If you’re looking to create large amounts of cashflow from serviced accommodation, you’ll need to scale up your business. There are many pitfalls to avoid and areas to focus on if you want to scale up profitably – we take you through the five key areas you should be focusing on.
The Serviced Accommodation Podcast is a show brought to you by Chris Poulter and Ritchie Mazivanhanga aimed at new and experienced property investors alike. With each show we help you Start, Systemise and Scale your Serviced Accommodation Business.
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Hi I’m Chris. Hi I’m Richie. Welcome to the service accommodation podcast.
Today we’re talking about scaling up profitably.
So today we’re going to be talking about scaling up your business profitably
And why specifically is it scaling up profitably as opposed to just scaling up the business?
Most people just assume that the more properties you have, the more money you make. That might work in most businesses but not it’s not particularly true in service accommodation because most people we come to contact with 10 to 15 properties aren’t making that much profit. There’s various reasons for this. Chris you talk about the model they’ve chosen which you talk about another episode. You’ve got things like VAT and they don’t take things like running costs into account.
Yeah absolutely and so we run a mastermind group to help people scale up profitably. So we have a lot of experience in this area. We thought we’d share with you the five areas which we look at when we’re helping people to scale up their business profitably.
We named these five steps to help people scale the business of increase as you rightly say and the first step is making sure people get it right from the start.
So basically getting a strategy right. We spent a lot of time looking at this in episode 15 and 16 about how to look at your strategy and really that kind of comes back to what you’re actually looking to achieve. On a personal level and then make sure that business is actually going to deliver that change you want because there’s no point having a personal objective of spending more more time with your family and then creating a business which is going to create a 60+ hour week. And I think that’s going to have a very adverse effect when what you’re trying to do. So instead it’s kind of going back, breaking down what you’re looking to achieve and then having a look at the kind of models which are available to you so you’re looking at things like the area, the property type, how you’re structuring a deal to see what’s going to allow you to achieve that kind of first personal goal in the easiest way. Now why this is so important because when you are then setting up all the objectives and looking to achieve what kind of levels of cash you’re looking to get to. At that point you can also be making sure that you get the corporate structure right so that you’re using the right kind of entities and therefore you can get the tax planning right because you don’t want to be selling stuff off in the wrong way from the beginning which means you end up paying a lot more tax than you would have to otherwise. And typically if you’re not thinking about the big picture, if you’re not putting together a strategic plan and you get started, then you’re not usually gonna end up with the best kind of corporate structure around what you do not. We always look at the long term planning side of things and it’s very essential to make sure that your business is going to be sustainable. It’s going to be scalable. And the most important thing still be profitable.
Exactly. And in terms of the profitability as well as making sure that you’ve got the strategic plan in place, again delve into quite a lot of detail in the episodes of strategy, but making sure you test your model before you scale it is absolutely critical, because there’s no point going getting 10 units but finding out that those 10 units on a model which is not particularly profitable. And so you end up in a place where again you’ve scaled up the business but not profitably. So it’s really important that you’re actually testing the model before you go out and scale your business.
Yes that’s where we always mention this in the previous podasts, that we have the build, the test phase and then you’ve got the scale. So you’ve gotta make sure you test your model make sure that it works and it’s going to work with a hundred units before you scale up to a hundred units.
[00:03:59] Absolutely. And so with a build scale model during the test phase we’re also looking at systems and that’s the second area. The second step which we look at when we’re talking about scaling up a profitable business right.
Yes it is yes. We look at building the systems and team. The two kind of go together right. Most definitely yes. Definitely go together. You have to build your team around your systems. You gotta make sure when you build the systems you’ve got repeatable results in around the team, and automation is very essential because you want to minimize the human time. And when you build your systems you’ve got to make sure they work for your business. You can’t just copy what someone else is doing. It’s gotta be right for your business it’s got to be worked for your particular model.
[00:04:43] Yeah I think a mistake a lot of people make is to kind of bring in staff into the business who maybe want to work in a particular way and then build the system around them, as you kind of identified it’s really important you don’t do that. You decide on the system which is gonna work best for you. And go back to your strategic plan what you’re looking to do, and then find the people that will work with those systems in the right way.
[00:05:06] And what that does is minimize the staff and because you’ve got the systems in place… it gives you capacity for growth which is scaling up.
