Bootstrapping to $100 Million: Vacasa Co-Founder Cliff Johnson (Part 5)

Sramana Mitra: 35% commission on the rent that you collect and then cleaning fees to cover the cost of housekeeping the properties.

Cliff Johnson: Yes, that’s just for cleaning. We have a local operations manager in each market. That person takes care of the properties. They typically have about 20 properties in their portfolio. They are the main contact for the home owner. That model has helped us make sure that we take care of the properties.

Having that person in place, of course, is a salary expense. Right now, we have approximately a thousand employees. The bulk of those employees are housekeepers, some of which, are part-time. We also have a full development team that’s creating our software and making adjustments to the software to improve our service. We have an analytics team and a finance team. We have a large operations team for business development and human resources as well.

Sramana Mitra: All these other charges like the maintenance and marketing of the properties, do you charge for those or are those covered by the 35% commission?

Cliff Johnson: All of the marketing costs are covered by us. That’s included in the fee. For maintenance, we do have a checklist of certain things that we do that are included in the price. Larger items like if an appliance breaks, that would be another expense. We don’t take on capital improvements or normal wear and tear that needs to be replaced. If a house needs to be repainted, that’s typically covered by the owner.

Sramana Mitra: I understand the business. In terms of revenue ramp, what was the ramp that you experienced between 2010 and 2015?

Cliff Johnson: In our first full year, which was 2011, we had revenue of about $230,000. Then we went from there to approximately $100 million this year in revenue. It’s a pretty significant ramp but very consistent in terms of growth.

Sramana Mitra: The $100 million that you had in 2014, is that topline or is that the 35% commission?

Cliff Johnson: That’s topline. We’re in an industry where we don’t have a cost of goods sold. If you look at us compared to a manufacturer, the manufacturer would report the topline as well. Whereas for ours, that’s where the rent comes in, but the bulk of that is going to the home owner. The revenue also includes the cleaning fee revenue, which all goes to us. That covers the cost of the housekeeping.

Sramana Mitra: What is the gross margin of the business then? Is it about 30% to 40%?

Cliff Johnson: It’s close to 50% by the time you add the fees. We’re looking at how we can reinvest in growth. As for growth margin, 50% would be accurate.

Sramana Mitra: How expensive is it to run the business from an operating margin point of view? After you’re done with operating the business, what kind of free cash flow are you generating? I imagine you’re funneling a lot of that into growth but what kind of operating margin are you working with?

Cliff Johnson: Typically, the goal is to hit around 10% of the gross margin. That’s a metric we look at in order to make sure we’re providing great value to homeowners as well. We were never looking to make a large amount on any one individual home. That’s probably reflected in our number of employees. We always made sure that we had the right team in place to take care of the properties before they came in. We don’t want to be in a situation where we’re playing catch up.

When we enter a new market, for instance, we might not be able to hit those margins until we reach a density point. Density, for us, is 20 properties. We have some  higher end properties. In that case, it won’t take as much to hit that density point.

This segment is part 5 in the series : Bootstrapping to $100 Million: Vacasa Co-Founder Cliff Johnson
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