Establishing and tracking Key Performance Indicators, or KPIs, is the first step to using data to enable the growth and success of your property management business. If you aren’t utilizing KPI’s on a regular basis, it’s hard to know how much you can afford to spend on marketing, and even harder to make informed decisions about how and when your business should grow.
This blog is divided into 5 parts. The first four parts will tackle a different property management KPI:
- Annual Contract Value,
- Customer Lifetime Value,
- Sales Closing Ratio, and
- Customer Acquisition Cost.
In the final part, we’ll take all of these KPI’s and demonstrate how you can use them to create your very own, data-informed, owner marketing budget.
Let’s start with your Annual Contract Value or ACV.
Annual Contract Value (ACV) for Property Managers
Your Annual Contract Value is the average amount of money you’ll receive per unit or per door over a period of 12 months. It’s a good way to measure if your business really works.
To determine your ACV, you’ll need:
- The total revenue you’ve earned over the last 12 months, and
- The total # of doors under your management at the end of 12 months
For this example we’ll provide rough estimates of revenue from different markets, namely, the West Coast, the Midwest, and the Southeast. This is because where your property management company is based, and the type of market you’re in, can have a dramatic effect on your KPI’s, and therefore how much you should be spending on owner marketing.
For simplicity’s sake, the estimated revenue we use in the upcoming example is only considering the percentage you make from collected rents — we are not including revenue you might make from maintenance and other services you provide. We’ll also assume that each contract = 1 unit or 1 door.
Calculating ACV Examples
In our West Coast example, let’s say your total revenue was 1.512 million and you had 350 doors at the end of 12 months. Divide your revenue by your doors, and you’ll get $4,320. This is your annual contract value per unit managed, or your ACV.
$1.512m / 350 doors = $4,320 (Annual Contract Value)
In our Southeast example, let’s say your revenue with 350 doors is $756,000. This would put your ACV at $2,160.
$756k / 350 doors = $2,160 (Annual Contract Value)
Finally, in our Midwest example, your revenue with 350 doors might be $604,800, making your ACV $1,728.
$604,800 / 350 doors = $1,728 (Annual Contract Value)
Why does this matter? Because knowing the value you can earn on each property can tell you exactly how much to spend on your owner marketing. We’ll get to that in Part 5.
For now, let’s turn our attention to Customer Lifetime Value, or CLV.
Customer Lifetime Value (CLV) for Property Managers
This KPI can provide insight about the health of your business. To find your Customer Lifetime Value (CLV, also known as CLTV, lifetime customer value (LCV) or lifetime value (LTV), take your average annual contract value (ACV) and multiply it by the average number of months your owners stay with you.
Figuring out how long your owners remain with you can be tricky. If you’ve been in business for 5+ years, you may be able to look back at your history with owner clients to find the average number of years they’ve stayed as your client. However, if you’re a younger company, it may be more useful to use a number like 42 months (three and a half years).
Here’s an example you can follow to calculate your own CLV:
Calculating CLV Example (West Coast):
- Gather the data. You will need:
- Time Period: 12 months
- Your ACV: $4,320
- Average # of months your owners stay with you: 42
- $4,320 (ACV) / 12 months = $360 (Average Monthly Contract Value)
- $360 (AMCV) x 42 (ave. # of months owner stay with you) = $15,120 (CLV)
Knowing this is the amount of money that’s left on the table when a lead falls out of your sales funnel can certainly change the optics through which you view your business, doesn’t it?
If doing this work has you scratching your head, or has left you with more questions than answers, don’t hesitate to give us a call at Fourandhalf. We’re more than happy to help you understand your company’s data in order to help you propel your growth.
Alright. Ready to learn the next two KPI’s vital to growing your property management business?
In the first part of our series, we talked about two key KPI’s for property managers: Annual Contract Value and Customer Lifetime Value. With these two “big picture” KPI’s under our belt, we’ll move on to Sales Closing Ratio.
Sales Closing Ratio (SCR) for Property Managers
Your Sales Closing Ratio (SCR) is the number of management contracts signed compared to the number of owner leads you get from various sources. This KPI is important because it can provide you insights on the functionality of your sales funnel, without you trying to guess whether your sales process is working or not.
To calculate your SCR you’ll need:
- The number of management contracts you signed last fiscal year, and
- The number of owner leads you collected last fiscal year.
