Subscribe to The Property Management Show on iTunes Today to Stay Up to Date on the Latest Episodes

The topic today is how to compensate a salesperson for your property management company. If we have a chance, we’ll talk about when you should hire that salesperson and shed some light on how to find and interview and retain the best salespeople for your property management shop. Our guest is Duke Dodson who runs Dodson Property Management. He has one of the fastest growing property management companies in the U.S., and he’s uniquely positioned to talk about this.

Q: Thanks for joining us, Duke. Tell us a little about your company and your story. When did you first decide to hire a salesperson? How far along were you in your growth trajectory?

A: I started my property management company in 2007. It was just me, so I was the business development person and the salesperson. When I got to the point that we had 300 units under management, I hired the first salesperson.

Q: Do you mind if I stop you and ask how long it took to get to 300?

A: It took about three years. I decided to hire someone because I was a good salesperson but not a great one, and I was doing business development and sales 10 to 20 percent of the time during the day. I knew if I could find someone to do it better than me full-time, I would grow. I was averaging 100 units a year when it was just me, and then when I brought in a salesperson, that growth went to 300-plus units a year.

Q: There is something to be said about setting up systems to be able to accept this kind of growth. For most property managers, growing by 10 properties a month is a good goal. So 300 a year is a great launching pad. I don’t know of any information in NARPM or the general property management industry that talks about sales compensation. So how did you come up with a strategy?

A: There was no roadmap early on, so I had to make it up. I looked at the type of person I wanted in the role and then I had to figure out the compensation model that person would be comfortable with. It’s rare to find someone with property management experience and sales experience. So unless you’re going to poach this person from another company, it’s going to be difficult for a property manager to find a salesperson with experience in single family management. I looked at other salespeople I might want to attract. Pharmaceutical and medical sales seemed the way to go because these are high energy, results-driven professionals. So I looked at those models. Some had a small salary plus commission and others worked solely on commission. I liked those models. So with our first salesperson, I provided a straight commission and no salary. I built it so that if he did well in the first year, then his compensation would increase in the second, third and fourth years, so it would be hard to walk away. He could earn a great income if he performed.

Q: So you used a recurring compensation plan. He got to eat a bit of what he killed over time and each account brought him a percentage.

A: Right, if he brought in a single family home for us to manage, he earned 25 percent of all the revenue associated with that property for one year. Then if he retained the property under our management in year 2 and 3, he’d continue to earn 15 percent. In year four, the commission would drop off.

Q: That’s a lot of money.

A: I learned that the industry standard was similar to that, and I also learned that you get what you pay for. If you want that top notch rainmaker, they will need to make a good living and you’ll have to compensate appropriately. But you may not need a rainmaker. If you’re getting a lot of warm leads from SEO and content, you don’t necessarily need a rainmaker, you need someone with good sales structure and organizational skills who can do presentations. That person doesn’t need to make $150,000 a year.

You’ll find a good salesperson who can earn $60,000 or $80,000 a year. If you’re paying high rainmaker numbers, make sure they are bringing in a lot of business.

Q: So for a younger company, it made sense to pay your salesperson a full commission of 25 percent of the annual contract value (ACV), for each property. And initially, you had a bit of a continuation plan that dropped commission but kept them interested in staying with your company. My worry is that you don’t want your salespeople to get fat and lazy. You want them sharp. How do you do that?

A: Now we are on our second business development person and we’re using a completely different compensation model. It’s partial salary and partial commission. There’s a one-time commission when they source something. So there’s no danger of becoming fat and lazy. The way you prevent that is by hiring someone who isn’t prone to that. You want someone who will always push and stay hungry. If they get that way, change the compensation model or find someone new. This model we’re using now is much simpler. They get a salary and a certain number of dollars to bring in new business.

Q: How many salespeople do you have?

A: Just one now. Our first salesperson was here for five years, and now we have a new guy.

Q: What do you think is the realistic capacity for a good business development person? How many properties can they realistically bring in per month?

A: We have a good SEO presence, so we get a lot of warm leads. But for our salesperson, our goal is 25 properties per month or 300 per year. In the winter it slows a little and in the summer business picks back up. When we get a big client who has 10 or 20 properties, the numbers will obviously spike. Our salesperson is on track to meet those goals this year. We build our capacity so we can handle that new client that has 20, 30 or even 100 units. So if you have that capacity, your goals can be pretty lofty. If you don’t have the capacity, 10 properties a month is pretty good.

Q: So capacity of one salesperson to perform and have enough time to follow up and develop relationships can be 25 properties a month, working full time?

A: Yes. That’s not an issue.

Q: Let me present something that one of my good friends implemented in his business. It has been successful. What do you think about this compensation plan – it’s a business that needs 10 properties per month. There’s an average rental rate, it’s not like California rates. There’s a base salary of $28,000. I think paying a base to a person solidifies your commitment to them and theirs to you. So with a $28,000 base, there’s also a 7 percent ACV payout on every lead. So the salesperson receives 7 percent of the annual contract value. The annual contract is 12 months of management fees plus the lease up.

Most property management companies calculate the annual contract value at $1,700. Depending on the market, that’s in the ballpark. So at a 7 percent payout on 10 properties per month, that’s about $1,200 in commissions and about $2,350 for a base. The salesperson is in charge of their own destiny. If they want to stay at 10 properties, great. If they build relationships and go to 20, they double their compensation. I also recommend accelerators. So if they get to 15 leads closed, the next five leads go up to a 10 percent commission payout. That really helps them over-achieve and it compensates them for the busy season because they have to work more. The amount has to be adjusted for the market. Here in California, our average rent is $3,200, so that $1,700 annual contract value needs to be adjusted. It’s a flexible model based on where you are. What do you think of this approach?

