We’re pausing operations in Switzerland. Here’s why.

Posted on July 16, 2018

Being from there, it made a lot of sense for us to try GoNitely in Switzerland. After all, our own family home in the mountains and the issues we encountered managing it while traveling was the impetus to create the company in the first place. Plus, we knew that, in that same small town alone, there were hundreds of vacation homes.

So, we started GoNitely in Switzerland. We hired the best person we could have possibly hoped to find for the job. And she did amazing work. We got the first properties on board. The owners loved what we could do, both in terms of revenue and attention to their property. It was GoNitely at its best.

And now, after nine months in Switzerland, we’ve decided to pause operations there. We won’t take on any new clients, even though we have some in the pipeline, ready to go. So, what happened?

The math is simple

Economics, that’s what happened. Looking back on it, it’s actually pretty simple math. But let’s start at the beginning.

GoNitely, financially speaking, is built on the notion that we can make more money than anyone else with a property, using smart technology and all kinds of technological miracles in the background. Multi-site listing, dynamic pricing, constant tweaking of listings...all of that should lead to the highest number of guests, and therefore revenue, that you can make with any given property. This is important because everyone involved operates on a revenue share. Owners make 75% of the income. Managers make 15%. We keep 10% for our work in the background.

Looking at the variables in those calculations, there are four big ones to consider:

  • Purchase price of a house: How much does a house cost, and how does that compare to the potential income?
  • Income potential: The flip side of the above. How much can a house make, and in what relation does that stand to the purchase price?
  • Average or minimum salary level of that location: Assuming the average amount of work involved for a manager with one property, what hourly and therefore monthly salary does that translate to?
  • Cleaning fee vs. rent: In relation to the rental income, how much can be charged for cleaning, and is that enough to motivate a house cleaner to do the job?

Let’s apply that to some real-world examples:

One: One of our best performing properties is in Palo Alto, in the heart of Silicon Valley. Occupancy hovers around 80% or more. Revenue is around $9,000/month, give or take a few hundred. Cleaning is $150, including laundry on site and everything else. That means the owner makes $6,750, which he is happy with. The manager makes $1,350, which is awesome for a part-time gig with one property. The cleaning fee of $150 is generous for the house cleaner (actually set by themselves) and is in great relation to the rental price per night of $300 to $500.

The only downside here is the property purchase price: If the owner were to purchase this property in the current market, it would be priced well above $3M. That makes the income we can generate seem very low again. But being that he owns the house already, and simply wants to make money while he’s gone, it’s a great deal.

Two: Let’s look at an ideal scenario. Say a 3-bedroom house in a country, such as Spain, costs $200,000 to purchase. Rental prices are not quite as crazy as in the Bay Area, but tourism is at an all-time high, so anywhere around $200 per night is reasonable. A cleaning fee of $100 is acceptable, compared to the price per night.

ProfitsCalculating with a moderate 60% occupancy, that brings the total monthly revenue to $3,750. This translates to $2,790 for the owner –which is not a huge sum, but most likely more than enough to pay for maintenance and the mortgage, if there’s one at all. For the manager, that’s $562.50, which, looking at the minimum full-time salary of around $900, is a very decent sum for a part-time job with one property.

Same goes for the cleaner: The $100 fee might be lower than in other places, but again, compared to the monthly minimum wage of $900, making $100 for one cleaning is a sweet deal. Add to that an unemployment rate of 16%, and you’ve got some highly motivated managers and house cleaners. Everyone in this equation is very happy –an ideal scenario for GoNitely.

Three: Now back to Switzerland – which sits at the opposite end of the spectrum. Houses are expensive to purchase (not quite the level of the SF Bay Area, but due to building restrictions and very limited space, certainly much higher than in most Southern European countries). Say a 3-bedroom house costs $1M. And even though tourism is high, for some reason rental prices per night are way lower than in other areas. The price per night for the above-mentioned property could hover around $160 on average.

Now it gets problematic. Calculating with the moderate 60% occupancy at $160/night, the net revenue is $2,976 per month. The owner makes $2,232 per month – which is not a huge sum but given that mortgage rates are typically below 2% (and sometimes even below 1%), it might still just be enough. But for the other parties, the math does not work: The manager makes $446.40 per month, which in a country with such a high cost of living and a minimum salary close to $5,000 per month, is not going to move anyone’s needle.

And even worse, house cleaners can hardly be motivated to clean for a price that’s in any kind of healthy relation to the price per night. We’ve had offers of $250 per cleaning for a 2-bedroom apartment – the price per night of which would be only slightly above $100. Even finding cheaper options, the price for cleaning in our average property in Switzerland is still higher than the price for one night’s rent –which, given the fact that cleaning is added on most platforms only in the last step before check-out, leads to a lot of confused questions from potential guests.

Finally, Switzerland not only currently boasts an unemployment rate of 2.6%, it also features one of the best social security systems worldwide. Point in case: We’ve had potential managers and house cleaners ask us pretty much point - blank why they’d consider working with us – especially if they “can do nothing and get paid more by the government.”

How it all adds up

Bottom line: We can make owners happy, but we can’t motivate managers or house cleaners enough to work with us. Life in Switzerland is simply too expensive – and too good.

At our current stage, that means we can’t continue to offer our services in Switzerland. We say “pause” because there are two scenarios that would (and hopefully will) make us revisit the subject:

  • We optimize our system and the related workload for managers to a degree where it’s literally almost no work anymore, making the income worth the time spent. (Even though that would still not solve the house cleaner issue.)
  • We crack the formula to get our hands on high-end properties only. Once you’re talking $500 or even $1,000 a night, the math works just fine. There are such properties in Switzerland, no doubt – but we lack the brand recognition to penetrate the conservative mindset of the typical Swiss owner of such houses – at least right now.

It was a highly educating experience for us, one that’s shown us very clearly which places will offer a great ground to roll out our service, and which locations we won’t be able to get into (right now). And that learning alone was worth the whole trouble.

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About the Author:

Picture of Markus
Proud father and husband, humble leader. Currently revolutionizing short-term rental management with GoNitely. Living in beautiful California close to San Francisco.

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