Increasing fees is very successful!
It’s amazing the number of principals and property managers who believe their clients will walk out the door if they go and increase their fees!
With the departments, we have implemented fee maximisation strategies this campaign of increasing fees is very successful. This involves charging one or two extra new fees, improving a couple others, and/or increasing clients’ management fees to the levels they should be.
Management fees can be discounted by property managers when the client was originally signed up and the process simply reverses this situation, plus introduces one to two extra fees.
So with this goal in mind, why do so many offices experience success with this process when they all originally predicted doom and gloom with a mass exodus of clients?
The two essential conditions for it to work
To answer this we first should look at the two conditions that should be in place before we can successfully increase rates and add new fees.
Firstly, the service levels landlords are receiving must be at a reasonably good standard. This means that complaints received are minimal and landlords are mostly satisfied. A good way to know is to conduct a client satisfaction survey. If you get most back and nearly all are good this is a great indication of satisfaction.
Secondly, you must have staff stability. This means landlords must not have had to deal with several property managers in the last 12 months. They should have had a new property manager for at least a few months and are settled with their new representative.
Naturally, newly bought rent rolls need to be ‘bedded down’ into their new agency for at least 12 months before these ‘bought’ clients are asked to pay more. This also applies to clients who have been newly signed up in the last 12 months or who are on fixed-term management agreements. Stability with no change is the key here!
Why it works!
OK! Now we understand the conditions needed to launch a fee maximisation campaign, let’s now look at why fee maximisation works.
To answer this we must understand human nature.
Consider these points:
1. A Service Industry – Property Management is a service driven industry. This means most people want good service levels and fees are a secondary issue. Only a small portion of clients are really fee-driven.
2. It’s better the devil you know’ – For a client to change their business to another agent they must first confront their property manager who they have got to know and trust. Second – they have to pull their business with all the paperwork messing around and then go into the ‘great unknown’ to find another property manager whom they don’t know or trust! It is far easier to wear a fee increase than go to the effort of changing. ‘It’s better the devil you know than the devil you don’t!’ is very true here!
3. The ‘Norm’ – What a person may grumble about now will become the norm in a couple of months’ time and is quickly forgotten. People get used to new fees!
Think of yourself when services you employ have just told you your fees need to go up because of rising business overheads. Think of your accountant, bookkeeper or hairdresser. When their rates and fees went up what action did you take? With services where relationships are involved, we will stick with the services we know and trust.
Human nature is really on your side with fee maximisation! People just don’t like change! If they are happy with you they would rather stay than cancel management. They are more motivated by keeping the status quo and continue receiving your services than going through all the motions by terminating their agreement with you.
Only a small proportion of clients will decide to leave
Of course, there will be people who will pull their business but it is only a small proportion of clients who are really motivated to go and search for a ‘cheaper deal’ elsewhere. The great thing is that these clients are usually the most difficult ones, the ones with low rent and/or severely discounted fees in the first place!
With the extra income gained from the campaign, the overall income increase achieved is very worthwhile and supersedes any losses sustained.
So instead of thinking that increasing rates will severely damage your business think again!
Profitability is something that is not considered by most principals, and sadly, most departments run well below the income levels they should be getting!
Property Management is a gold mine when done properly and is the very financial backbone of your real estate company. Run it right and your department will look after you!
All the best!