A: It’s not too dissimilar to what our salesperson is currently doing. We pay a $40,000 yearly base and $125 per new property. So if you do the math, it’s not too different from what you’re suggesting. The accelerator is a benefit. A lot of businesses do it and it really rewards the rock stars. But it can get complex. Any time you add complexity, you have the potential to mess things up. There will need to be a lot of organization administratively and with your accounting department. So if you can handle the accelerator payout and you’re not arguing over details every month, it can work.

Every market is different, so you have to build a compensation plan that meets the need. If you’re in a market and $60,000 will get the job done and $60,000 is what you offer, you’re in a good position to find an excellent salesperson. When we hired our commission-only salesperson, it was shortly after the recession. The job market was horrible. Now, the labor market is pretty tough and there are more options for employment. I probably would not be able to hire someone without a base right now.

Everyone prefers a base salary than the no-salary and all commission model. The exception to this rule is the real rainmakers, but that’s not who we’re talking about.

Q: I like the dollar amounts for simplicity. Who does your business development person report to?

A: It used to be me, but now it’s our director of single family management.

Q: When you look back at your journey to get to 300 properties; when you were at 200 or 150, knowing what you know now, at what point would you have hired the salesperson?

A: It depends on three things: how important is growth to you; what is your risk tolerance; and, how many warm leads are coming in the door. If you don’t need to grow and some growth is coming in the door on its own and your staff is managing fine, you’re probably less in a position to hire than if you really want to grow. Hiring is a risk. You’ll be paying someone a salary who might not bring in any business at all. I hired at 300 units because it felt right. If anything, I would have done it sooner because the growth rate was so incredible and I have a high-risk tolerance and leads were coming in the door.

Q: That is similar to our journey at Fourandhalf. For the first three years, I was the only salesperson because I felt I could represent the company best. After about two and a half years, I started having issues with missed opportunities. So in retrospect, if I wasn’t a salesperson by nature, I probably would have hired someone sooner. It was hard for me to give up the control of the customer experience. I wanted people to feel taken care of when they called Fourandhalf. But by year three I couldn’t handle it all, and I built a professional sales team. Now we have a team of four; three salespeople and a customer success manager who is in charge of renewals and upsells within the company. Have you found any opportunities for you to upsell to your existing customer base? Are there any new services you’re introducing?

A: Hiring the salesperson does free you up to think bigger picture and create opportunities for upsells. Obviously, a lot of property managers add real estate sales divisions and bring on Realtors. We do offer some upsells, but our business development guy has his head down closing business. Eventually, we’ll have him build a team that includes marketing new opportunities and ideas.

Q: Unit economics are also important to understand. Under the model I proposed, if you acquire 10 new clients per month, the customer acquisition cost, which is the amount you spend to acquire that customer in marketing and sales, is about $500. So when your marketing budget is $1,500 a month and you pay your salesperson to bring in the business, you’re paying $500 on a customer with a lifetime value of around $5,100. That’s less than 10 percent and it is great math. So if this works out,

I’d put as much money as possible into this program. Having said that, we all base this stuff on annual contract value, which takes a year to collect. So you need good retention, good people, and you have to keep your customers. Have you figured out how long an average customer stays with you?

A: We lose about seven percent of our single family clients every year. Usually, those customers move to the sales market, or they go somewhere else or in some cases we mess something up or there is a foreclosure. We don’t have a good measure for an average lifespan. We’re only eight years old so I only have a few years of data. My guess is three to five years is our average customer.

Q: Let’s talk about how to find that right salesperson. I have found a lot of success going to the bank. At the bank, I have talked to personal bankers or even someone in a junior role, and they make great salespeople. Banks have aggressive sales goals, and they employ smart people but they don’t pay them much. Two of our best people came from that background. What has been your experience?

A: Customer service people and those who work in existing sales are great. Our first salesperson came from medical sales and the person we have now came up through the property management field, but had good people skills. I think personal bankers have a lot of experience with outbound marketing, and you can find a lot of good salespeople who have crappy sales jobs. You want someone who can close business and develop a sales process. Many times, the process isn’t here, and you need to create the sales process. You’re either going to have to teach the property management side or the sales side. It’s hard to find a person with experience in both.

Q: We found that it’s hard to get salespeople with digital marketing experience. We’re so unique that we need to get them 60 days of training before unleashing them on the world. That’s an investment we’re willing to make. I don’t necessarily want them to have marketing knowledge and experience because what they know is probably wrong or not what we practice. Retail and banking are great places to poach. A lot of property managers tell me no one responds to their ads for a salesperson.

The ad is usually very bad. When we look for a salesperson, we really sell our company. I recommend that property managers who don’t have time to put together breathtaking ads simply write up a quick job description and take business cards out to their favorite shops and poach someone. People working hourly rates can be great. So a little bit of walking around will deliver results.

At Fourandhalf, we have a blog that often addresses the sales process, and we also have a book called The Art of the Sale for Property Managers. It spells out the sales process or the basic steps that need to be followed. also has a sales course. So once you hire that salesperson, just expose them to all the information you have, and then test them. Do you have any parting words of wisdom?

A: We talked about this, but before you hire a salesperson, make sure you have your ducks in a row. You don’t want to spend all this money getting new business in the door only for it to go right out the door. So make sure you’re ready for the extra work. Also, really think about what values and culture your organization has because this person will be the face of your company. Figure out what you want. Do you want the more affordable person who processes warm leads or do you want a person to go out and get new business on their own? Those are two different price points and sets of results.

This was helpful. Thanks for joining us, Duke. And if you need help with sales or marketing for property management companies, please contact us at Fourandhalf. Thank you for listening, and we’ll see you next time.