Multifamily Budget Season: 3 Areas that Drive Top-Line Results

September is upon us. With it comes shortening days, colorful leaves and crisper weather. And also, for most companies, budget season!

This year’s budget season may be particularly challenging as it feels like we’re in some kind of a transition. We know we’re past peak rent growth, but we really don’t know how it will end up. Will we have a very soft landing, a prolonged period of 2ish percent YOY rent growth which is at or only slightly lower than the long-term historical average? Or will we see a rougher landing? Worse yet, a multifamily housing rent recession?

We know from past experience that downturns can actually be a good thing. In prolonged periods of market tailwinds, it’s easy to lose some discipline, take on some fat and otherwise ride the wind. A market softening forces us to look deeply within ourselves and trim some of that fat, bring more discipline to our decisions and pedal harder in the face of a headwind.

I can already hear the “let’s get back to basics!” mantra that was the reaction to each of the prior market downturns earlier in my career.

In that spirit, I’ll spare the crystal ball gazing for this newsletter in favor of starting to “get back to basics” now. Why wait for the market to fall further before focusing on things we should be doing whether the next year is a soft or a hard landing?

First, focus on “The Big Three.” These are the three things that most drive top-line results:

1. Sales Performance

Do you have a formal sales model? Is it truly prospect-centered in a way that helps prospects make good decisions? Or is it more about the things you want prospects to do (i.e. about your needs rather than theirs)? Is it practiced, coached and practiced again? Or just taught during onboarding? The sad fact is that most sales training in our industry is episodic; and it’s built on old school ideas about how sales people manipulate the process to their advantage. In a post-ZMOT world, authenticity wins; not for any warm and fuzzy moral reasons, but rather because it’s good business practice. Prospects demand it, so if you don’t have a good system in place then budget for a project to fix that in 2018!

2. Lead Generation

Are you dialed in on all lead sources? Is your website optimized for SEO, and do you have a PPC strategy? In rougher water, you have to paddle harder. So what has been good enough the past few years likely will not be good enough for the next few years.

3. Pricing

Pricing is often the easiest lever to hit which is why I put it last. The best results come when Lead Generation and Sales Execution are strong so that pricing movement becomes the last, rather than the first, resort. A few other questions to ponder (and plan for):

• Does your pricing system distinguish changes by unit type or do you tend to make across the board adjustments? During market softenings, it’s not unusual for people to “roommate up” thus putting supply pressure on studios and 1 bedroom units while adding to demand for two bedroom homes.
• When was the last time you calibrated parameters on your system? Do you have a sense of conservative vs aggressive parameters, and have you communicated that strategy to your pricing team?
• How well have you prepared your field teams? The single biggest risk to pricing performance is fear. The more confident your sales team, the better the pricing results.

Next, think about other ways to directly influence operational performance:

Getting More from the Leads You Generate (e.g. Email Remarketing)

In 2014, we released research on email remarketing, the practice of having regular follow ups with prospects by email. The results, to say the least were disappointing. We just finished a 2017 follow up and are about to release those results. We expected to see improvements, but we actually saw WORSE results than 3 years ago. Email remarketing is basic blocking and tackling in hospitality and retail, so there’s simply no excuse for how little it is used in our industry. I hate to sound preachy, but I’m truly shocked at how this simple and inexpensive tool is ignored. Change that! (If you’d like an advance copy of the new research, just email donald@d2demand.com to request it.)

Credit Screening

This is an oft-overlooked lever in demand management. Most A- and many B-class companies I’ve worked with have bad debt ratios below 0.5% of revenue. This is very low by other industries’ standards. When markets soften, it may be worth accepting a slightly higher bad debt ratio in order to drive more leases. So plan for slightly higher bad debt in your budget and reap the occupancy and overall revenue rewards.

Third, invest in resident retention:

• Resident relations don’t have to be about big, expensive parties. There are many inexpensive ways to wow residents, to create those “micro-moments” where the emotional impact is so much bigger than the cost. The key is to create small moments that delight—think free coffee and donuts as residents leave for work or a surprise pop-up party at the pool. These are often best unannounced as surprises have more psychological impact than formal events. Budget season is a good time to commit to at least 1 monthly micro-event.
• Renewal practices: I’ve said this before, and I’ll say it again. Renewals should be a sales activity, not a direct mail campaign. In strong times, we can get away with the latter. But as markets tighten, the extra touch could move the dial just a couple of points on retention. Improved retention takes pressure off new leasing and pricing and creates quite the virtuous cycle.

Lastly, don’t forget about business intelligence and analytics. You can’t manage what you don’t measure. So as you start your planning for 2018, ask yourself what data, dashboards and reports  you wish you had. Then put a project into the budget. But remember to keep it business led!

Best of luck with your 2018 budget planning. And if there’s anything we can do to help you improve your NOI in 2018, don’t hesitate to reach out! We’d love to be there for you!