This brings us to an important question: What do you count as an owner lead? Depending on how you answer this question, your results will vary. We have a whole episode on The Property Management Show Podcast that explores the definition of an owner lead for property managers. Click the link to check it out.
For our purposes, we’ll define an owner lead as anyone you have contact information for that has expressed an interest in your property management services.
Using this definition, let’s say you signed 35 contracts and collected 120 owner leads last fiscal year. Divide your contracts by your owner leads and then multiply this by 100 to get your SCR percentage. For this example, that comes out to be 29%.
Calculating SCR Example:
- Gather the data. You’ll need:
- Time Period: Last Fiscal Year
- Total # of Contracts Signed Last Fiscal Year: 35
- # of Owner Leads from Last Fiscal Year: 120
- 35 (# of contracts) / 120 (# of owner leads) = 0.29
- MULTIPLY to get your SCR percentage:
- 0.29 x 100 = 29%
There is no “perfect” sales closing ratio, since every property management business is different. In general if your closing ratio is below 50%, we recommend keeping a close eye on your sales and marketing processes for opportunities to increase your SCR.
So now, your property management KPI toolbox includes: Annual Contract Value, Lifetime Customer Value, and Sales Closing Ratio.
But how much should you spend to acquire a new owner? Is it half your CLV? A third? A quarter? How much are you spending now?
To answer these questions, you’ll need to know your Customer Acquisition Cost.
Customer Acquisition Cost (CAC) for Property Managers
So far in our Property Management KPI series, we’ve talked about Annual Contract Value, Customer Lifetime Value and Sales Closing Ratio. Today, we’ll cover Customer Acquisition Cost.
Customer Acquisition Cost, or CAC, is the backbone of every property management marketing campaign because it tells you what you’re actually paying, on average, per new client. You can calculate this by door or by owner, but we recommend running both metrics. That way, if you increase your average number of doors per owner, you can earn more revenue from each customer.
To calculate your CAC you’ll need:
- Your annual sales expenses,
- Your annual marketing expenses, and
- The number of owners you brought on over the last 12 months
Your sales and marketing expenses should include the salaries of your sales and marketing team, if you have them. Having those staff is a critical part of acquiring customers, so you need to add those numbers in when calculating your Customer Acquisition Cost.
Your CAC will vary widely depending on your market. Let’s break it down by our three example regions again.
Calculating Property Management CAC by Region
For our West coast example, let’s say you employ one salesperson, and you pay them $60,000/year. We’ll use that number as your sales expenses. For marketing, let’s assume you’ve got a package with Fourandhalf, as well as a budget for Google Ads. That costs you about $5,000/month, which means your annual marketing expenses are $60,000.
Let’s say you brought on 35 new owners last year. To calculate your CAC, add your sales and marketing expenses, and divide the total by the number of new owners acquired in the last year. This means your CAC will be about $3,429.
If that number looks a bit scary, don’t forget that the CLV of that owner is $15,120! An easy way to benchmark your CAC is to determine its ratio to your CLV. According to Klipfolio, DemandJump, and other sources we found, you should be looking for a 3:1 ratio between your CLV and your CAC. In our West Coast example, the ratio is closer to 4:1, which isn’t too bad, but it indicates you could be spending more on owner marketing to acquire your customers.
Calculating CAC (by owner) West Coast Example:
- Gather the data.
- Time Period: 12 months
- Annual Sales Expenses: $60,000
- Annual Marketing Expenses: $60,000
- # of Owners Brought on in the last 12 months: 35
- $60,000 (Annual Sales Expenses) + $60,000 (Annual Marketing Expenses) = $120,000
- $120,000 (Total Sales + Marketing) / 35 (# of owners brought on) = about $3,429 (CAC)
Now let’s take a look at what the CAC might be for the Midwest and the Southeast:
For our Southeast example, let’s say your Salesperson makes $40,000/year, and your marketing expenses are about $30,000 – enough for Fourandhalf’s Scale marketing package as well as a decent Google Ads budget. Add those two numbers together, and divide by the 35 doors you acquired last year, and that’ll give you a CAC of $2,000. With a CLV of $7,560, your CLV to CAC ratio is about 3:1.
