Learn, apply and profit from them!
Continuing on from part one with the first five laws of profit and fees, here are the next six laws you can use to boost your property management profit and fee income.
6. Law of the Increased Fee – ‘Change your mindset and increase your fees’.
So, how do you get better fees and lift the height of your fee lid? The answer also lies with mindset!
After so many years of helping to increase the profit and income from rent rolls, I have seen that it all comes down to these very simple, yet powerful principles:
1. You must first know and believe you are worth it.
2. Know how to justify your fee.
You accomplish this with a persuasive argument or script that makes sense. Yes, we ask that what you say is the truth because quite simply when you believe something to be the truth it becomes your conviction and this is transferable to your prospective client. If you believe you are worth it, so will they!
This is how you get better fees.
7. Law of ‘the Norm’ – ‘You are simply a solution to a problem!’
This law was born from the incorrect assumption many property professionals have, that if your fees are higher than that of your competitors then the client using your service and paying your fees must believe that you are expensive.
Sometimes a scrambling reaction ensues out of the belief that your clients think that you are more (or too) expensive. You, therefore, believe you have to prove better value. In some cases that could be true, however, our point is that your clients, in general, don’t sit and think that you are a rip off! You are just normal or the norm in their eyes. You are a solution to their problem.
In a lot of cases, they haven’t gone and surveyed the market on fees. As long as you are meeting their expectation, they are likely not concerned that you are more expensive as they are motivated more by having a solution to their problem and have peace of mind.
They begin to scrutinise the fees if you are providing a service which is less than what was expected or promised, however, this would also happen if you had the cheapest fees in town!
So when it comes to adjusting and increasing fees, this norm gets interrupted for a time. They may grumble and complain when asked to pay more, however, several months after agreeing to the new fees, they settle back into a new norm and simply forget what your previous fees were.
The key is to make this transition to a new level of charges as smooth as possible, and this is done by providing a stable level of service, to begin with!
8. The Law of ‘No Change’ – ‘People just don’t like change!’
In essence, this is a well-proven law of human nature that you can make work for you.
When they have done the work to select your service in the first place, you now go to the back of their mind and they get back to their lives and dealing with all of the other issues at hand.
They were stressed when they first approached you and quite possibly stressed about the need to ensure their mortgage was paid on time, or they feared to get the tenant from hell. But for differing reasons they chose and trusted you, signed your management agreement and in return, bought some peace of mind knowing that you would now manage their asset on their behalf.
Later down the track, about 18 months to 2 years, they receive a letter from you advising that “…Due to business expenses increasing and for the fact that we haven’t reviewed our fee structure for x years, we have had to make some changes…” they are confronted with a decision. Do they stay and pay more, or do they leave your service?
Provided you offer a reasonable level of service (or better) their need for no change will override their motivation to disconnect from you and find a cheaper service. This works in a majority of cases.
9. The Law of ‘Familiarity’ – ‘Familiarity provides stability’.
Another principle of human nature that you can trust and rely upon when increasing and improving fees is that people prefer to deal with who they know rather than to go to someone new and unfamiliar.
In a business like property management, relationships are the key to the stability of the business, and people like to stay with what is familiar to them.
They would prefer to take a fee increase and pay more if they have the surety of dealing with the person with whom they have formed a relationship; the person or company who has provided them with a solution thus far.
However be aware of another major fear that also works in your favour! The fear of going out into the great unknown plays on their mind, igniting the fear of being in a worse situation than before. This is far greater than the need for change a majority of the time.
That is why people prefer to stay with what they are most accustomed to. They know what they are getting and it is within their comfort zone.
10. The Law of Preference of Service – ‘People will pay for a problem solved’
I was once listening to a live interviewer who was walking down a busy shopping mall and asking people if they would prefer to have a better and more reliable service with their phone carrier, or put up with poorer quality service and pay less.
It was unanimous that everyone would rather pay more to have a reliable, consistent service with phone support and reliable coverage, than to do without these and compromise, at a reduced cost.
This reflects the very fact that people don’t like having problems and would rather pay more for peace of mind and to have a problem solved rather than paying less to endure the problems and the stress that they bring.
Your property management clients think the same way. People, in general, would rather pay more and have their problem solved for peace of mind, than to pay less and move to a less reliable service.
For this to work, when conducting a fee maximisation campaign, you need to ensure that your clients overall are receiving a reasonable (or better) level of service and that no client receives a fee increase request while they are upset or in dispute with your company, whether or not this was your fault.
It is also not wise to consider such a move if your clients have been subjected to a high turnover of property managers in the last 12 months, or if your service levels and delivery are less than what your client’s expectations.
11. The Law of Profit Acceleration – ‘Profitability strategies directly grow your profit margin’.
This principle is easy to understand. In order to increase your profit margin by growing your business, you must increase your expenses and overheads to do this. If you are taking on an increased workload, you must employ more resources to accomplish it.
However, if you focus on growing your income without taking on extra work, then every bit of that extra income is pure profit, as it doesn’t cost you anything more to generate it as you would by adding extra properties through rent roll growth.
If your average weekly rent is $300 for your rent roll, then we look and see if we can increase ancillary fees by an extra $300 per property/year.
This strategy alone has the power to possibly increase your overall fee income by another 20%. If your profit margin is at the national average of 20% (in our experience), then this means you can double your profit margin without having to double your rent roll size, as all extra proceeds are pure profit.
Using profit margin example of 20%, for every dollar generated through rent roll growth, your agency will retain 20 cents in the dollar, as it costs 80 cents in resources to obtain the 20 cents profit (expenses to generate and maintain the extra workload).
However, for every dollar generated by increasing income without taking on extra properties, it is pure profit and you keep 100 cents in the dollar. You increase and impact your profit margin five times better and faster than rent roll growth!
It is this startling but easy to understand the principle that why many more business owners focusing on income maximisation strategies, rather than just trying to grow their income and profit through rent roll growth alone.
It seems the property management industry and those that drive rent rolls seem to be waking up, not striving to have the largest rent roll in town, but instead the most profitable.
So will this work for you?
One thing is certain; doing nothing will ensure that you see no improvement in results.
All the best.