When growth is the ultimate goal, it’s easy to just focus your attention on sales, revenue, and profit. But stable and sustainable growth isn’t only about the bottom line. It’s about growing each facet of your operation methodically so the entire business moves in rhythm with its constituent parts.
In the property management business, it’s paramount to understand and value the systematic needs of your maintenance operation to ensure it doesn’t get forgotten amid overarching revenue growth goals. Because if maintenance does get lost in the shuffle so to will your larger goals, threatening the long-term prospects of your business.
Renters don’t fix leaky sinks
Whether you’re buying a home or renting an apartment, you typically get to experience the blissful moment when the seller or landlord hands over the keys. But that’s where the similarity between the two experiences should end.
One fundamental difference between owning and renting is the responsibility of maintaining the unit. When someone buys a home, they buy everything it comes with. Maybe that’s an inground swimming pool in the backyard, or maybe it’s a faulty water heater and an HVAC system on its last legs. Regardless, homebuyers understand that whether the work is routine maintenance or a complete overhaul, once they sign their name along the dotted line, it becomes their responsibility.
With renters, it’s the complete opposite. If the renting experience begins to feel more like a homeowner experience without the benefit of building equity, tenants are probably going to leave your unit and company behind. In fact, 31% of tenants who chose not to renew their lease cited maintenance as the primary reason, second only to rent price. When you’re trying to grow your business, losing tenants, revenue, and staff time on the menial, laborious task of flipping the unit — cleaning, fixing, advertising, showing, etc. — is a great recipe for failure.
The more tenant churn, the more investor burn
If you’re looking to expand your property management business, you’re also probably looking to acquire more units. But without readily accessible capital, growth is going to be a challenge. Luckily, there are plenty of investors out there looking to make a buck. But while some investors are only worried about the bottom line, any seasoned investor in the property management business will likely want to see the tenant turnover rate and vacancy rate.
Because while revenue, sales and profit are lagging indicators, — measuring the performance of your company after it has already occurred — tenant turnover rate and vacancy rate are leading indicators, meaning they tell the tale of your company’s performance before that tale is neatly wrapped up in the bottom line numbers.
By scaling up your maintenance operation sustainably and in tandem with the other areas of your business, you’ll ensure that any investor, novice or veteran, will like what they see. You’ll also keep your existing investors happy because when you have happy tenants, they stay with your company, sidestepping the cost of tenant turnover. The money you make can then be poured back into the company instead of into advertising and showing your unit that, if you had a solid maintenance program, would still be filled. That’s less cost to the investor and more bang for their buck. It’s also a great way to run a business.
Put much more succinctly, good maintenance results lead to happy tenants, which lead to happy investors. By now you’re probably starting to see why scaling your maintenance operation sustainably is a key to healthy growth.
Get the most bang for your buck
Though it’s anecdotal, it is widely understood that it costs your company about 10 times more money to acquire a new tenant than it does to retain an existing one.
Enter the property management performance indicator known as lifetime value. Lifetime value (LTV) is found using a simple equation: average revenue collected from a tenant per month multiplied by the number of months said tenant stays in your unit.
What’s the easiest way to raise your LTV? Increase the rent. But is that sustainable? Probably not.
What’s another way? Keep your tenants in your units for as long as possible. How do you accomplish that? Keep them happy. How do you keep them happy? Fix maintenance issues promptly.
Know your market’s limitations
Say your profits, revenue, and sales are up. On the surface, things look great. But when you dig a bit deeper, you notice you have an abnormally high tenant turnover rate. I guess the tenant turnover rate — directly correlated to a positive maintenance experience for tenants — isn’t that important then, right?
Not so fast.
Your market is only so big and the smaller the market, the bigger the threat tenant turnover poses. Why? If your turnover rate is high and tenants are leaving because they’re unhappy with the experience, you’re eventually going to cycle through the market’s tenant pool. Old tenants won’t return, current tenants won’t renew, and there won’t be enough new tenants available to fill all your vacant and soon-to-be-vacant units. That’s why sustainable growth with long-term viability is the key to a successful business and why only focusing on profits and revenue can be misleading.
Your reputation precedes you
Tenant turnover and vacancy rates are important leading indicators — they measure the performance of your company as it occurs and before the effects show up in your lagging indicators, i.e. revenue and profits — of your business’s performance. They’re also directly correlated to your maintenance operation’s performance. But there’s another indicator that, though lagging, is of vital importance to your growth prospects: online reputation.
According to a recent study, 85% of people trust the online reviews of a company as much as they trust a personal recommendation. For millennials, that figure is even higher, at 95%. Curious about the link between reviews and revenue? One study tackled just that question, finding that each one-star increase in a company’s online rating equated to a revenue increase of between 5% and 9%.
Process > People
So, what does a maintenance operation primed for sustainable, long-term growth look like? For one, it’s process-driven, not people-driven. Good workers make mistakes. Good processes catch them. Good workers need vacations. Good processes never take a day off.
By creating a system with quality checks at every step of the maintenance process, issues can be caught and fixed before they result in negative experiences, negative reviews and increased tenant turnover.
Here’s an example of a data-driven guideline for how long your company has to repair each type of maintenance issue before your chances of a happy tenant drop off considerably.
HVAC repairs: 3.5 days or less
Plumbing and electrical repairs: 5 days or less
Any other issues: 15 days or less
In a nutshell, what we’re getting at is simple: when growing your business, if you only focus on the short-term, bottom-line numbers, you’re potentially setting yourself for long-term failure. But by measuring other performance indicators like tenant turnover rate, vacancy rate, and online reputation, you’ll start to get a more complete picture of how sustainable your business model is and which areas need to be brought up to speed.
Unsure how to start this process? Contact Property Meld for a free evaluation of your company’s maintenance program, including a report highlighting its strengths and weaknesses.