The Demand Solutions Blog

Is Your Bonus System Hurting You?

Posted by Donald Davidoff on Sep 26, 2013 5:26:00 PM

Funny thing about bonus systems —you often get exactly what you incent. Now that doesn’t mean you get what you want. It means you get what you incent. So here are a couple of pet peeves of mine that I’'ve seen w.r.t. bonuses in multi-family that at best just waste money but at worst actually hurt our pricing and revenue management efforts:

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Topics: Revenue Management, apartment, property management, apartment operations, apartment pricing, multi-family housing, pricing and revenue management, financial performance

Budgets are Looming

Posted by Donald Davidoff on Jul 9, 2013 1:27:00 PM

As we enter the “dog days” of summer, it’s time for pricers to look ahead. Things are usually good right now—we have a strong tailwind from seasonality so rents and occupancies are trending upward nicely. And with various summer vacations going on, the pressure isn’t quite as high as it usually is—most operators and executives are happy with the trends, and some of them aren’t even in the office today anyway.

But as anyone who’s been doing multi-family pricing for any length of time knows, beware the coming of the 4th quarter. For though the kingdom seems at peace, we know that ill winds are about to blow. Come September/October, two things will conspire as we face what is often our biggest enemy:  the BUDGET; and it’s almost equally evil sidekick, the operator’s bonus.

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Topics: Revenue Management, property management, apartment operations, apartment pricing, pricing and revenue management, financial performance

KPIs: What Exactly Are You Trying to Measure?

Posted by Donald Davidoff on Jun 27, 2013 10:50:00 PM

So I’ve been doing this D2 Demand Solutions thing since I left Holiday Retirement a bit more than 7 months ago. I counted that I’ve now worked with an even dozen clients [ok—a) there’s no such thing as an “odd dozen” and b) why is it that I’m compelled to count things? Have been since I was a kid—no wonder I got into metric-driven analytics]

Anyway, the point I want to make is that across virtually all of this client base, I have found an almost never-ending pursuit for the perfect metric (or metrics)—that simple set of KPIs that will do everything we need to know what’s “really going on” in our business. And I’ve realized that part of why this is a virtually impossible quest is that there are really two VERY DIFFERENT purposes for a metric.

 

Financial metrics/dashboards/reports

As the name suggests, these metrics deal with financial results. For public companies, they give us advance insight into what the EOQ numbers are going to look like; for private companies, they’re really what our owner cares about—it’s all about the cash in bank.

The trouble with financial metrics is that they can show skewed data that leads to incorrect assumptions about how operations/sales is performing. For example, if I forecast 95% occupancy for the community and I hit that number—BUT my 1BR occupancy is 97% and my 2BR occupancy is 92%, my financials will be below budget (and vice versa if the 2BRs are the higher occupied unit) just because of the sales mix. This is particularly an issue if you look at a metric like month-over-month (MOM) new rents—if I sold 10 2BRs last month and 5 1BRs—and this month I do the reverse and lease 5 2BRs and 10 1BRs—my MOM new rents look way down. But it’s just a temporary sales mix thing, not poor sales performance. 

The thing is that these metrics still matter—if I do sell more 1BRs than 2BRs, my cash in bank and my reportable revenue is truly lower, so I need to know that. But I DON’T WANT TO GIG OPS FOR JUST A SHORT-TERM SALES MIX ISSUE.

 

Business behavioral metrics/dashboards/reports 

Enter the “behavioral metric” which is great for operational dashboards and reports. With these metrics, I normalize for the sales mix. For example, I can calculate a new rent at the unit type level and then aggregate up to a community-level new rent by using a UT-count weighted average of the two. This fixed ratio gives me a number indicative of the community-level rent, but it won’t tie to financials because I normalized away the sales mix. It will, however, show me whether my underlying rent trend is up or down because sales mix variances won’t affect this metric.

I can do the same thing for unit-level amenities. I can strip away the unit amenities and track base rent movements. Again, these won’t tie to financials because amenity upcharges are real, but this metric won’t have volatility simply due to changes in sales mix of highly amenitized vs base units being rented.