In our Midwest example, let’s say your Salesperson makes $30,000/year and your marketing expenses are $25,000 — still plenty of money for Fourandhalf’s basic Traction package and a decent Google Ads budget. Just like before, add these numbers together and divide by your annual door growth of 35, and you’ll get your CAC of $1,571. With a CLV of $6,048, your CLV to CAC ratio is about 3:1 – just where you want it.
Remember that these are simplified examples intended to provide you with the tools to start thinking about your own KPI’s, and not meant to be a strict and perfect set of rules. There are a wide variety of additional factors you will need to weigh in — for example, revenue you make from other non-rent sources, marketing you do to attract tenants and not owners, etc. We hope these guidelines can serve as a launch pad for you to better understand your business.
With these four KPI’s under your belt, you’re ready to bring everything together.
Using KPI’s to Determine Your Owner Marketing Budget
For our final part of our Property Management KPI series, we’ll share how you can use KPI’s to determine an appropriate owner marketing budget for your company.
Please note that the examples provided here are intentionally simplified due to the fact that every company has unique contributing factors influencing how their owner marketing budget will be built and operated. For a fully comprehensive conversation about owner marketing budgets, please call us at Fourandhalf.
To find your owner marketing budget, work backward from how we found your CAC. Multiply your Customer Acquisition Cost by your door growth goal — the number of doors you’d like to grow by in the next year. This will give you your Owner Marketing and Sales Budget. Simply subtract your Sales Budget from this number, and voila! You have your very own owner marketing budget.
Initially, this might seem like a big number, especially if this is the first time you’ve built a marketing budget specifically focused on acquiring owners. However, it’s important to compare this number to your Annual Contract Value and your Customer Lifetime Value to have a better understanding of what you’re receiving by investing in owner marketing.
Let’s take a look at our West coast example:
Our West coast CAC from our previous video was $3,429. Let’s say you want to grow by 40 doors. Multiply those together to get your sales and owner marketing budget – $137,160. If your Sales expenses have changed since last year, make the necessary adjustment, but for our purposes we will assume your Sales costs are the same: $60,000. Subtract that, and your new owner marketing budget is $77,160.
Calculating Owner Marketing Budget West Coast Example:
- Gather the data.
- Customer Acquisition Cost: $3,429
- # of doors you’d like to grow by: 40
- Your Sales Expenses Budget: $60,000
- $3,429 (CAC) x 40 doors = $137,160 (Owner Marketing & Sales Budget)
- $137,160 (Owner Marketing & Sales Budget) – $60,000 (Sales Budget) = $77,160 (Owner Marketing Budget)
Our Southeast CAC was $2000. With a 40 door growth goal, that gives us a sales and marketing budget of $80,000. Subtract your Sales budget of $40,000, and your new owner marketing budget is $40,000.
And finally, in our Midwest example, your CAC of $1,571 multiplied by 40 doors is $62,840. Subtract your $30,000 Sales budget, and you have your new owner marketing budget of $32,840.
Now that you have an owner marketing budget, you can really start to shape how you want to spend your owner marketing dollars. A strong, holistic marketing strategy will avoid the pitfalls of putting all your eggs in one basket. This means you are investing your owner marketing budget in both inbound strategies (blogs, videos, social media, etc) AND outbound strategies (Google Ads, Remarketing Campaigns, etc).
To get expert advice on what owner marketing services you should be investing in, contact Fourandhalf. We’ve been assisting property managers like you since 2012, and we’d be thrilled to help you achieve your growth goals.
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KPI’s are a great way of measuring how well you are tracking your business. The problem many people have is deciding what they should be measuring.
Indeed a good way to track business. Good and informative post
Hey Alex, thanks for the video!
Q: Can you help me understand why are you including the salary for the CAC? Isn’t the salary of a salesperson an administrative cost, and should be separate?
I agree with you that Sales and Marketing costs should be included, though, in my experience these S&M costs should only be the costs you generated for acquiring new clients, such as Advertisements, PR&Media, buying leads, etc.
Good question, Alan. Generally, wage costs are included in the CAC.
Sales and Marketing staffers aren’t administrative jobs – their work falls directly under the acquisition of new money coming in – both from new clients and upsells and reengagements. If you don’t include wages, the numbers don’t tell you the whole story.
An example: one of the reasons that upsells and re-signing ex-customers are more profitable channels is their lower CAC – because, generally, your sales staff spends less time to close them. If their salaries are lumped under “administration,” and kept separate from the CAC calculations, you’d never know the difference in costs and profit for your different channels.