The Life Cycle of a Timeshare Member (From the Developer’s Perspective)

How do many timeshare developers get into the market? Most often, timeshare developers are originally resort/hotel developers or condo developers. Then they are exposed to the concept of timeshare; when educating themselves about whether the concept would be a good alternative for their real estate, or a good compliment to mix into their current resorts they may run into a timeshare sales executive who scribbles these tempting numbers (depending on the resort market and its prices) on a napkin: 52 weeks x $20,000 = $1,040,000 per resort unit or condo.

Even the most experienced and sophisticated developers can be excited by these figures.

Whether a newcomer to the shared ownership environment or a developer with some projects under his belt, what is often the missing component is a thorough understanding of all the other pieces to necessary to deliver a great timeshare product to a customer while creating a lifetime of great experiences and vacations for them and their family. Also, from the developer’s perspective, there is often a learning curve as they migrate from a true real estate or hotel operational environment into a quasi real estate and operational business like no other.

The first real unique piece to the timeshare puzzle is really defining the right product for that resort and market. In other words, who is really your buyer? There are an overwhelmingly broad range of options available. The product can be intervals (weeks), points, pre-sale of room nights, vacation/travel club, etc. It can be based upon a single site or multiple sites through both internal options (a club with multiple resorts) or through the affiliation with the exchange companies (RCI, Interval International or a few others). In the past, and especially in the US,the products were more real estate based (fee simple) and the ownership was until perpetuity.Now many products are “right to use” and have a specific number of years of use (e.g., 30years, which is now being re-evaluated to shorter use periods). Besides the market demands of the right product, the legal environment needs to be considered to ensure that the product is allowed in that market and/or set-up properly from the very beginning. Also, certain types of registration may be necessary depending on where you are located and where you may be selling.

The next piece of the complicated equation is the physical product (resort). You have a timeshare product that fits your market; you have the use plan (rules and regulations) that is important to your buyer; you have clearly defined your market and how you plan to reach them; and you have set–up your sales and marketing team to execute your 52 x $20,000.If done right, now the real work begins.

Your sales and marketing process is now rolling. At this point, you must have a good system to manage the quality of the sales; a follow up piece to confirm with your customer that they are clear on what they bought and then a system to help keep your buyer excited and engaged after the sale so he/she doesn’t doubt the value of the purchase for them and their family.

SIDEBAR ON PROFITABILITY

The next step usually involves the contract and financial part of the transaction. The owner/member is now officially put into your owner data base. You have collected his down payment and executed a promissory note for the balance of his purchase over some period. This process now must be set-up and managed properly. Collecting the monthly loan payments and managing the loan portfolio well (delinquencies) is now probably the most critical business process to the developer.

Now for a little glitch -- Depending on which market the developer is in (i.e. US, Mexico, etc.)the amount of down payment charged varies as well as access to any financing against the customer’s loan. If the down payments and cash sales are lower, then financing may be more critical. If down payments, cash outs and all cash sales are relatively high, then financing may not be as critical. Accordingly, managing this consumer loan portfolio is critical whether it is the collateral to a lender or the lifeblood of cash flow to the developer.

Besides the customers’ loan payments, each owner will have some type of annual dues(maintenance fees). These fees are usually calculated on an operating budget of the resort,combined with other costs for servicing the member and not to be forgotten, reserves for future resort upkeep and capital replacements to keep the resort in great shape over the life of the product. These fees are then billed annually. The collection and management of this portfolio is very critical to the success of the business, as high delinquencies will either kill the cash flow of the resort, put extra burden on the developer or require the paying members to pay more to cover the shortfall.

BACK TO THE OWNER

Now truly the most important part of the whole business is the delivery of service to the member. This starts with the process (and ease, if possible) for the member to plan his/her vacation and make his reservation to whichever resort(s) (s)he can go to, at a time (s)he wants to go and in the unit type that he owns or in which he wants to stay.. Ideally, the rules and regulations of membership will allow some flexibility with ownership to sometimes upgrade into different type units (i.e. one bedroom to a two bedroom, etc.), or add a few additional nights of stay (at a special owners rate), banking use time for a year to the following year if it cannot be used that year. This reservation process is usually handled by a reservation team.Better technology is also allowing for the members to do most of this over the Internet. This is a huge improvement because it will allow the member to search for availability in each resort and in particular unit types at his leisure, instead of being told by the reservation agent - that unit type or reservation time is not available.

Once the unit reservation is made, the member then needs to coordinate his air flights and possibly rent-a-car. Anytime these services can be provided by the resort reservation system(and agents) it is enormous help, as they usually need to be coordinated together. In offering an even better product and service, many other pre-arrival services can be provided or sold (airport pick-ups, pre-stock the unit, pre-booking tee times, spa appointments, shows, etc.). Also, certain travel protection insurances may be provided.

Once this is done, it is now key for the resort operations team to provide wonderful memories.A timeshare purchase is based upon a promise to the buyer for him/her and their family to have great vacations and great memories. The annual maintenance fees should really be set at an amount that lets you staff the resort with the right team and right amount of services to deliver that dream vacation. Also, those funds should be used to keep the resort in great shape, with minimal deferred maintenance and reserves for major capital replacements as some of the assets wear out.

Once the member and their family have ended that perfect vacation, they become a great source of referrals to their friends and families for future members. Effectively, creating a system to market to this group can be one of the most effective and lower cost sales channels possible.

And then the whole cycle starts again.

A SIMPLE SOLUTION

As you can see, many different types of services and expertise’s are needed along this life cycle(product development, sales and marketing, financial services, reservations and travel, resort operations, legal).

To set yourself up properly from the very beginning, an easy-to-use, efficient, fully-integrated system platform is key. This allows all the data to accumulate in one single database, and all services for that lead or member are provided directly one that system and updated that single database. Finding the right key partners to help you with each of these key areas is essential you do that right at the beginning, your chances of success and achieving something close to the 52 x $20,000 can be real.