Numbers upon numbers upon love

"Half of life is spent dealing with details: the numbers, the paperwork, the dozens of discussions upon which any shared activity, professional or private, is based."

                             — Richard Brody

"The bitterness of poor quality remains long after the sweetness of low price is forgotten."

                             — Benjamin Franklin

"Price is what you pay. Value is what you get."

                             — Warren Buffett

One might suppose higher prices no longer shock, but at the start of this year I sensed deep dismay from a former guest who had emailed me to book Le Rose for a week in August, only to bristle at the 36% increase in our rates relative to 2022. Understandable. I tried to explain that Poggiosole's steep climb in quality (with attendant costs) ran parallel to that of inflation (quite beyond our control) and that the two factors combined had, over the course of the previous year, pushed rates up considerably. It was to no avail; the gentleman replied that he would happily return when our rates "came back to earth".

Alas, our rates are headed higher still for 2024, with Le Rose priced at just under €500 per day as a two-bedroom lodging and €670 per day as a three-bedroom lodging June through September (April, May, and October through end-of-year are our "low season", with lower rates). Begonia is of course cheaper: €350 per day with both bedrooms open and €290 per day as a one-bedroom, two-bath lodging. Viewed in terms of price-per-guest (€90 - €175 in high season depending on the lodging and group size), these rates are perhaps less off-putting, but they are still amongst the highest in our area, and fully 70 - 75% higher than in early 2021, when we welcomed our first post-covid guests and began our upscale transformation.

Skip to the last paragraph if details bore you. Briefly: even after two sharp rate increases between 2021 and 2024, Poggiosole will average around €5500 net profit per year through 2025. As for details, start with our summer 2023 electricity bill: €3464 for July and August, close to TRIPLE the amount for the same period a year earlier. That's partly due to higher costs per kilowatt-hour, partly to our aging photovoltaic inverter misbehaving during peak demand and partly to otherwise very charming guests running their AC full-tilt all night, night after night while sleeping under comforters (this baffles us, but surely there are parts of the world where it's normal). The inverter will cost about €4500 to replace [edit, March 2025: rather than just swapping in a new inverter we opted for a complete rebuild and upgrade of our photovoltaic system. Cost: €50K, of which 60%, or €30K, will be added to our 2025 CAPEX].

Rising energy bills aside, my pursuit of quality has known few bounds. We've been investing heavily in amenities and infrastructure since our 2021 post-covid re-opening, and we expect to continue to do so through 2025. I finally ran some numbers the other day (see hero image) and noted that of our total 5-year CAPEX budget of €350K about €240K has already been spent on outdoor lighting, landscaping, a rebuild of our pool, a tear-down of ugly utility poles and phone wires, a new motorized front gate and a property-wide bug-repelling nebulizing system (which dispenses pricey essential oils). These expenditures filter through to rates for our lodgings, and more are in the pipeline. This month I'm purchasing and configuring two new streaming-capable hi-fi components (Poggiosole's music systems are built around premium brands familiar to audiophiles: ATC, Cambridge Audio, B&O, Primaire, ProAc, REL, etc). Earlier this year I replaced the five plain but serviceable Rowenta hair dryers in Begonia and Le Rose's bathrooms with Dyson Supersonics. We recently engaged a geologist to evaluate our underperforming wells, and it's likely we'll need to drill a new one to front on-going summer water shortages. Then there's the Ventrac mower I'm eyeing to better maintain our multiple olive groves in 2024 and beyond [edit, March 2025: our Ventrac 4520 arrived in mid-2024. Read about it here].

One-time expenses aside, there's OPEX (from here on out, at least €35K annually), the lion's share of which, after electricity, fuel, insurance, and water costs goes to advertising, gardening and cleaning services, and the rental / laundering of high-thread count linens (for these eight top line items alone we spent €29K in 2023). OPEX also includes other consumables of course, amongst which the aforementioned essential oils as well as coffee and detergent pods, dishwasher tabs, paper towels, Scotchbrite pads, hand-made soaps, trash bags, and salt, pepper, sugar. And there's the occasional repair or light fixture replacement, annoying instances of theft, and periodic maintenance of buildings and equipment. When I personally can't keep up with cutting weeds and grass, trimming hedges and watering young trees and potted plants in summer, I call in still more help. Our fancy Wüsthof kitchen knives are kept sharp and our Alessi cookware is kept free of burn marks and salt residue. And we welcome each group with a small decanter of evoo produced from the hundreds of trees in our olive groves.

All this investment and attention to detail has helped us earn a 9.9 rating on Booking.com and has attracted the attention of so-called "premium" vacation rental agencies like Plum Guide (who have inexplicably re-named Le Rose "A Midsummer Daydream"). It has also made for humbling business results. Despite having enjoyed an 80% occupancy rate this year, when a 10-year amortization of our CAPEX is factored in, we're set to end 2023 about €6K in the red. Our second 30-plus percent rate hike in as many years is projected to yield only €5000 net income in 2024 (minus 50% after-tax ROI for the four years 2021-2024 inclusive). Things should start looking up from 2025 on out: with Poggiosole generating, after a slow start, an average annual net income of €8800 for the 10-year period 2021-2031. That income is for the vacation rental part of Poggiosole only and, notably, does not include a charge for, well, me: your custodian, host, and blogging guide in all this. If I were to draw a salary of just €980 per month for each of the nine months every year our lodgings are open, Poggiosole's vacation rentals would barely break even through 2030. Add in upcoming CAPEX to revitalize and maintain our olive groves and the figures redden... a lot. But I'm keeping the two balance sheets separate.

One balance sheet or two, salary or no salary, there's simply no getting around the fact that these are terrible numbers. But, again, as custodian, my priority is first to restore, then to conserve. As a custodian I'm patient. And, as host to Poggiosole's guests, I'm guided first by the feeling of comfort I want to create, the sense of understated quality I want to convey and the delight a particular section of olive grove or fountain pen might elicit, before I consider the associated costs. I broadly agree with the saying "The quality will remain long after the price is forgotten" (Henry Royce and Aldo Gucci each plagiarising Ben Franklin's original). Thoughtfully designed spaces are an enduring asset, as much a pleasure to inhabit as they are to maintain: a virtuous cycle. The head of our cleaning crew said to me at the start of this year, "It's clear to us that you love this place." True.

Postscript, January 18, 2024: final-final figures are in for 2023. OPEX was 33% over-budget at €47.8K, due largely to much higher-than-anticipated electricity costs, and higher water costs (due to drought). CAPEX was €76.5K (4.5% under-budget) or 22% of our €350K total CAPEX 2021-2025, for which we took a €27K annual charge. After deducting income tax from revenue of €74.8K we ended the year €6.1K in the red, as I expected when I wrote the main body of this post four months ago. Considering our €16K net income in 2022 we are still in-line with Poggiosole's vaction rentals earning an average annual net income of €5-6K through 2025 and, as noted above, about €8800 per year (on average) for the 10-year period 2021-2031.

Post-postscript, December 28, 2025: it's looking like our net income for 2024 was €500. Yeah, there's a missing zero relative to what I'd projected in September of 2023, yielding a minus 53% annualized ROI for the four years 2021-2024 inclusive. A steep drop in bookings from Germany hasn't helped. I still believe in what we're doing here, but clearly Poggiosole ain't no unicorn 🙃.