The Airbnb Starter Pack

Summary

This is a business case study for the Airbnb Starter Pack—a service that made it easy for homeowners to set up their homes and maximize their profits on Airbnb.

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Below is the full story of the Airbnb Starter Pack broken down into three parts: 

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Part One: Problem Space

• Problem
• Solution

Part Two: Idea validation with a pitch experiment

• Landing Page
• Marketing
• Results
• Takeaways

Part Three: Building a functional MVP

• Future Vision and UX Details
• Lean Development Process
• NoCode Implementation
• Metrics Tracking
• Key Takeaways

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Part One: Problem Space

Problem

The short-term and vacation rental market has existed for decades but Airbnb popularized the practice. In recent years, consumer demand for short-term properties has sky-rocketed. On the supply side, more and more homeowners have started to see the appeal of managing a short-term rentals. With Airbnb, it's easier than ever for people to monetize their primary residences and second homes. Coupled with this, low interest rates have led to massive demand for second homes. In fact, second home demand surged 50% YoY in May of 2021.

So, consumers want vacation rentals and more homeowners are buying houses with the intent to put them on Airbnb. However, Airbnb can't add enough suppliers to keep up. They recently reported that they'd need "millions" of hosts to meet the surging consumer demand.  

However, getting a short-term business off the ground is still a hefty undertaking. Many people hire a property manager to do this for them, but it's extremely expensive in the long run. Lots of people would be willing to do this independently, but they're not sure where to start. Securing licenses and permits, crafting listing content, and optimizing for conversion are all complicated and time consuming. Further, many of the tasks involve legal, financial and security risks. While there are many solutions to help homeowners, they're mostly disaggregated and often difficult to identify. This limits new supply from entering the market.

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Solution

Our solution was to help homeowners with the most difficult aspects of getting an Airbnb up and running. The Airbnb Starter Pack was born. Our plan was to charge a one-time fee to build a homeowners Airbnb profile and take the first step towards managing their own business. Having a profile and Airbnb set up would give them optionality. They could still hire a property manager or co-host, but they'd also have the option to rent it out on their own.

The Airbnb Starter Pack included: 

• Compliance management: We find and file the paper work to get you the proper permits and licenses.
• Photos: We take, edit, and organize pictures of your home for your Airbnb profile.
• Profile Content: We professionally write all of the content on your Airbnb profile.
• Listing Creation: We create the listing and set up initial rates, organize your photos, set the house rules, and connect your bank accounts.

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Part Two: Idea validation with a pitch experiment

Most of this idea hinged on being able to acquire customers sustainably, so we wanted to run an experiment to see if there was consumer demand for such a product. At a high level, we wanted to prove this equation:

((Customer Lifetime Value - Expenses) / Customer Acquisition Cost) - 1 > 30%

We did some back of the envelope math to estimate a customer acquisition cost target and then we set out on building the experiment (read more in the "Back of the Envelope Math" section of the Appendix below). We found that if could acquire customers for $280 dollars, this idea was worth pursing. To do this, we created a landing page and marketed it using Facebook. Then, we sold sold into the leads and got people to pay for our service.

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Landing Page

We built a landing page to market the Starter Pack. Here's a high-fidelity mockup of the page. For implementation, I used Wordpress, WPForms, JivoChat, Google Voice, and Stripe to track leads and conversions.

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Marketing Campaign

We knew our target audiences mostly spent on Facebook so we decided to run the campaign here instead of on Google. There were lots of Facebook Groups for short-term rental homeowners, so we joined the top groups for short-term rentals and Airbnbs and built a "lookalike" audience based on the members. We wanted to validate that people knew what we were selling, so we made the message as simple as possible. Below is a snapshot of the campaign that we ran.

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Experiment Results

We needed to monitor a number of other metrics to ensure that our results were accurate and sustainable. Here's what we tracked:

• Impressions: Total number of views on the Facebook ad.
• Clicks: Number of people who clicked the ad.
• Click thru rate (CTR): Percentage of people who saw the Facebook ad and how many clicked on it.
• Leads: Number of people who submitted information.
• Customers: Number of people who submitted payment.
• Cost per click (CPC): The average cost per click on the Facebook ad.
• Cost per lead (CPL): The cost to get a customer email.
• Lead conversion (LC): Percentage of customers who visit the site give us their email.
• Leads to customers (LTC): Percentage of leads were we able to turn into customers.
• Customer conversion (CC): Percentage of customers who visit the site are we able to close.
• Customer acquisition Cost (CAC): Total cost us to get a customer.
• Return on ad spend (ROAS): Ratio of revenue to money spent on advertising.

After about three weeks and $2,000 in ad spend, these were the results (comments in italics).

