How to understand your property management business’ critical measures

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We recently read an article which stated that a property management business is not profitable until it has around 500 properties under management. However, this is simply not true!

It seems that the Number of Properties Under Management is the only measure of a property management business’ growth and level of success. But, until you stop focusing on this one number, your business will continue to experience loss of managements, higher than needed productivity levels, and low profit margins. That’s because, growing your business is not about this one number; it’s about what we refer to as the ‘critical measures’.

Let’s focus only on the Number of Properties Under Management and see where it leads your business. It leads to business growth at all costs. It leads to you willingly discounting fees and managing properties regardless of their standard or location. It leads to lower than average weekly rent with a diverse range of properties under management. It leads to greatly diminished profits and asset value. It leads to possible business breakdown, loss of team and managements, and damage to your brand and reputation.

If you are only focusing on the Number of Properties Under Management and believe once you reach, say, 100 properties you will be covering costs, chances are you are suffering loss along the way. Chances are also high that at 100 managements you will still not be achieving the income levels you expected. And so, once reaching your 100 target, you delay engaging further resources (for example, extra team members) because the necessary income is still not being achieved to pay for the resources now needed to maintain your business’ growth.

So now, let’s focus on the ‘critical measures’ and see where they lead your business. Critical measures determine the current flexibility or volatility of your property management business. By cross-checking your trust accounting software reports you can identify your business’ Average Management Fee, Average Distance to Property Ratio, Average Weekly Rent, Management Splits, Number of Owners Against Properties Under Management, Percentage of Fixed Term Leases, Monthly Disbursement Methods and Timing, and Arrears Management Factors. Evaluating these measures lets you know if your current operations are working to achieve your business goals and targets towards growth. Put simply, the strategic pathway to a successful, profitable and reputable property management business is to know your own market and build business in accordance with these critical measures.

The most critical measures are Average Management Fee, Average Weekly Rent, and then your Number of Properties Under Management. In this instance, the reason to know your Number of Properties Under Management is so you can strategically manage growth, retention, productivity and profitability.

Most property management businesses nominate a New Management Per Month target and achieve it by discounting management fees as the growth manager focuses on winning business at all costs. This means managements that are low value in comparison to the Market Average Weekly Rent, and managements scattered far and wide from your market area are taken on, placing increased strain on resources, time and money. However, if you know your Average Weekly Rent and Average Management Fee figures then the Monthly Income target can be strategically set. If your average weekly rent is, say, $300, your management fee is 10%, and you know gaining 10 new managements per month is achievable based on market statistics, then your target for Monthly Income is:

$300pw x 10 (new managements) x 10% x 52 weeks = $15,600 (added to the annual income)

Target is additional income of $15,600 per month

Now this could be achieved by gaining:

$500pw x 4 (new managements) x 10% x 52 weeks = $10,400

$600pw x 2 (new managements) x 10% x 52 weeks = $ 6,240

In this scenario, the growth manager has achieved in excess of the Monthly Income target with only six managements and, in doing so, productivity levels are reduced and profitability increased.

So, when it comes to growing your property management business and incentivising for this growth, my advice is to stop focusing only on the Number of Properties Under Management and start focusing on strategically managing all of your business’ critical measures. To learn more about your property management business’ critical measures, contact us.

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