Our special guest today is a property management guru and the property management coach – literally. She’s Kathleen Richards, who owns a business called The Property Management Coach. The topic we’re talking about today is pricing structures. Our customers always ask how to set up pricing.
Q: Kathleen, can you give us a quick intro and tell us about what you do?
A: As you said, I am a property manager and I own Portola Property Management in Santa Cruz, California. We are an award-winning company, and I’m an active member of NARPM. I’ve been involved with different conferences and I’ve served on boards at the state and local levels. I also have a coaching business called The Property Management Coach. I provide guidance to other property management company owners on topics like this and I help them to keep up with their businesses, showing them where to focus their attention and how to be successful.
Q: We all need help and coaching, and someone to be the guiding light for decisions we’re making. Even if we make the right decision, we need to figure out how those decisions impact our business. How do you address pricing?
A: If you’re a new company starting out and you’re growing your business organically versus buying a company that might already have a pricing structure in place, look around and see what your competitors are doing in the area. Figure out how you can differentiate yourself. Sometimes people do a flat fee and for a new business owner that may be a great way to go. You can build your business quickly that way, just make sure you don’t over-commit to all the things that will fall under that set price, otherwise you’ll be doing a lot of work for free. It’s also common to do a percentage of the rent. You need to decide what will be a good range. For example, if in your area you find out by doing your own research that all you competitors are charging X amount, maybe you charge a percentage below that. Then there are hybrids where you can charge a percentage for the monthly management and then you have other value-added services with set prices so when the owner needs that service, you charge at the time the service is provided. If you’re buying a company with an existing price structure but they’re lower than you’d like to charge, you have to make strategic changes. So maybe you keep the prices at first so the new owners can see how great you are. Then, you can educate them about what you do and then roll out new services or start increasing prices.
Q: What about the concept that has been working well for technology businesses and is making its way into service businesses where you can have different service levels and prices: Good/Better/Best. The Good level is something low priced just for management and then Better and Best packages offer more and also cost more. Does that structure work?
A: I did that myself. I bought a company 15 years ago that had one price with everything included. After a year I uncoupled it and I set out clearly what the management fee covered, and then I started charging separate fees for value-added services. That allowed different revenue streams to come in. Then over time I offered a Classic/Deluxe/Premium pricing model. I think that works well depending on your market. If you’re in Silicon Valley, that’s great, and people will always go for Premium. They are busy and they don’t want to deal with property management. But in a smaller market, that’s maybe more price consciousness, and I found that everyone kept choosing the Basic price structure. So that’s the entry level price and as you want different services, you just pay for them as needed. That worked in my market. But it took a lot to have three different options and have everyone choose same option. So I revamped again and increased my management fees to be more premium based and I threw in some of those things people had been paying for. One example is the preventative maintenance check on all our properties. We allowed owners to opt in or out but that caused a lot of logistical problems. So we decided that everyone would have that service. It’s included as a freebie and helps us validate our higher management fee. We still have certain services that we pay for on a per price basis. So I have a bit of a hybrid.
Q: I love the opportunity to earn our customer’s business at a lower level and you have the opportunity to upsell. It’s a win-win, and the relationship is healthy. The biggest reason why a landlord doesn’t hire a property manager is in their perception of the price. They cannot connect the value to the price. So offering a low price and then leaving yourself an upsell opportunity is a great way to do it. Is the risk that they will all choose the lower package?
A: That strategy worked because while people do choose the lower price you can educate them about your different services. We send out quarterly newsletters about our new services. As they trust you and you educate them about different things, your clients will gladly pay for new services. The trust has been established. I offer new products and services that came out of demand. I teach classes at community college and one demand I identified has to do with pets. We live in a coastal area and it’s very pet-friendly, but a lot of property owners didn’t want to allow pets. So I developed a pet program which has been a huge success. When a tenant is approved for a pet, we need to meet the pet first so it’s what they say it is. We make sure it has a good temperament. Then we collect the extra money towards the deposit. We do two pet inspections per year that the tenants have to pay for. We charge the tenants and the tenants are happy to pay for it.
Q: I can see how that would work because I have a German Shepherd who is a super dog. But when we had to rent for two years, it was murder to find a great place to live. I was willing to pay extra, but people were wary of renting when we had that dog.
A: That’s why it’s a huge success. When owners know we are going in twice a year and they don’t have to pay for it, they are willing to rent to tenants with pets. Our residents have loved it too because they are showing us what a great job they are doing to take care of the property. We can charge a higher rent for the property being open to pets, and we get higher end properties where people like you want to live. They don’t want to live in a dump where owners don’t care about fixing things. So that came out of a demand. Other things that have come from requests include our concierge services. I teach classes to people who want to manage their own properties, but many of them still want someone to run credit and process applications. So we have a whole line of concierge services and one of them is to be the back office. We process applications and we tell them if it’s a yes or no. Then we do the lease paperwork so the owners are confident they have a good legal lease, and the tenants have been processed. But the owner has the relationship with the tenant. I encourage people to use our concierge package and have more involvement in picking their tenants. So people need to think outside the box. Instead of saying you don’t do something, think about whether you should.
Q: One of my favorite property management friends is Chris Hermanski. And he says you don’t have to be working all the time, but you should always keep your antennae up. Always be processing and looking for ways to improve. So you are doing the same thing by just listening to your customers. You’re packaging things up and letting the demand make it happen for you. What is the highest fee you ever saw in property management, and what is the lowest?
A: The lowest price I ever saw was someone willing to manage properties for four percent a month. You’re basically working for free at that price. I guess it depends on where you live. In Beverly Hills, that might still be a good return. Where I am, it’s not worth your time. The highest I have seen is 10 percent, and typically in our area, that’s as high as anyone would go. I know I’m not the cheapest because I do a hybrid system, so I have my revenue streams coming in from lots of different places. We have in-house maintenance and inspections at lease renewal time. We get additional revenue by always educating our owners about the value we bring to table. We also offer a lot of things that we don’t charge for. So owners feel like they get something back from us. Our company keeps mini fridges available and space heaters in case things go wrong at a property. This equipment is for the short term, and we don’t charge for it. I’ve had clients ask me to accompany them to an estate attorney after the death of a tenant because they were too distraught to stay organized. I don’t charge for these situations when it serves a long term client.
Q: I think this has been very revealing about property management prices. The pet plan is especially brilliant. I don’t know why more property managers don’t do that. If people want to hire you, where do they go?
A: You can find me at thepropertymanagementcoach.com.
We have one more thing to tell you: Fourandhalf.com, PMW, and LeadSimple.com are putting together a conference for those property management companies that want to grow. It’s called the Property Management Grow Conference, and it’s going to be in January 2017. Kathleen will more than likely speak at that conference. So, make plans to see us there.
Thanks for joining us, 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.