• Impressions: 76,580
• Clicks:  1,415
• Click thru rate (CTR): 3.70%
• Leads: 75
• Customers: 6 - People were willing to open up their wallet and pay us after a phone call.
• Cost per click (CPC): $0.92 - The keywords were pretty affordable for the space.
• Cost per lead (CPL): $17.29 - I expected this number to be closer to $30 so this exceeded expectations.
• Lead conversion (LC): 5.30% - For the first version of the landing page without iterations, this was a good result. I'd expect that we could bring this number up 3-5%.
• Leads to customers (LTC): 8.00% - I was happy with an 8% conversion rate selling into cold leads. We could increase this number between 10-20% with better nurturing campaigns.
• Customer conversion (CC): 0.42%
• Customer acquisition cost (CAC): $216.15 - We needed to get customers below $280, so this greatly exceeded expectations.
• ROAS: 3

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Key Takeaways

Wins

• Our customer acquisition cost came out to $216, so we were well below the $280 target that we set.
• All of the metrics we tracked within sustainable, expected thresholds which made us believe that the results weren't a fluke.
• There was still room for opportunity with the CTR, lead conversion, and leads to customers metrics. So, with further optimization, our results could still be improved.
• Anecdotally, customers were excited. We had a ton of people like and comment on our ad on Facebook. The people who we talked to wanted to purchase multiple services when they signed up because a lot of them had or were planning on adding more properties to their portfolio.

Challenges

From a numbers perspective, the experiment was successful. The major things that concerned us were the operations and overall viability of turning the business into a venture back-able startup. Specifically: 

• The amount of effort to close a lead was fairly significant. Since it was a large purchase, we needed to spend quite a bit of time tracking down leads. On top of that, running the Starter Pack would be operationally intensive if we managed the services in-house.
• Even though we had repeat customers, in order to make this venture scalable, we'd need to find a way of earning recurring revenue on our customers.

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Part Three: Building a functional MVP

After running a successful pitch experiment, we decided to continue forward with building a more comprehensive MVP for the Airbnb Starter Pack. We wanted to see how many people we could get to sign up for the service, get a better understanding of the operationally viability, and learn more about what we could potentially layer on to the service to earn recurring revenue.

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Future Vision and UX Details

To start, we mapped out a comprehensive view of the product and what it could become at scale. This took the form of a sitemap of items that would be included in the MVP and what would be built at a later date. In tandem with the sitemap, I created high-fidelity mockups that we could use for story-telling and to help our team align on the future vision for the product.

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Product Development Process

Once we aligned on what would need to be built for the MVP, I broke down the project on the marketing and product fronts into an epic with individual tickets. We loosely defined the items as P1, P2, or P3. P1 items were necessary for launch, P2s were ideal to have before launch, and P3s were to be prioritized at a later date.

Post launch, we organized our development efforts into weekly sprints and met once a week to align on the tickets that would be prioritized during the next sprint. Before our session, we'd add any new ideas, bug fixes, and backlog items to our KanBan board on Notion. Then, we'd prioritize them into the next sprints based on time and impact.

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NoCode Implementation

For the MVP, we needed to build landing pages, a blog, chat functionality, phone integrations, product pages, and a shopping cart. We'd need to be able to nurture leads, track sales progress, and also manage the operations for current customers. In the near term, we would also need to create a dashboard that'd be hidden behind login and authentication pages.

Building this app in Rails would have taken quite a bit of time, so we explored building out the core functionality using NoCode tools. I found a way to build out the key functionality using Webflow, Zapier, AirTable, and eventually Memberstack. Here's a snapshot of the no code technology stack that I used as well as some demos of the final product in Webflow.

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Metrics Tracking

We used AirTable to track our leads, sales, and customers. Any time a customer called, chatted, submitted a form, or purchased the product online, a new record was created in AirTable. Leads were put into a sales funnel and nurturing campaign and new customers were put into an on-boarding funnel. Progress updates and notifications were sent automatically on Slack/Email as leads moved closer to the end of the funnel or progress with a customer order was made. I made a dashboard to track and monitor the results in real time.

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Key Takeaways

Wins

• Our customer acquisition costs remained pretty strong throughout the experiment. In fact, we realized we could be charging more for the product, and our profit margin was well over 30% target that we originally set for the business.
• Many of our customers were actually property managers who would buy services a la carte instead of as a package. This led to more opportunities for repeat revenue.
• We found a few separate avenues we could go down to get recurring revenue. On-going compliance management and a financial product for Airbnb Hosts were the two most promising.

Challenges

• As expected, many aspects of the starter pack were very manual and time consuming. Specifically, finding and filing for permits and licenses on a customers behalf could take weeks with a ton fo back and forth. If we were going to scale this type of business, we would need to raise more money and find a way to affordable outsource the most time-consuming pieces of this process.
• The total addressable market of Airbnb Hosts alone probably wasn't big enough to sustain a venture back-able business. In order to make this business larger, we would have had to bring new hosts to the market and how to attract these types of customers was still an open question for us.
• Finding new users (outside of Facebook advertising) was harder than anticipated. We would need to build a more comprehensive SEO and content strategy and we didn't have the resources in-house to do it effectively.

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Conclusion

Ultimately, the idea was put on ice after a few months of testing. Our team had too many concerns about operational, TAM, and recurring revenue challenges to gain alignment on moving forward with the Airbnb Starter Pack. We decided that this was a good go-to-market option, but in order to for this to be a venture backed business, we would have needed more proof points on how we could earn recurring revenue from our customers.