[00:05:15] Yes that capacity for growth because otherwise you start scaling up and your time is going to go crazy because you can be far too busy on the operational side of things to actually focus on managing that growth.
[00:05:25] Having those systems in place reduces costs so the staff costs. Yes that helps it’s scaling up and you don’t have the right the right level of leverage so to speak.
[00:05:35] Yeah because there’s a real balance of leverage isn’t there. Yes because I think there’s two kind of sides of this coin. Everyone talks about leverage and how brilliant it is. But you’ve got to get the right balance. If we look at kind of one extreme then we had someone who we were mentoring and they they brought in a kind of property manager from day one. But then they’d just let them get on with it and they didn’t necessarily understand you know the systems which they’d put in place they didn’t know the kind of customer base and a lot of the pricing information. And so they were too leveraged because they didn’t actually then have any control or knowledge around that business. Now at the same time if you’re doing absolutely everything itself then that’s the other opposite end of the leverage scale. And that’s not great either. So you want to be in the middle. And the way you get in the middle is by building the systems. Yes so you know how they work you know that they’re the best way for your business to achieve what you want and then getting the people involved to actually manage the tasks within those systems. Yes. And as we’ll talk about later when we talk about KPI’s and reporting, that’s the ideal way of actually getting hands off within business but actually still maintaining control and still being able to see what’s going on within the business. Even though you’re not working day to day.
[00:06:55] The next area we’ll look at is marketing and most people tend to think of marketing as advertising to get bookings in. Marketing is a lot more than that because you’ve got to make sure you have the right product tailored to the right audience.
[00:07:12] That’s for me what marketing is isn’t it it’s about actually what you offering to the world. And if there’s a synergy, if you like, between that offering and the people who are buying it, you know works the same in any industry in the world but that that’s kind of really what marketing is, rather than just putting an advert online and getting some bookings.
[00:07:31] So yes you have to make sure you use the right channels for your particular audience because different audiences different marketing channels so to speak.
[00:07:39] And that obviously that they’re optimized in right way as well. Yes. Yeah. And you’re making the best out of your listings, interact marketing campaigns things like that.
[00:07:48] Yes. And customer feedback is another very important part of marketing. So customer feedback helps you improve your business because the feedback that you get when people do negative feedback is the most constructive feedback – you see how you respond to their feedback and how you implement and implement in your business and then improve your business for the next customer.
[00:08:10] Yeah it’s probably that the actual biggest area where you can make sure you have a long term sustainable profitable business by making sure you get this right. So you’re always listening for the customer feedback because ultimately that’s a really really valuable is that they’re telling you what you need to do to improve your business. So if you improve your offering for people then you’re going to get more customers who are willing to pay more money. Yes and that’s going to be a lot more profitable. Right.
[00:08:38] And we use net promoter score in our business and in most departments it isn’t a problem. Nevertheless it does prove very helpful very useful in improving our business. And theirs.
[00:08:48] Yeah. Yeah exactly. It’s a great way to actually deliberately harvest additional customer feedback as opposed to just waiting for what comes in. And it also allows you to really kind of keep an eye on how you’re doing in terms of keeping customers happy. You know you have an overall number which you’re working on each month and you can see that number go up and down but based on the changes you making within the business.
Another area of marketing is review management. So we talked about this in one of our other episodes, Episode 14 if I remember, and we look at getting as many reviews as possible and responding to those reviews. So the strategy we use is: Thank, Mitigate, Thank. So we thank the customers for their valued feedback to begin with. And then we mitigate the problem that they brought up. Chris can you think of an example
[00:09:41] Yeah so for instance the customer might have said it is a really lovely apartment but could only get two channels on the TV for instance. I think the key thing really around this is that when you write in response to a review, you’re not writing to the person who left the review you’re responding to the reader – someone who is actually reading that review
[00:10:05] So if you put yourselves in the shoes of someone who’s reading the review and they go “only two two channels on TV that’s not great.” So you need to be doing, as you said before, everything you can to mitigate that. So you would say thank you very much for your review. You know we’re sorry about the issue of the TV. We’ve gone in and checked and we’ve now adjusted the aerial so it’s now back on a hundred channels. So hopefully so none of our future guests will have this problem. Thanks again for letting us know. And it’s really good because you’ve spoken to their future guests. You spoke to them directly.
