I know it may not feel like it while you’re living it, but economic downturns actually serve a really valuable purpose. I’m always saying that an economic crisis is actually an amazing opportunity. How?
Because it allows us to enter into a marketplace that might have been too expensive for us otherwise.
It creates a crack in the market, and those of us who are shrewd and determined—and paying close attention—can squeeze through that crack.
I know there are people out there who have had their eye on the short term rental (STR) world for quite some time and just weren’t sure they had the resources to get in. And now they’re seeing a unique opportunity to not only start their own STR business but to start seeing cash flow right away.
So what does that mean for those of us who were already in? Is there good news for us too, or are we in deep trouble? How on earth are we going to keep our business afloat?
Don’t worry. There’s good news for us too. There’s good news for all of us.
The equation has always been as follows.
Income - Expenses = Net Operating Income
Oftentimes, when things are easy or going well or we have an abundance of resources, we experience the wealth effect and don’t see the need to make changes to this equation.
What’s the wealth effect? The wealth effect is when we have plenty of money, so we don’t always use every bit of our creativity to solve a problem. Why bother when it’s not a necessity? If I can just throw money at it, there’s no need to try to work any harder.
So, during times when cash may be tight, or you are trying to figure out how on earth you can make more money before the month is over, you have to get more creative.
And increased creativity is never, ever a bad thing.
As an entrepreneur, during those times of financial hardship, what you are able to do is to literally invent possibility out of nothing.
That’s a skill that will come handy in every area of your life for as long as you’re alive.
When it comes to your STR business right now, one of the number one things you’ve got to be able to do is think about this equation (yes, another equation!): L x C x M x F = GP
This equation comes from Ryan Deiss over at Digital Marketer and it stands for:
Leads x Customer x Margin x Frequency = Growth Potential
This is my favorite equation for any revenue situation. Remember that first equation I shared (Income - Expenses = Net Operating Income)? If we’re focused on income, what I’ve got to figure out is am I generating enough leads? Are enough of those leads converting to customers? And if they are converting, am I selling enough to each and every customer? And more importantly, what am I doing right now to increase the frequency of the same customers?
I break down that formula in fine detail here if you’re interested in reading more.
As you ask yourself questions about each of those levers, what tends to happen is that you find new opportunities. Here’s the thing. The opportunity was always there. There was just no need to do the work until we saw our cash flow slow down (or come to a stop) or our reservation rate decline.
Ask yourself, “Am I getting enough leads?”
Now, how do you find the answer? One way to know is to look at your year-over-year performance for the same location. Look at your previous year and see, for this 30 day period, how many leads did we get? How long did it take us to close those leads? How many conversations did it take to actually close those leads?
These are the questions that will lead you to the answers for ways to increase your revenue.
If increased revenue isn’t possible, the only option left is to decrease expenses.
I’ve had people tell me that the first thing they did was let go of some of their team. I do NOT recommend this, and I would encourage you to make that your absolute last resort.
Rebuilding a team is so difficult. Do your very best to keep your team together, intact, and make sure no one goes anywhere. You can look for ways to decrease expenses anywhere else except in personnel.
Now, just because you’re keeping your same team doesn’t mean that it’s business as usual with everyone doing their same old thing. Not at all. Now is the time to discover and empower a new and improved version of your team. You’ve got the same people, but they’re evolving more and more into what they’re actually capable of achieving. Help them add to their skill sets.
Push and stretch them into bigger, badder, better versions of themselves.
So, if we’re not going to get rid of people, what else is there? It’s time to look at literally every other expense. I know for me and my team, the easiest things we were able to do was to go through monthly software subscriptions, whether that be channel managers or whatever, and see how they overlap.
Remember, when you signed up for that technology, it had certain features you bought. Because of time and advancements, you might not need what they’re offering. Maybe you could get it somewhere else and it could save you money.
Recently we’ve been doing this review again. You can keep doing it every few months. We keep finding that there are a number of new tech entrepreneurs who have come to the table and have been able to replace tools we were using for half the price.
It may not feel like you’re cutting much out, but going through this process will give you the ability to find the hidden gems where you can save money. When everything is okay, we don’t bother doing stuff like this. We only do it out of necessity.
Another thing you can do to reduce expenses is to prepay various contracts.
Whether it’s software tools, insurance contracts, landlord contracts, or whatever, you often get discounts when you pay upfront. Some have $5 fees per payment. Paying ahead saves you those fees. This can quickly add up to thousands of dollars on an annual basis.
Sometimes there are loans you can apply for in times of economic downturn or disaster. Be aware of those loans and do your research to see if they fit your needs.
These are just some of the ways you can increase income or reduce expenses during a time when the economy isn’t booming and your cash isn’t flowing.