Vacasa's Winning Formula

And What It Means For the Future Of Your Vacation Rental Management Business 

Another day, another announcement of a massive investment round into the vacation rental industry. This time it was Vacasa in the headlines (again), thanks to its $319 million Series C, led by Silver Lake. This was a round that elevated Vacasa to “unicorn” status by valuing the company at more than $1 Billion. If you are reading this, you know the vacation rental industry is a great place to be right now. This kind of money pouring in shows that you are clearly not alone.

I imagine you think you have a pretty good business, but do you have a Billion Dollar business? Chances are the answer is an emphatic “no,” and that is totally fine. That being said, there are certainly things we can all learn from a company that has experienced this sort of unprecedented success, and so having known Eric and Vacasa since its earliest days, I share my take herein.

The first place to start is Vacasa’s astounding and continued growth. In the announcement, one of Vacasa’s first investors noted how the company has grown almost seven-fold since the Series A in 2016. That is amazing in and of itself. To make this growth even more impressive is that it came after the company had already been named Inc.’s 9th fastest growing company in the US back in 2014. Essentially, this has been a rocket ship that has yet to slow.

The question this raises is, how do they do it? Certainly a big part has been acquisitions. Of late, the $162 million acquisition of Wyndham Vacation Rentals is the most obvious example, but it is just one of many. In fact, the week I first met the Co-Founders, Eric Breon and Cliff Johnson, at the VRMA Western Regional Conference in 2014, the two had just completed 4 acquisitions in a single week. But while acquisitions, and the dollars spent, seem to garner the most attention, the most relevant and helpful lessons for other Property Managers come from how Vacasa continues to grow so successfully organically.

Owner acquisition is the most obvious way to grow your business, and yet it seems to garner less attention than it deserves. One example is how at the recent VRMA International Conference, with >100 sessions there were only two focused on owners. Credit to Vacasa for understanding this aspect deserves far more attention than that. And the simple fact that Vacasa can grow organically at all, much less do so at a rate that seems unmatched in the industry, may seem surprising when you think about its commission rate. In an environment where so many companies, often led by new-entrant and “new model” managers, seem to be in a race to the bottom when it comes to commissions, Vacasa has managed to hold steady at 35%, and to add owners in the process. How is this even possible?

One answer is the focus on owner and property care. I remember the VRMA Annual Conference in San Diego when Eric participated in an owner acquisition panel I moderated. When asked about commission rates and the need to discount to attract owners, Eric reframed the question. Five years on I am paraphrasing, but essentially what he said was: “These are people who have so much money that they are able to buy an entirely extra home. Not everyone can afford to own a single home, but these people are buying spares. They are not the kind of people who pick a barber just because he is the cheapest in town.” Given that, Eric went on, “these people are smart enough to distinguish price from value. If you are delivering exceptional value, they don’t get caught up in the price. If you are having a conversation focused on your commission, you are doing it wrong.” How does Vacasa deliver that exceptional value? They are able to do this largely BECAUSE of their higher commissions, not in spite of them, because the money they bring in means that they do not have to skimp on the service that their owners and guests value.

Vacasa is also able to deliver greater value to their owners and their guests thanks to focus. Their local operations teams, and even most of the people back in HQ, are solely focused on making sure the guest and owner stay happy. They can do this because they are not spread across marketing, revenue management, data analytics, finance, and other tangential areas. There are dedicated teams that take care of each of these other necessary functions that for companies not of Vacasa’s scale (i.e., everyone else) people have to fold into being just part of their day job. Who do you think will perform better? Someone who spends 1/3 of her time on owner relations, 1/3 on marketing, and 1/3 on revenue management, or a team of people with a person dedicated exclusively to owner relations, a person dedicated exclusively to marketing, and a person dedicated exclusively to revenue management (supported by data scientists and data analysts)? Look at Vacasa’s trajectory, and I think we have a clear answer.

This means that the focused team does not only deliver great on-the-ground service, but it also means that the other teams, not distracted by having to deal with the owners or guests, also deliver greater value. Many have heard stories of Vacasa entering a market and driving nightly rates down, but worrying about this is making the same mistake as focusing on price rather than value. Sure, they may be pushing the Average Daily Rates (ADRs) down in the market, but with property owners earning an average of 31% more in their first year with Vacasa, they are apparently able to push up Revenue Per Available Night (RevPAN) in the process [NOTE: I know these terms may seem too jargony. If you want to get a better understanding of these, and Revenue Management for Vacation Rentals more generally, please check out our FREE Ultimate Guide on the subject].

