On The Property Management Show today, we’re talking with Ray Hespen, who has been here before to talk about maintenance, data, his company PropertyMeld, and the dangers of ghost maintenance requests.

Today, we asked him to discuss what some of his recent data has been telling him about customer churn in the property management industry.

How Can We Describe Owner Churn?

When we think about churn, we typically think about losing a customer.

The property management space includes more third parties than it did 10 or 15 years ago. You’re working hard to hold onto the customers who are trusting you with their property and paying your property management fees.

How good are you at hanging onto those customers?

How many of them do you lose?

Understanding your churn rate is not complicated math. Let’s say you sign up 100 owners this year. At the end of the year, you have 80 of those owners still with you. This means you have a 20 percent churn rate.

A person in a button up shirt holds their hands around a bunch of wooden people sitting on a table. This represents customer rentention.

Mastering Your Churn Number

Forget growing your business by 200 doors this year. That’s a big, bold, and brave statement. But, it doesn’t matter how many doors you add if you cannot hold onto your current customers.

This has a much bigger impact on growth than a lot of people realize.

Customer retention impacts your earnings in a potentially huge way.

  • Let’s say it costs you $750 to gain an owner. That’s inclusive of your BDM costs, your marketing budget, etc.
  • Let’s say you earn a 40 percent margin on that customer and earn about $2,200 a year in revenue.

For an average or small company, the difference in hanging onto that customer for five years instead of three years is pretty meaningful. But, if you’re a company with 500 doors, the difference in three-year customers versus five-year customers can add up to a million dollars in profit. The difference over 10 years is actually $4.9 million in revenue (5-year customers) versus $2.8 million (3-year customers).

Your acquisition cost is the same, whether you hold that customer for one year, three years, five years, or longer. But when you hang onto that customer for longer, you earn higher revenues. This has not been a talking point for property managers the way it should be.

Everyone knows losing a customer is bad. But, if you do the math on how much money you’ll make when you keep those customers – those retention goals take on a new urgency.

This needs to be a key metric. It’s potentially more important than acquiring new clients. You can spend a lot of time on conversation rates and leads per month. But, you have to think about your churn rate, too.

An image of a wooden desk with several sticky notes in a row. The furthest is blue with the words "get traffic" and an arrow pointing to the next, which is yellow with the words "get sales" with an arrow pointing to the next, a peach sticky note with the words "get leads" and an arrow pointing to the final note. The last one is held in someone's hand and is pink with the word "retention" underlined,, highlighting the importance of retention over sales.

What to Assess When Evaluating Churn

Why are owners churning?

You need to spend time understanding why customers leave and then trying to make things better whenever possible.

Ray stresses the importance of collecting qualitative and quantitative data. Quantitative is hard data. It involves numbers, and it’s critically important. Qualitative data requires conversations that are sometimes difficult to dig into.

Customers won’t always tell you the real reason they’re leaving. How can you uncover it yourself?

In America, we’re less direct than people are in other cultures. You have to get to the real reason an owner is leaving.

Here’s a great story that delivers a good analogy:

Grocery Clerk Helping CustomerA woman goes to a grocery store and says she’s looking for potatoes.
The salesperson takes her to that section and asks why she needs potatoes.
She says she’s having guests for dinner.
The salesperson asks who she’s having for dinner.
It’s her mother-in-law.
The salesperson asks why she’s making potatoes for her mother-in-law.
The woman says because the mother-in-law hates rice, so she can’t make rice.

That’s the kind of investigating that’s needed to get to the root struggle and the reason for your churn.

Instead of agonizing over what makes people leave, you can take a different approach and figure out why people stay.

Solve problems early.

Studying Why Owners Leave Property Management Companies

Several color arrow street signs point in different directions. The signs have the words "Where Did Your Customers Go?".PropertyMeld works with 190,000 investors. That’s a lot of data.

That data is being used to look at owners who stay and leave property managers. Some common themes and threads have emerged.

They looked at everything from communication to maintenance to whether owners seemed to respond better to simple billing or complex billing.

Some of the data has proven inconclusive and some of the data was surprising to Ray.

Here are some high-level pieces of information that you need to know right now, based on the work that PropertyMeld has done:

  1. Measure your owner churn. You cannot change what you don’t measure.
  2. Three things seem to have the largest impact on whether owners stay or leave their property managers.

First, let’s look at measuring your owner churn. You need to know who churns after the first year, after the second year, after the third year – etc.

Now. Let’s talk about those three things that matter most. But first, the biggest surprise:

  • Communication may matter less than you think. A lot of property managers like to talk about personalized touches, answering the phone, and the importance of communication. But, does it matter? Based on Ray’s data, it’s somewhat insignificant. People don’t care about personal phone calls. They don’t want to call for a pizza, they just want to swipe something on an app and the pizza is outside their door in half an hour. They don’t want to go into a cell phone store and talk to a salesperson, they want an automatic upgrade that lands the new phone at their door in a day or two.

Your owners want to know what to expect and they want to know that you’re taking care of everything for them. No one is making phone calls. They’re using live online chats and they’re sending emails. Owners don’t leave because you’re not calling them. They’re not staying because you are.

The top three things that impact churn the most are as follows:

  1. More maintenance being done for lower costs keeps owners.
  2. Interventions are required to keep owners at or below the 12 percent of maintenance costs/rental earnings threshold.
  3. Resident satisfaction and lower turnover.

Let’s talk about those first two and save the third one for the second part of our podcast with Ray.

Volume of Repairs: The More Work, the Less Churn

Property owners don’t know how much work you do for them. You can call it “invisible work.” There’s a perception of what you’re doing and then the actual amount of work you’re doing.

What’s surprising is that the more maintenance work that was done, the more likely it is that an owner will stay with a property manager.

This was surprising to Ray, who expected the opposite.

But, when 15 percent more maintenance work was being done for an owner over average, that owner was more likely to stay with their property manager. More maintenance actions are better for client renewal.

This opens you up to an opportunity to improve your preventative maintenance offerings. As long as it’s not expensive, owners welcome having you inside the property, making these minor and preventative repairs.

Preventative property maintenance checklist

The 12 Percent Rule

We know that owners want more maintenance done.

But, we also know that once an owner’s maintenance costs go over 12 percent of what they collect in rent, they’re far more likely to leave their property manager.

This is a magic number, and we’re not talking about institutional property management clients. These are small, everyday investors who own a property or two. They have a gut sense of how much money they should be making. So, when you stay below this 12 percent number while still providing frequent and necessary repairs – you’re in a good spot for client retention.

If you go over that 12 percent number, your chance for churn is higher.

Doing more maintenance at a lower cost is your formula for retaining clients and owners.

What is Normal Churn?

How much churn is normal, and how much churn is too much?

That’s a benchmark we still need to set. PropertyMeld is still collecting that data and will share it with the industry as soon as it’s documented.

Fourandhalf did an industry survey that didn’t specifically cover churn, but did ask about net changes to units managed over time. It also provided other useful insights like median customer lifetime in the industry and correlations between marketing and growth.

Get those survey results at 2022.pmgrowsummit.com and check out Marie’s talk on the Ghosts of Marketing Past, Present, and Future.

If you’d like to hear more about what Ray discovered about churn and property management, don’t miss Part 2 of this podcast.

Contact us at Fourandhalf with any questions you have about our conversation with Daniel Craig of ProfitCoach.

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