5 Additional Ways to Increase the Profitability of Your Property Management Business
In the past two blog articles, we’ve discussed several ways that you can increase the profitability of your property management business. Here are five more suggestions and ways you can do this as you grow your business in the months and years ahead.
- If possible, charge for what you were giving away for free.
One way to increase your profits is to put together options for how you go through your onboarding process. You can increase the value of each service you offer. With a PMI franchise, these processes and systems have been automated so you can ensure that each option is being offered to your tenants, guests, and owners. Obviously, they have the option to choose or not choose these services, but if you’re offering a service of value, you should be charging for it.
If other property managers in your space are giving away something for free, this doesn’t mean that you need or have to. For example, many of PMI’s franchises offer a $35 lock box convenience fee to the tenant. The tenant pays this to have the key placed in a lock box the night before they can move in. Then, they get a text the morning they can move in with the code to the lock box. That way they have the convenience of moving in anytime they want to that day as oppose to having to meet you somewhere or you meeting them at the house. It is convenient for them and it is convenient for you. Most property managers don’t charge for that service and just show up to give them the key or have them meet them at their office to get the key on the day they move in.
A good rule of thumb in growing your profits is to look at what others are doing in the industry and choosing to do the opposite in a way that creates more intrinsic, personal, and unique value that raises the overall satisfaction the tenant or property owner feels when they get additional service from you.
Help your clients see how you provide even greater care to make their renting or property management experience better by providing the premier service for property management. PMI already has all of the systems in place you need to help you stand out in this way.
It is all in how you position and sell what you offer in your business. Overcoming your own resistance to it is often one of the biggest challenges. Some people hear an idea like that and say, “How do you get away with that?” or “I could never do that” instead of looking for ways to implement new profit centers into their business.
Don’t be content to continue doing things the way you’ve always done them. Look for new ways to create profit centers out of things you used to do for free. You may lose 10% of the business you used to have, but the increased profitability will more than make up for it. Carefully analyze what you are doing in each area of your business and look for the hidden profits that can help you add to your bottom line.
- Rethink and reconsider how you formulate your prices in the context of who will buy it and the story behind what the property owner or tenant will actually experience when utilizing your services. Consider how you can offer a premium option to what you sell.
Everybody in every business have some type of formula they use to set their prices. Most often people calculate price by some cost plus formula from what others in the industry are doing or by talking to peers and some let the manufacturers tell them how to price their product by strictly going by the published MSRP (manufacturer’s suggested retail price). Some property managers simply look at what their competitors are charging and try to sell for a little less without regard for how this will affect their overall profitability. Many property managers today are so set on the way that they have always done things that to think of new ways to price what they sell and build value are hard for them to implement and utilize because of their own mental barriers.
The cost to manufacture a luxurious, expensive watch doesn’t cost that much more than a high quality watch. What is really being sold is perception.
Dan Kennedy makes this observation:
“At the forum shops at Caesar’s Palace in Las Vegas, they are selling a watch for $180,000. What you have to know about a $180,000 watch is that it isn’t ten times more expensive to manufacture than an $18,000 watch. It’s darn sure not 100 times more expensive to manufacture than the $18,000 watch. The cost maybe went up but the price went up exponentially. What does that tell you? It tells you that there should be no relationship between what it costs to make something and what we sell it for. Yet it is so ingrained in us that there should be some relationship.”–Price Elasticity, p. 95.
“Another example: Craft Steak, the restaurant at the MGM Grand, it is owned by one of the guys on Bravo’s Top Chef show. Here is an 8 ounce platinum filet mignon which is $184. The nicer cut is $240. And nothing comes with it. Soup, salad, appetizers, all that stuff is ala carte. That is the slab of beef on the plate. Do you really think it costs proportionately more in cost of goods and overhead for the fancy restaurant than it does at Outback to put their steak on a plate? No, it doesn’t. It costs more, but not proportionately more.”–Price Elasticity, p. 95.
The two things that allow you to build value that way are the “who” and “context”. The who is who you are selling to and the context is the result or the end benefit the property owner is going to get from having their property managed by a PMI franchise.
Remember, you choose who you go after. If you really want to raise you prices and accelerate your profitability, you have to think differently about a different segment of the market and how you can attract that buyer to buy from you as opposed to someone else. If you don’t like the “who” that you are currently selling to, you are to blame. Only you can change who you market to and who you sell to. With PMI, you’ll have the tools to market to and provide exceptional service to those who will really value and appreciate it.
“The context is the premise of what is being sold. There are lots of ways for example to sell estate planning, tax planning, tax service, there are all sorts of context from ‘stay out of jail,’ to at the low end, ‘get the biggest refund you can as fast as you can and we’ll give you that refund right now.’ There are all sorts of context for every product and service. You create the context and the context has more to do with price than does the product or service.”
“How does Allen Brothers get two to three times as much to deliver a box of steaks to your house as Omaha Steaks does? There is a different context. Allen Brothers, for example, gets to brag about being the supplier to restaurants like Craft Steaks…There is a story to these steaks. There is no story to those steaks. You control context.”–Price Elasticity, p. 97.
What story are you telling when you meet with property owners? Build a story around you and your team (PMI) and create context that has deep meaning to the property owners you serve. Then, you no longer just offer property management services. You become the premier location to manage the best properties in your area and owners get to brag about how they got to deal with you and have you help them manage their assets and have them appreciate in value over time. This is why being a part of a brand like PMI is so important.
