My fee model doesn't survive contact with furnished turn costs

I manage nothing yet. I've spent four months talking to owners of furnished units to work out what a service around this would actually charge and cost, and my model keeps collapsing in the same place.

What owners tell me they'll pay: 15 to 18 percent of collected rent, and they wince at 18. Call it $2,300 average rent, so $380 a month per unit at 16.5 percent.

What the work looks like per unit per month, from the operators who let me shadow them:

0.4 turns per month average on 10 week stays, each turn is a deep clean plus linen swap plus inventory check, about 5 hours loaded
mid-stay cleaning on maybe a third of contracts, 2 hours
inbound guest issues, call it 1.5 hours a month, weighted heavily toward the first 72 hours of a stay
booking and paperwork, 2 hours per placement, so about 0.8 hours a month
inventory replacement runs, an hour

That's roughly 6 hours a month per unit at fully loaded labor of maybe $34 an hour once I'm paying employment costs, so $204. Plus software, insurance, and the vehicle. I'm at maybe $260 of direct cost against $380 of fee, which is a 32 percent margin before I pay myself for sourcing corporate clients, which is the part that actually makes the business work.

The long term managers I know run 8 to 10 percent on $1,400 rents, so $126 a month, on maybe 1.2 hours of work. Their margin is better than mine and their fee is half.

Where are the furnished operators actually making money? Is it a markup on cleaning billed to the corporate client, is it placement fees, or am I just wrong about the hours?

9 replies

1samantha_ruizAU4APRO6

Placement fees. That's where the money is and it's the line owners fight hardest. One month's rent per placement at 5 placements a year on a 10 week average stay is $11,500 a unit a year in fees against $27,600 of rent. That's 40 percent all in and no owner will say yes to it stated that way, which is why nobody states it that way.

2sonia_alvarez Get yoursPRO6

@keystone if the effective rate is 40 percent, someone is going to work that out eventually and take it in house. What stops an owner with four units from hiring one person directly?

1aaron_fitz10 Get yoursPRO6

Nothing stops them, that's the ceiling on the business. Four units doesn't support a full time person though. It's somewhere around eight to twelve that in-housing starts to pencil and that's exactly where good clients leave you.

1monica_tran3SF4CPRO6

The number that's wrong in your model is $34 an hour loaded, and I've spent five years running a service business. Once you add drive time between units, no-shows, redoing work, and the hours you spend managing the people doing the hours, my real loaded cost has never come in under 1.6 times the nominal rate. So call it $54, and your $204 becomes $324 against a $380 fee. You don't have a business at 16.5 percent unless your units are clustered tight enough that drive time disappears.

1nataliehsuSO1BPRO7

@thatch the clustering point seems like the whole thing. Six units in one building is a different job than six units across a metro.

2carlos_nunezActive

Charge the corporate client for cleaning separately and stop trying to bury it in the owner's fee. Corporate tenants expect a cleaning line, they're used to it from hotels and extended stay, and it doesn't get negotiated the way an owner's percentage does. I bill mid-stay cleans through and nobody has ever pushed back.

2omar_haddadActivePRO11

The cost you haven't got in there at all is damage disputes. Furnished means every stay ends with someone deciding whether a stain on a chair arm is normal wear. On my renovation work I lose more hours to arguments about scope than to work, and I'd expect furnished turns to run the same way. Who eats the sofa when the corporate client says it was like that on arrival and the owner says it wasn't? If the answer isn't in your agreement, the answer is you.

1gregpowell66AG4BPRO8

Your model is missing the capital side entirely, and that's where the fee structure comes from.

A furnished unit isn't just labor. It's $9,000 to $13,000 of inventory that depreciates and needs a replacement schedule. Owners think of that as a one time purchase. It isn't. Mattresses go at 4 to 5 years, sofas at 3 to 4 in heavy rotation, linens and kitchen goods annually. That's real money and it's real work to plan.

So the service that gets paid properly does three separate things and prices them separately. Onboarding, where you spec and buy and install the inventory, charged as a project with a markup on goods. Ongoing management, your percentage, sized so it survives a vacant month. Reserve management, where you hold a per-unit monthly amount for inventory replacement and you do the buying, which gives you a revenue line that is completely independent of whether anyone is staying there.

That third one solves your problem. Say $85 a unit a month into reserve, you handle procurement and installation. It's not a fee owners resent because they can see the sofa. And it pays you in the empty months.

On hours, @thatch is right that $34 is fantasy, but I'd take his 1.6 and note it drops toward 1.25 once you're at fifteen or more clustered units, because drive time amortizes. Your model has to work at four units and at twenty and it will not be the same model.

Where I'd actually start: onboarding fees on units you don't manage yet. Spec and furnish for owners doing it themselves, get paid for the project, and half of them come back asking you to run it when they discover what turns cost.

My fee model doesn't survive contact with furnished turn costs

9 replies