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| Back to Basics…as an Industry --by Michael S. Finn It's a term we hear countless times. If a baseball player is in a 1 for 27 slump, the coach will tell him to get back to basics. If a timeshare sales executive has not had a deal in over two weeks, his manager says the same…get back to the basics. In light of our industry's performance on Wall Street the past few months, it might be a good time to look at this coaching mantra for us as an industry. It seems to me that most developers, branded or not, got into this industry to reap the rewards of high profit margins. For many hotel companies that invest millions to billions of dollars on hotels and resorts in order to attain a hard fought after 3-7% return on the conventional transient traveler, timeshare with its 15% to sometimes 35% profit margin was very appealing. You see, in the mid to late eighties, if a resort was doing well it was normally acquired and developed (A&D) for 15 to 25% of net sales, 35-55% went for sales, marketing and administration, leaving 20-40% for profits; a cash cow for most hospitality companies. Add to this the interest on end loan financing and it is no wonder that Vacation Club is the largest profit center, by margin, for Host Marriott. Now it is ten to fifteen years later, and companies such as Sunterra and the like, who were looking to be the next Marriott in the timeshare industry, are trying to emulate the hospitality giants of today. When in fact they should be looking at the model set by independent developers fifteen years earlier. Had Marriott, Hilton and Hyatt viewed it from Sunterra's perspective, they would not be the success stories they are today. Well, maybe it is time to get back to basics. Instead of having layers of Vice Presidents, or searching in vain for the next great marketing secret, or a million dollar wall tour that will sell 100% of the guests that darken our doorstep, we should instead, try to see how those developers in the eighties invested a half million dollars and netted millions by project end. It is that which attracted the giants to our industry in the first place. Like any business the theory is simple. Keep costs low and revenues high and you make a profit. It's that easy…yeah right. While many resorts were doing just that in the eighties, it did not hurt that most allocated 50% for marketing and still made money. The point is they kept to these numbers as a percentage. I was once told I was over my marketing budget by 10%, and while I was, the rest of the story was that we had increased sales by 50% for that period. This kept me under budget by 30% as a percentage. I don't know about you, but I would rather make 25% of $1.5 million as opposed to 17% of a million. For those of us who need the math, it is over $200,000 to the plus side. This view of timeshare through a corporate budget structure with fixed dollar allocations has hurt timeshare. The adherence should be to the percentages and the gain of a project or company as a whole, which will leave a greater profit margin. When a company has accounting or MIS department making 110% of budget, and happy about it, while making this profit off an allocated number from the sales and marketing budget, something is wrong. As I have said before departmental budgets are overrated especially when they come off the sweat of another department's budgets. I maintain that if you look at expenses against revenues and clear the appropriate profit, you must be going in the right direction. I will leave depreciation and the like to the accountants. Now this may sound good to some, while a little naïve to others, it is the path to success that was followed by Sam Walton, J.W. Marriott and other business icons. Mr. Marriott broke it down to even simpler terms with his first restaurant, "Serve the cold food cold and the hot food hot". It doesn't get much simpler than that, and it works. Maybe for timeshare we could say, "Create a good product at a good price, service it well, limit costs and the profits will take care of themselves" |
| Michael S. Finn, RRP,
writes an insightful bi-weekly column regarding issues of ethical and profitable sales & marketing. Read his bio here Email: Michaelsfinn@aol.com Published on Mondays. |
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