Let’s say you want to grow your property management company fast. To give your business the quick boost it needs, you have two options: You can either a) buy another property management company, which gives you a quick way to get a lot more properties into your existing portfolio; or b) you can do Pay-Per-Click advertising via Google Ads.
Pay-Per-Click vs. Acquisition Costs
In many cases it is almost three times less expensive to acquire units with Google Ads as opposed to buying a property management company. Let’s get into the figures:
When you acquire a property management company, you can expect to pay from 12 to 20 times their monthly management fee. So if their management fee is an average of $100 per month, you are paying $1,200 to $2,000 for each account you acquire.
With Pay-Per-Click via Google Ads, you can pay to get on the front page of Google for searches related to property management in your service area. To acquire a customer through this method, it will be around $300 to $750, depending on where in the country you are located.
The Advantage of Buying a Property Management Company
There is one advantage to buying a property management company that you won’t get with Pay-Per-Click, and that’s volume and momentum. When you buy, let’s say, a 120-unit portfolio, that will give you momentum in the form of referrals and additional revenue. This gives you the ability to grow in leaps rather than one client at a time.
The Pay-Per-Click Advantage
One advantage of getting a client through Pay-Per-Click as opposed to buying a company is that when the client starts a management contract with you, they’ll usually stay an average of three to five years. When you buy a company, you get a portfolio of clients who are at different stages in the lifecycle. They might be ready to exit or perhaps they’re just beginning – you don’t know.
Buying a company can take a lot of time and effort. There are additional hurdles like having to involve your lawyers, building relationships with existing clients, making sure there are no previous issues with the properties, etc.
If you don’t have several thousands of dollars available to spend on buying a company, try Pay-Per-Click.
If you have any questions about either of these options or you’d like to talk about growing your property management business, contact us at Fourandhalf.
Want More Information?
We also have an episode on our podcast “The Property Management Show” that discusses how successful property management companies use both Pay-per-click and Pay-per-lead strategy to scale and grow their businesses. Listen here!
Great video Alex.
I think there is one very important advantage to purchasing a portfolio that was not discussed: financing. You can borrow money to finance the acquisition of a portfolio but you can’t borrow money for PPC.
If you purchase a company (not just doors) you also purchase goodwill. The intangible items that make up goodwill include the business name, reputation, website, phone number, referral sources, staff, vendors, etc. This is part of why it costs more to buy a company versus PPC.
Just my two cents.
Interesting but you are not accounting for the time an sales efforts that come after you receive a PPC lead. Doing a PPC campaign doesn’t mean that each lead that comes in is a signed PM contract. Far from it. You are totally discounting the time, effort, logistics, follow-up, meetings, marketing presentations, and often the intense emotional effort and drain in bringing a PPC lead to a signed PM contract. These efforts are therefore difficult to quantify in $$ but absolutely cannot be dismissed in your comparative analysis, which of course is exactly what you have done here.
Great post, Alex!
Stephen mentioned additional costs associated with converting a PPC prospect. He definitely has a point. However, there are also additional costs involved in buying a property management company. For example, we recently looked buying a 250-unit firm, but couldn’t come to terms on the deal. We spent countless hours in due diligence and negotiations, which were spent above and beyond the $100/unit asking price.
Overall, there are pros and cons with both approaches. Thanks for the fantastic explanation of the differences!
Thanks Russ. I agree. Many companies finance their acquisitions, however from a perspective of Unit Economics, the per unit cost will be even higher with borrowed capital. That cost, however is offset by the goodwill and a momentum that is created by brining a fresh batch of properties into a portfolio. The capital cost and the goodwill will likely wash out in a short term.
Absolutely agree with you here, Stephen. My assumption is that a company will have an established sales process and brining PPC leads will help fill the capacity. Since the AdWords spend, or budget is variable, a business owner can balance the load to make sure the Sales operates at capacity. At the end of the day, however, you are right.
There are costs associated with executing a sales process, but if we use an example of a 400 unit company with a single business development person, their capacity based on the inbound PPC leads should be 30-40 leads per month with 10-15 closings. The lifetime value of 10 units is anywhere between $60,000 – $100,000. Lets use $70,000 ($150/mo for 42 months + Lease Up fees) as an example. If we take an average marketing acquisition cost of $600 per unit and a Business Development rep’s salary of $6,000 per month, you have a total Sales and Marketing cost of $12,000 per month to acquire a $70,000 revenue stream over the next 3 years.
Any further increase to the Lifetime value of a Unit, increases the business’s profitability. A sister Maintenance company and a Real Estate sales shop can go as far as doubling the Lifetime customer value.
Thank you Douglas. This is exactly what I’ve found speaking with many of our customers who acquire companies and portfolios on regular bases. There are downsides to both methods, however, I think at the end of the day these are the only two truly proven methods that I know of to significantly scale up in a fairly short period of time.