If you want to do some advanced research on this topic read two books about Jimmy Choo. The first one is written by Tamara Mellon (the previous CEO of Jimmy Choo). I think hers is the most fascinating of the two books. It is called In My Shoes. The second is The Towering World of Jimmy Choo: A Glamorous Story of Power, Profits, and the Pursuit of the Perfect Shoe by Lauren Goldstein Crowe and Sagra Maceira de Rosen. This book tells the story of how Tamara Mellon built one of the most successful luxury brands in the world (now worth around $1.2 billion) and especially how a brand was build solely on the basis of who and the story of context. Her story is pretty fascinating and it really emphasizes this point well.
In the right market niche, you will find that 10 to 20 percent of property owners will take the premium option because it is available and because they want the best. It won’t be everyone, but it will allow you to be more profitable for a certain segment of the market.
I mention that here because you need to think more about how to disconnect the price of what you sell from what it costs to make it and focus instead on the experience and the story and the IPU value that will help you be more profitable.
- Look for opportunities to bundle your services to yield a larger transaction size.
In a great book titled Selling Luxury, there are several scenarios and language patterns that are discussed and used to make an upsell.
A bundled upsell allows you to make more profits on every sale you make. Let’s say you manage 50 properties a month. If you add on a $100 in services to ½ of those properties, that will be an additional $2,500 in sales per month. If your cost of goods on that $100 service package is $33, your gross profit will be $1,675. If you multiply that across 12 months, you can add $20,100 in gross profit to your bottom line.
If you manage 100 properties a month and add a $100 revenue stream option package to half of those sales, that will be an additional $5,000 in sales per month. If your cost of goods on that $100 service package is $33, your gross profit will be $3,350. If you multiply that across 12 months, you can add $40,200 in gross profit to your bottom line.
If you can increase your sales closing percentage that can even be higher. If you increase the amount you charge for each door for services you offer to both tenants and owners, you will have a larger transaction size while simultaneously building the value to the tenants and owners you work with resulting in more profitability for your business.
Obviously, if you sell a higher priced package or have more profit built into the upsell, you can do even better. You should be asking for the upsell with every sale you make just like most fast food places ask you to upsize your meal when you order it. Ask the question, “And you would like the eviction protection insurance with your property management services, right?” and you can add more to your overall sales and profits.
Don’t forget this important area of your business. Make a list of the things you can upsell to property owners and tenants when you make the initial sale. If you can bundle these, offer a premium option for these, or sell them individually, you will be so much farther ahead than the competitor who is content to just get the property management fee.
The bottom line is that if you want to increase your profits, you’ve got to have a strategic plan for upselling and bundling options for all aspects of your property management business.
- Focus on your sales. Every sale matters.
George Cloutier makes this statement in his book Profits Aren’t Everything They’re the Only Thing about the importance of sales. He says: “If sales are down, there’s always something, or someone else to blame: incompetent sales staff, a declining economy, an ever-shrinking niche market, the government, and politicians. Yes, these factors have an impact on everyone’s sales levels, but if you’re losing sales and heading for financial trouble, it’s your fault. Large or small, if your business doesn’t have a disciplined, aggressive, and accountable sales program, it will fail. And that’s exactly what’s happening to thousands of small businesses, where making sales requires constant, disciplined effort.”–p. 128.
He continues: “You are only as good as your sales personnel. Most business owners don’t have a clue how to conceive and construct a disciplined sales effort….I’m afraid there’s just no way around this one. If you don’t have your sales strategy down pat, if you haven’t built a disciplined sales team with telemarketing, customer support, and regular reports that you look at every day, then you aren’t covering even the basics of your business….Making your sales effort stronger is the easy answer and the one profit strategy that works. You have got to do the basics for the market you are in.”
With a PMI franchise, you have the opportunity to take advantage of daily “Close the Door” trainings that will help you close more profitable doors. Every sale matters and with PMI, you’ll be sure to grow your business in better and more profitable ways.
- Don’t tolerate excuses, especially from yourself.
I mentioned in an earlier blog posts the many reasons or excuses that property managers make for not raising their prices and their profits (which also means cutting out unnecessary expenses). You’ll notice that all of these “reasons” are based on the owner’s own fears and false assumptions. Take more time to think about what you can do to get your profitability back on track if it isn’t already there. If you are profitable, how can you use what you’ve learned here to become more profitable. You can increase your profitability at your property management business and overcome the limiting beliefs that have been holding you back. Now is the time to retake control of your business and make it what you want it to be.
The closing statement in Cloutier’s book Profits Aren’t Everything, They’re the Only Thing is this: “Act now! Implement that sales plan and stick to it. Cut your costs and be ruthless about it. Use a scalpel, a hatchet, and a chain saw. Keep a tight lock on your cash flow. Comb through your profit and loss statements daily. Cut salaries and pay for performance. Follow a predetermined profit plan religiously….Don’t play the victim. As long as your business still has a pulse, it’s in your power to turn things around.”–p. 170.
I hope this blog post has been helpful for you to recognize the important business strategies you must put in place to sell more profitably today as a property manager. If you would like more information on how you can benefit from being a part of the PMI franchise, I invite you to schedule a call with one of our franchise developers by clicking here to see how you could benefit from converting your existing property management business into a PMI franchise: https://calendly.com/pmifranchising