[00:10:36] Exactly exactly which is what’s important and I think people who get it wrong are very much you know getting angry or you know pointing a finger and it doesn’t matter. Even when you have a crazy guest and you’re reading a review that’s completely unfair. As soon as you see the response act in the same way just saying this because sometimes people get very emotional listening it is not a personal attack on yourself.
[00:11:01] You know lots of feedback for your business – it’s a business we’re running here so you don’t need to get drawn into the emotional side of things because a lot of reviews or response to reviews are emotional – just look on booking.com and read some of the reviews.
[00:11:14] No definitely definitely. I think the one area where people often need feedback is where maybe the customer is not very polite or they’re rude or they’re being very illogical and therefore they tend to ignore the feedback. But regardless of them as a person they still providing you with valuable feedback. It’s important that regardless of anything on a personal level you still take that on board and think about whether whether you can adjust anything within your business.
[00:11:43] The only area they look within marketing is revenue management. This is active rate of revenue management not just being reactive.
[00:11:50] So seeing what’s happening around that area. Dropping your prices as the when you need to. Pulling your prices up is where you need to needs to go. The event pricing when things like the boat show is happening in Southampton – We love to talk about our boat show because it’s amazing, and it’s about actively managing the revenue. So it’s day to day marketing. It’s not like an AST where someone just goes in there for six months and you have to market it again after six months or a year. This is constant daily marketing.
[00:12:16] Yeah. And the more time you spend on that generally the more money you will make out of the property. But it is not just the active management as well. Even just looking at your pricing models every now and again you can make sure that you can make tweaks where you can really improve the revenue. So for instance a few months ago we were looking at our apartments where for instance with a two bed we have three, four or five person rates and what we were finding is that nearly all of our guests were groups of three people. And we said okay so obviously what’s happening is we are outpricing ourselves for these larger groups. So having played with a couple of different pricing models we reduced the additional per person fee from 20 pounds to 15 pounds. Now you might think okay we’ve reduced the pricing so we’re going to make less money. But actually the average daily rate which we achieved went up by two or three pounds a night. So by making small tweaks to the model that can actually then have a big impact because 3 pounds a night doesn’t sound like a massive amount but if you’re running at 70 percent occupancy that’s another 60, 65 quid straight on your bottom line is it not. Yes it is. So these small changes can actually have quite a big difference. And again I was working with a client last week and they’ve got 12 apartments and we established a way to change their pricing model which would probably add three to five hundred quid a month per property on their bottom line. You know it’s a really kind of profound impact that you can have with this revenue management.
[00:13:46] The next area we’ll look at Deal sourcing. Yes. Well it’s hard to scale your business if you’re not getting enough deal in right. It’s true. So you need to make sure you have a constant stream of appropriate deals, and when we say appropriate deals it depends on your model. So it’s very model dependent. And if you’re doing guaranteed rates which we don’t do you’ve got to make sure you have a constant flow of deals from agents, people lined up or if you manage properties, or if you offer our management service like we do we have our contraflow deals with direct with landlords.
[00:14:18] Yeah. And I think where a lot of people go wrong and this is maybe they start to generate a good number of deals but they’re not like you say, they’re not necessarily the appropriate ones. So you can spend a lot of time looking at it and thinking it’s a great opportunity “is it right for me or is it not.” And I think this is where it’s really key that when you do your strategic plan and you understand your model that you’ve got some very specific criteria, because that way you can look straight away at a property and go does it work? Does it not? Which saves you the time you would spend looking at it going is it good, is it bad, is the right thing for me to be doing right now.
[00:14:52] And then you have to make sure you have the right process for on boarding. You have to have a systemised process for onboarding. A Step by step guide for people so that anyone who comes in can implement that system and then the property will be set up to your standards.
[00:15:05] Because otherwise again it’s not going to be leveraged. And that means that you’ve put a barrier in your growth and that you’re going to have to take charge of setting up all of your property. Right.
[00:15:14] Yes. Yeah. And you have to make sure obviously wherever you go for if you go for the guaranteed rent model then yeah you have to make sure you have the right finance in place or if you go well whatever money you go for just make sure you have the right finance for that particular model. There’s no point getting loads of deals because you can’t finance it you’re not going to get very far.
