Learn, apply and profit from them!
When it comes to fees and increasing your income, there is a distinct set of laws and principles that will work for or against you.
They are true and proven, and they can be relied upon for a suitable outcome and result, or you can use them to navigate around pitfalls.
These are laws and principles I have discovered throughout my personal experience and also through working with countless clients over many years, plus that which I learnt as a property manager.
You will no doubt already see some of these workings for you right now and there will be new things that you will learn for the first time that you can begin implementing straight away.
They can be applied to many areas of your business but particularly when it comes to increasing your profit margin – the main reason you are involved in business should you be a business owner or manager!
Profitability strategies do one thing; they increase your income with the business you already have. That means that it isn’t costing you more in overheads to achieve as business growth can.
Unlike rent roll growth that is always accompanied by an increase in the investment of time and resources, profitability strategies do not increase your workload.
They simply increase and maximise your income, and that means that you get to keep them all the proceeds as profit as they are injected straight to the bottom line on your profit and loss statement!
1. The Law of Cost for Value – ‘you get what you pay for‘.
This is one of the most universally accepted principles in the global economy today.
Everyone accepts that if you want a better quality service or product, you can expect to pay more for it.
When deciding to purchase a Toyota or a Kia vehicle, there is an understanding that they have different price points because the quality is different. You may shop at Target or Myers for clothes and again you will expect different levels of quality in their garments and therefore you will assume that prices will be consistent with that difference. The higher quality fabric and workmanship will understandably carry a higher price tag.
The key to making this principle work for you is to prove that your property management service is of superior quality. You may install some great points of difference and extra value-added customer service strategies and you might even provide your staff with a deeper level of training and training opportunities.
Once your superior quality has been proven in the eyes of the prospect, you can confidently ask for a better price that is consistent with that level of quality. Consumers understand the need to pay more if they want better quality.
In general, people want to receive a better quality service, than over a basic, cheaper one that doesn’t fulfil their service requirements fully.
2. The Law of Price Focus – ‘In the absence of value, price is now the focus.’
I was once on a plane, flicking through the in-flight magazine when I saw an insurance advertisement with the quote ‘In the absence of value, price now becomes the issue’.
Closely associated, yet opposing the law of cost for value, this law becomes evident when you fail to demonstrate that your goods or services are of a superior or better quality, and an equivalent product or service known to your prospect is available at a lower price.
They will now bring your price into question and request a price reduction to match that of your competitor.
In other words, if the prospect does not perceive that your product or service is any different from that of the competitor and theirs is cheaper, the price will now come into focus and into question. You will likely be asked to discount, to secure their business.
One of the most common issues experienced in property management today, people wonder why prospective clients are constantly asking for discounted fees. Quite simply, they failed to demonstrate to that prospect that their product or service was of higher quality, different, or more effective than the lower-cost alternative. It was quite simply seen to be the very same product.
However, if you can prove that you have a superior product or service, you can ask for a better fee and (in most cases) get it.
3. Law of the Main Game – ‘Know that the management fee gets the most focus’
This law is mainly relevant in property management or with a service that has a fee structure that has one main fee dominating the others.
Put simply, in property management most prospective clients focus on the management fee. If not this fee, they may then place focus on the letting fee, however, the other ancillary fees in general ‘fly under the radar’ and seem to be overlooked in importance.
We, therefore, place emphasis on building, adding and/or improving ancillary fees whether it is a lease renewal fee, annual statement fee, monthly fee, vacate inspection fee, maintenance fee, routine inspection fee and the like.
4. The Law of Alternative Cost – ‘What would it cost to not receive the service?’
Very simply, if the cost of a service is much less than the cost of not taking up that service/product, the client will pay your fee.
For example, an End of Financial Year Statement Fee; let’s say that you charge $35 and your client opts out of this statement, as they say, they do not wish to pay for it. What is the alternate cost for them?
Should the client give their 12 individual monthly statements to their accountant, it may take the accountant 1-2 hours to collect the data and provide the same calculations that would have been supplied on an end of financial year statement. This cost of 1-2 hours of work charged could be $300 to $400.
Therefore your fee of $35 against potentially paying $300 to $400 to their accountant makes good business sense.
Try and apply this law to as many of your fees as you can.
With some imagination, thought and focus, you should be able to apply this law to most of your fees!
5. Law of the Fee Lid – ‘You will only charge what you believe you’re worth’.
We believe that in property management, what people charge is simply a reflection of their mindset.
Our secret fee shopper regularly calls agencies across Australasia to obtain their fee structures, and we are staggered to see fees in the same marketplace between different agencies, all over the place and totally inconsistent.
We look for patterns. Do a group of businesses charge similar fees because they are in a certain marketplace? No, there appear to be no patterns geographically that we can find.
Do certain franchise or member brands have consistent fees where we can find a pattern? No, we cannot recognise any patterns here either.
As we cannot come up with any other reason or pattern to explain this, we believe that the difference is their mindset. Whoever came up with these fees for their property management agency, this is what they believed they were worth. This was their mindset. Their fee lid!
An interesting example of this occurred several years ago when a real estate business owner called me. He said, “Darren, a year ago we had 50 less properties than we have now, however, our fee income per month is less now than it was then. It doesn’t make any sense. Can you come in, conduct a business health check and find out what the reason is?”
After visiting the office and spending time observing operations, it didn’t take long to work out that the property manager believed that the fees charged by the company were too high and even a rip-off so she was simply charging at the end of each month what she believed they were worth (to her)!
Her heavy discounting made their monthly totals much less than they had been obtaining before. The property manager had a discount mentality and whatever the management fees were set at, she was charging much less. She had charged fees simply according to her mindset. This was her fee lid!
Needless to say, she wasn’t with the company for much longer after that. Once the lack of monthly fee accountability with the staff member concerned was dealt with, things improved for their department fee income.
See part two for the next 6 profit laws you can use with your property management fees.