Before we release our cost-per-night calculations, let’s walk through a hypothetical example. Suppose we’re considering a fictional destination club called “Da Vinci Club.” We’re trying to figure out the cost-per-night to compare against hotels in Paris and cottages in England. Following the methodology we posted yesterday:

1. Collect the key inputs  

Da Vinci Club requires a membership deposit of $300,000 and annual dues of $20,000. There are no nightly fees and the deposit is 80% refundable.

2. Figure out the number of days you’ll travel

We’ll choose 30 days per year. The rest of the time, we’re busy lecturing at world famous museums and researching obscure symbols.

3. Pick an interest rate

Ben Bernanke might disagree, but we’ll pick 5% as the annual interest rate we’d earn if we invested the $300,000 in T-bills. It’s a conservative figure, but enough for us to calculate some lost upside in putting our funds in a destination club membership.

4. Estimate how long you’ll stay a member

Ten years is a nice round number. That means we’ll travel 300 days over the life of the membership, which gives us a numerator for our cost-per-night analysis. (If we said, “unlimited,” we’d be stuck at this point.) The ten years also gives us a timeframe to calculate the present value of an alternative investment (e.g., investing $300K in T-bills at 5%).

5. Build an Excel model

Depending on your spreadsheet skills, you might need the help of a cryptologist to decipher some of the formulas we’ve used:

=(((B2*(1-E2))/I2+(C2))/G2)+D2
=FV(L2,I2,,-B2)-B2

The out of pocket expenses are $300,000 for the deposit, then $20,000 per year for 10 years. Since we get back 80% of our deposit, our total expense is $260,000.  Divide by 300 days and you get $867/night.

Then, calculate the opportunity cost of our deposit. We’ll exclude the annual dues and assume you’d spend that travel budget elsewhere, anyway. If you grow $300,000 at 5% per year for 10 years, you’ll earn close to $190,000 in interest. Divide by 300 days and you get $629/night.

Add the two costs together ($867 and $629) and you’ll break the code: $1,496 per night. (Coincidentally, 1496 is the same year Leonardo da Vinci tested his flying machine and failed…amazing, huh?)

Da Vinci Club’s imaginary residences average four bedrooms, so the cost per night is about $400 per room. Not a bad deal, when compared to hotel suites at the George V.

Tomorrow, we’ll unveil the d-club grail and present the Helium Report calculations for cost-per-night across all destination clubs.

Continue reading Part 3 »