[00:15:33] The fifth area we work with people on scaling up profitably is around accountability. I think that’s really important. And we mentioned before about KPIs and reporting because our said this is the one way that we’re able to be hands off in the business but still know what’s going on and still have accountability. Maybe for your staff, the people involved in and around it, to make sure that it’s performing to the right level.
[00:16:03] So within accountability we look at scheduling key tasks and we’ve got various tools that we us to schedule key tasks for the people within various roles. Some of the tools are CRM or the calendar, and you’ve got to make sure that these tasks are visible to these people within these tools. So this is leverage again – you don’t have to phone someone you just put it into a system and then it’s visible to everyone and people who are accountable for their tasks will then do it.
[00:16:27] Definitely. One thing we’ve certainly found to be massively beneficial is getting a mentor. And of course there is the whole leverage of benefiting from their knowledge and experience to kind of have some short cuts to scaling up the business to avoid some of the mistakes which they may have made in the past and that’s leverage. Leveraging their mistakes their knowledge their experience.
[00:16:50] Yeah yeah definitely definitely. If you think about where you’re going to be in two years time and the extra knowledge you would have. Wouldn’t that be beneficial now. And that’s the great thing is you can actually get that. So whenever we’ve looked at mantors and kind of chosen mentors it it’s not just about you know knowledge and experience they have but the personal relationships are really important, isn’t that right Richie
[00:17:12] that is. Yes. That’s one of my top values relationships. You’ve got to be able to approach someone with a problem or approach someone with an issue you feel you’re not going to be judged or you’re comfortable just approach you with any questions any problem anything at all.
[00:17:29] And the relationship is very crucial. Yes the relationship is very very very important as well as kind of making sure you’ve got similar values similar values and ethics and values. And yet again I go back to relationship because it’s not just got to be a here and now business transaction – this is long term helping people with their businesses or you know someone helping you with your business and you want this to be a long term relationship and you got to have aligned values so you don’t cross paths. And you know that they can relate to your problem or they can relate to what you’re going through.
The next area within accountability that we’ll look is a peer group or mastermind group for the support, and you get supported in different ways. You know people have different strengths they have similar problems which you can leverage their problems and learn from them or they can learn from problems you have and the solutions that people people bring to the table. And whenever you bring these problems to table you gotta make sure you’re talking to a group that’s trustworthy. So having a trustworthy peer group is very very very important. You can openly share your issues and you think no-one’s going to judge you for this, no one is then going to try and copy what I’m doing and steal my ideas. No they can do the same in their areas but then they are not directly competing.
[00:18:42] Yeah definitely and as well as kind of helping you with solutions, it’s also great for accountability because if you’ve got a peer group and you’ve said right I’m going to be doing this over the next couple of weeks. You don’t want to be kind of coming back in a few weeks time and going “I never quite got the chance to do it.” Sometimes it’s having that accountability of your peers around you which is push you to kind of make sure stuff gets done even if you know you’ve got a busy schedule or other things come up in the meantime or you might even lose motivation a bit. Sometimes these are the things which push you to get stuff done anyway and that’s really critical because if you want to achieve this scaling up you need to make sure that all these tasks which is which you’re your kind of scheduling in are actually get it done because it’s quite easy to kind of sit there and go I’m going to do this, I’m going to do that, but it’s the actual action taking which is going to get you where you want to be. And it’s not just accountability to your peers, it’s accountability to your mentors your peers and most importantly to yourself.
[00:19:44] Yeah definitely yes. And you need to make sure you have ways of keeping yourself accountable. And again there are reports and kpis are pretty good ways of doing that. You can hold other people accountable but you can also hold yourself accountable. So for instance if you’re focussing on sourcing you want to make sure you’re doing ten viewings a week then you need to be keeping records that and you need to be holding yourself accountable going. Why did you only do eight this week?
[00:20:09] So that’s really important as well.
[00:20:12] So we talked about the five areas that we work with people on in terms of scaling up profitably. Now as we’ve said before we work with people through the board room mastermind in order to help them scaling up profitably and we’re actually in the process of setting up a new group at the moment starting on the 19th of July. So if you’d like to know more about that just go to thesapodcast.com and click on Mastermind to find out a bit more. And from there you can book a 15 minute call with me.
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