You need to answer a few important questions about your property management company:
- Is your business scalable?
- How do you make pricing and fee decisions?
- Do you have a 12-month growth plan?
- How will the new services you are rolling out impact profitability?
- How many people do you need to hire if you add 130 units or lose 23 units in 2019?
- Is your company ready to hire a Business Development Manager (BDM)?
- How much profit can you count on by the end of the year?
If you have already asked yourself these questions, we’re impressed. You are a successful entrepreneur looking to explode your business and move forward.
Constant Growth and Constant Improvement
This is a phrase we borrowed from one of our clients, Matthew Greeves of EJF Real Estate.
We’re talking about Key Performance Indicators, or KPIs.
Introduction to Property Management KPIs
At Fourandhalf, we’re always using data to enable growth and help your property management business succeed. Establishing and tracking Key Performance Indicators (KPIs) is the first step. This is a process we use ourselves at Fourandhalf. We’ve grown by carefully and deliberately tracking our KPIs and modeling every new product and initiative against our Unit Economics Model (UEM).
Many companies refuse to invest what they should in marketing, and they end up stalling their growth. If you don’t know how each incremental dollar of input connects to the output, you cannot be sure of how well your business is working. You need to pay attention to your metrics and figure out what you can spend on marketing, and how much your organization can scale.
The model seems complex, but if we break it up into small chunks, you’ll find it manageable.
We’ll get started with the first 3 key metrics:
- CAC – Customer Acquisition Cost
- CLV – Customer Lifetime Value
- ACV – Annual Contract Value
Customer Acquisition Cost
Businesses depend on CAC; it’s the backbone of every marketing campaign. If you know your CAC, you’ll know what you’re paying for every new client. Some property managers calculate this by door or by owner.
We like to use both metrics.
So here’s how you work on CAC:
Choose a time period, like 12 months, and do some math.
Open up your Profit & Loss for the period and total up your owner marketing costs and your owner sales costs. For example, how much did you pay a sales person for that 12 month period? If you are the one that does all the selling, take the appropriate portion of your salary and commit it to sales expense line.
Add all of your marketing and sales costs and divide the total by the number of owners you brought on board during that period. This will give you your owner CAC. Divide it by the number of doors you acquired to get your per-door acquisition cost.
Here’s an Example:
Sales and Marketing Costs for 2016 –$140,000
Units under management acquired in 2016 –80
$140,000 divided 80 equals $1,750
Your 2016 Customer (per Unit) Acquisition Cost is $1,750
Annual Contract Value (ACV)
We use the ACV metric to figure out the average amount of money you’ll receive per unit over a period of 12 months. It tells you if your business really works. You get this number by taking your total revenue for the period and dividing by the number of units under management at the end of that period.
Here’s an Example:
Total revenue for 2016 – $1,200,000
Ending Units under management as of 12/31/2016 –360
$1,200,000 divided 360 equals $3,333
Your 2016 Average (per unit managed) Contract Value is $3,333
Customer Lifetime Value (CLV)
This metric can truly measure the health of your business. To find your Customer Lifetime Value (CLV, sometimes called CLTV), you will take your average annual contract value and multiply it by the average number of months your customers stay with you. These are owners, not tenants.
If you’ve been in business for 10 years, you can look at how long your customers have stayed over the course of those years. Track it to obtain a good average. But if you can’t do that, use a number like 42 months (three and a half years), which is the national average for property management companies.
Once you understand your CLV and CAC, you have some serious metrics to continue perfecting your operations and figuring out where and how to spend your marketing budget.
Here’s an Example:
ACV ($3,333) divided by 12 equals $227.75
Average number of months unit stays under management – 42
$227.75 x 42 = $11,665.50
Your Customer Lifetime Value is $11,665.50
Knowing this number changes the optics through which you view your businesses. It really shows you how much a missed call from a prospect costs you.
We have more to tell you. If you are ready to apply these KPIs to your property management business, contact us at Fourandhalf, and we’ll share more of our series on KPIs for property management companies.