The Demand Solutions Blog

6 Indicators that it's Time for a Pricing Health Checkup

Posted by Jessica Mills on Sep 26, 2017 3:00:00 PM

6 Indicators that it's Time for a Pricing Health CheckupModern pricing strategies and revenue management systems have had a tremendous impact on the performance of multifamily owners and operators. While systems like LRO and Yieldstar are quite robust and continuously improved, they are not infallible on their own. In fact, the flexibility they give operators to implement a range of strategies means that users need to review and modify settings as market conditions and strategies change.

Forward-thinking and high-performing property management companies realize that, as with any system, a routine assessment or checkup is a powerful tool. Inevitably when you look at your pricing and revenue management system in depth, you find areas of meaningful improvement.

Here are six indicators that the time has come for a pricing health checkup:

1. Large Occupancy and/or Price Swings

If you see that your occupancy is spiking up and then spiking down, either your system may be configured wrong or there may be something about how you're executing the use of the system that needs to be looked at. This could be caused by a variety of factors, including overrides or lack of compliance with the revenue management system’s pricing.

The whole point of a revenue management system is to have much more stable occupancy and steady revenue per unit growth, so if you see volatility in occupancy or revenue per unit, that means you're getting the opposite results from what the system is supposed to be delivering.

If you see an occupancy drop of a point or a point and a half in a short period (say over a four-week period) that would be a sign it’s time for a checkup, particularly if you see a significant drop at the portfolio level. 

2. Widespread Concessions

If you're forced to offer a lot of concessions across multiple properties, that's just a different form of reducing the price. This would call into question whether your pricing system is calibrated correctly.

If there's a need for lots of concessions, then the true market rate is below what your system is set at and that begs the question whether there's something that needs further investigation.

3. Significant Change in Pricing Personnel

If you lose a seasoned pricing veteran and you bring somebody new on board, it's a great time to do a pricing health checkup. As part of the transition, the health checkup is a great way to get the new person deeply involved in system settings and fully engaged with the company’s pricing strategy. You’ll also find that because the pricing model is a learning system, if the previous person had a certain way of doing things, it may or may not work for the new person. A review or pricing health checkup is a great way to ensure the new person knows how things are configured, and then what kind of attitude they need to take in managing the system.

4. A General Feeling that Things Just Aren’t Aligned

A lot of times, you’ll feel a growing angst between pricing and the field. Or you get a sense that the field is complaining about things more frequently than usual. You don't necessarily immediately think, "Oh, I wonder if it's the system setup. I wonder if I need to look at that." But if the system is not set up for current market conditions correctly, then the pricing model and the field are going to be fighting against each other a bit. So if it feels like you're fighting the system, it’s often an indication that something needs to be configured differently.

5. If You Haven’t had a Checkup Within the Last Three Years

Just like you don't have to feel sick to get a physical, you don’t need to have a visible problem to justify a pricing health checkup. Markets change over time. People will continuously make small changes to the system which, as they add up over time, result in big changes. Or people could be making changes in the property management system around amenity pricing, which on their own are small changes. Done frequently over an extended period of time, it can result in material differences that need adjustment. In the health world, they recommend annual physicals. I don't know that you need an annual checkup, but certainly every two or three years, it's worth taking a look.

One of the most common things I see in checkups is parameters set to certain values and no one able to articulate why they’re set the way they are. So that's an 'ah-hah' moment where you may ask, "What do you mean I’m not being aggressive in that market?" Or a renewal cap that was in place that they didn't realize had never been removed. There are many times that somebody made some decision, for some reason, at some point, but never went back and undid it when their situation changed. Now we’re six months later, 18 months later, it's “Oh wow, that's still there?!”

Another common issue I see is people messing around with unit amenity settings. In the amenity portion of a health checkup, it's not unusual to find a handful of examples where an amenity is missing. For example, apartment 101, 201 and 401 all have a balcony, but 301 doesn't. It's also good as part of that checkup to do a days-on-market analysis, to see if the pricing of amenities is still appropriate. When the business cycle is in a bull market, people or prospects are willing to pay more for amenities like a walk-in closet, a balcony, or a view. As markets go south, people become less willing to pay. If it's been a few years since the last the checkup, it's not unusual to find that pricing on amenities had worked in the past but are no longer aligned with the market cycle.

6. Poor Performance

Any time you find a performance opportunity, it always comes down to a question of whether it’s a pricing issue, a lead generation issue, or a sales execution issue. It's not unusual when doing a price health checkup to uncover things are really a symptom of a deeper underlying problem—and often not a pricing problem. So what starts off as a pricing issue can quickly turn into an opportunity to improve performance on the marketing side, with lead generation; or more on the sales execution side, regarding sales performance improvement.

If any of the above resonate with you, it’s probably time to do a pricing system health checkup!

The Multifamily Pricing & Revenue Management Scorecard

Topics: Pricing