and its leaders have been building Clio's culture ever since. Three years later, Clio won the 2017 award for Best Contact Center Culture from ICMI.

The company was already terrific in 2014 but its leaders stayed committed to the culture initiative year after year because they knew the company could be even better still.

Sally and I think about patience a lot as we work on The Overlook.

It took us several months to find the right contractor to turn an unused garage into a game room, but now it's awesome.

We're typically able to visit the property just once per month, so we try to use that time wisely. We've learned to rely on our key partners to help keep the place in peak condition. 

For example, our propane provider, Ferrell Gas, has a program where they automatically check our propane tank and keep it filled. That's one less thing to worry about.

The revenue will increase in time.

There's a predictable seasonality to the business that we're experiencing for the first summer. Meanwhile, we're studying our guests to find ways to make The Overlook even more appealing.

Our property manager, Idyllwild Vacation Cabins, is also working hard on our behalf. We need to trust that partner to help us grow. And they are—two new bookings came in during the day or so that I've been working on this blog post.

All the while, we're keeping in mind that we didn't buy The Overlook for a quick fix. This is a long-term investment and we're just getting started.