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Topics: Revenue Management, apartment operations, financial performance

Channel Pricing Conflict and Customer Service

Posted by Donald Davidoff on Jun 17, 2013 10:45:00 PM

So this past week was an interesting one for travel. I was attending the Folk Alliance International’s conference in Toronto through Sunday. Nothing to do with multi-family housing—just an organization I’m Treasurer of and a chance listen to a lot of incredible music while getting very little sleep.

I was supposed to fly home Sunday evening, change out clothes and fly the next morning to the NAA Student Housing conference to be on a student housing pricing panel (probably a good topic for a future blog), then on to Rainmaker’s LRO User conference in Palos Verdes, CA. Side note: Bruce and Tammy sure know how to pick resorts—the Terrenea is just a fabulous resort with view of the Pacific Ocean and Catalina that are just spectacular.

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Topics: Pricing, Revenue Management, property management, apartment operations

ApartmentRatings.com: Critical for Marketing?

Posted by Donald Davidoff on Jun 17, 2013 10:45:00 PM

There are many different opinions about the value of social media in multi-family housing. Readers of this blog should be pretty aware of mine. But the one thing that everyone seems to agree on is that ratings sites are important. There’s a lot of debate about what to do with ratings sites, but everyone seems to agree there’s some “there” there.

So I thought it would be a good idea to get a sense of exactly how important ratings sites are. The first step I took was to dig up some research I had done for a client back in February. In it I wanted to identify whether there was a clear “category killer” or whether multiple ratings sites were important. In an admittedly un-scientific way, I just looked at 10 communities in the Washington, DC market.

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Topics: social media, apartment operations, multi-family housing, apartment marketing, marketing programs, apartment ratings

Pleasure or Pain

Posted by Donald Davidoff on Apr 18, 2013 8:40:00 AM

Those of you who know me well know that my brother is a sales coach. Well, more than that but this blog isn’t really about him, so I’ll leave it as a gross simplification of what he does. He and I used to work together—he ran a sales team and I ran the service team for a membership group of travel agencies back in the 1990s.

One of the first things I remember he taught me about sales and marketing is that people are motivated by only two things—they seek to avoid pain and they seek to gain pleasure. But it’s not symmetrical. We’re actually wired to put more attention to avoiding pain than to seeking pleasure. That’s why it’s easier to sell something to someone solving a crisis than it is to someone who’s doing very well and says they want to do better.

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Topics: property management, apartment operations, apartment pricing, pricing and revenue management, apartment marketing, marketing programs

Evaluating comps when pricing

Posted by Donald Davidoff on Mar 19, 2013 10:44:00 AM

Understanding your competitive set when pricing is obviously important. If you’re constantly at low exposure, you can push pricing and ignore whatever comps are doing. But if your exposure ever goes up, you’ll want to make sure that you’re not priced out of the market such that you can’t reduce exposure.

In my experience, I’ve seen two “camps” on how to approach this problem. The first tries to build the comparison from the ground up. We audit our community against the comp on a variety of things—age, community amenities, unit size, unit type amenities (balconies, fireplaces, kitchen and bath finishes, etc.), and record these in (usually a large) spread sheet. $15 for a balcony, $3 for crown molding, $10 for a fireplace, ….  A lot of work, and a lot of alleged precision.

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Topics: apartment, apartment operations, apartment pricing, pricing and revenue management, competitor shopping

Pricing and Dispositions: When 12-1 does not equal 11+0

Posted by Donald Davidoff on Jan 15, 2013 6:00:00 PM

The deal world. Gotta love it. Smart people doing deals worth tens of millions. Even hundreds of millions of dollars. Surely with that much money at stake, processes are wired tightly and there’s really no room for pricing shenanigans, right? Of course if you believe that, you probably thought sub-prime mortgages were a great investment back in 2007 as well.

Here’s something that I’ve wondered about for the 15 or so years I’ve been doing pricing and revenue management in multi-family housing. Two different deal scenarios:

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Topics: Pricing, Revenue Management, property management, apartment operations