That this monolithic focus on a specific area can provide outsized value I can affirm from personal experience. When we at Rented.com built a portfolio of >1,000 of our own properties through our fixed rent program, Vacasa Co-Founder and now Rented.com Chief Commercial Officer, Cliff Johnson, told me that the best thing we could do with that many properties was to build out our internal Revenue Management capabilities. I was skeptical, but when the initial test proved a consistent >30% uptick in revenue performance with the same properties, managed by the same managers, I wished I had listened to Cliff sooner.

I also realized this might be something that other companies not of Vacasa’s scale could benefit from. After all, how was Vacasa able to deliver that 31% average revenue increase in year one? It was because most managers either don’t have the time, or the internal capabilities to truly maximize revenue performance. It is not necessarily that they don’t want to give it the attention it requires (though there are plenty who still seem to think their old way of doing things is just fine, despite all the data to the contrary), it is that realistically they just can’t. Thus, we launched our Revenue Management Service for Vacation Rental Managers. As we continue to grow, and to work with more and more Managers, we continue to see >30% revenue lift for our clients. It is hard to argue with facts.

Looking Forward

One quote from the Vacasa press release should give other Vacation Rental Managers pause. When asked what the additional money raised would be used for, Eric Breon said: “This new financing will…allow us to deepen our investment in technology.” What he is saying is that this company that is already at a size and scale that enables it to attract more owners, while charging higher commissions, because it is able to deliver 31% more revenue to owners thanks to its superior technology and focus, now plans to invest unprecedented amounts of money to make those capabilities even stronger. How can a smaller Vacation Rental Manager compete?

The answer for some will be that you won’t want to. The truth is that as the owner of a Vacation Rental Management company, there has never been a better time to sell. Vacasa’s deep pockets help, but there are a plethora of other buyers out there making this a true seller’s market. Just because it is a seller’s market, however, does not mean you are guaranteed to get the best deal possible. As a session led by Amber Knight at this year’s VRMA International Conference demonstrated, there are a number of things you can do to maximize the value of your business to a potential buyer. With every dollar of additional profit being worth $4 in the sale, this is an investment worth making. Amber developed the M&A program for Vacasa, and ran it for four years, overseeing more than 40 acquisitions during that time. Knowing this is a need for many companies, she now runs Rented.com’s M&A and Business Consulting Services business. If you are interested in learning more, please contact her at [email protected].

For those who instead want to stick it out, what should you do? I certainly don’t intend, or want this to come across as all doom and gloom. The reality is that with rapid growth also comes more opportunities for points of failure as operations scale. This means that the opportunity for smaller local property managers is going to come from their ability to develop and maintain deep relationships with local community partners. It will also depend on their ability to  leverage other industry providers to compete on the technology front, and in other areas where they can't develop internal expertise without scale. 

It was a quote out of another massive investment deal in our industry that shed light on this opportunity. In commenting on the $480 million sale of Sykes Cottages, CEO Graham Donoghue explained why the company built all its own technology by saying that when they started, they didn’t really have any other options. “When we started eight years ago, we had to build our tech because many of these other players didn’t exist or have perfected products yet. We started down a journey. If we were starting out scaling today, we might do things differently,” said Donoghue. This highlights the opportunity available to managers today. You don’t have to get to scale so that you can build everything internally. There are actually fantastic technologies, tools, and service providers out there already who can fill these essential gaps for you.

So what does that mean for going forward? First off, don’t play Vacasa’s game on its own terms. Second, don’t stick to your old “tried and true” ways of doing things. The truth is they were tried in a very different environment. Rather, you should take a page from Vacasa’s book, and think through how you can deliver greater focus on owner and guest value, but do it even better thanks to your deep local roots and relationships in your community. How can you tap into these differentiating resources to deliver to guests and owners more of what they want, while at the same time wasting less time, money, and other resources on things they don’t care about? How can you then get owners less focused on your commission rate and more focused on the value, and the money, you deliver to them?

The simplest answer, because it is clearly measurable, is to earn them more money. As the arms race, led by Vacasa’s investment in its own technology, tools, and team, in Revenue Management continues apace, one thing is clear: you are not going to be able to do this by continuing to do things as you have done them in the past. After all, it is because so many people think their old ‘tried and true’ methods are good enough that Vacasa can come in and earn owners 31% more in the first place.

The reality is that few companies have the in house technology, team, or internal capacity to do this well on their own. This is even truer when those resources you do have increasingly need to be focused on guests, owners, and property care. At the end of the day, this is why we launched our Revenue Management Service. We personally experienced the >30% improved performance on our properties, and rather than use those capabilities to compete with local managers, we at Rented.com wanted to use them to help and support local managers.

The huge investment dollars pouring in can be intimidating. They are also a clear vote of confidence in vacation rentals, and the future of our industry. For those who want to write their own story from here, we would love to help you on that journey.