PRM is NOT Just PRM

Hi Friend,

It’s been a while since I dedicated this space to a pricing related discussion. I’ve been focusing time on getting this industry to have a conversation about sales (i.e. leasing) as I think that’s the next “big thing” to impact demand management in our industry. Yet the reality is that pricing and revenue management (PRM) projects are still a large majority of our revenue, so I feel it remiss not to at least occasionally bring up some significant pricing issues and opportunities.

Institutional investors are getting into the game

I remember the early days when we could only talk to owner-operators about PRM. Fee managers didn’t care because a 3-5% revenue lift didn’t mean much to them when they only got 3% of that revenue (and sometimes less). Institutional owners didn’t seem to care too much, probably from a combination of uber conservatism (“we’ll wait and see how the public REITs do first”) and an over-reliance on their managers to choose technologies.

A few early adopter managers (and companies who both owned and did third party management) started to change the game. Now, not only do most large (and many medium and small) fee managers use a PRM system, but also I find many institutional owners started to prescribe to their fee managers which system to use. There are differences in the systems, and I believe provable out-performance for some. So it only makes sense that the party getting the most benefit (i.e. the owner) should drive that decision.

Renewals, renewals, renewals

While there’s always room to tweak and improve new lease pricing, the reality is that my work has shown that there are more opportunities on the renewal side. To be blunt (when am I not?), many operators are overly worried about renewal price increases. If you have renewal increase caps set anywhere below 10%, then you are leaving money on the table…and if you disagree with that assertion, then let’s talk.

Furthermore, few companies invest enough in optimizing their renewal business process and in equipping their site-level teams with the training, tools and skills necessary to conduct good renewal discussions. I’m very pleased that Multifamily Insiders’ Webinar Wednesdays will be featuring one of my webinars on this very topic on June 22^nd. Overcoming the 13 Most Common Objections at Renewal Time will provide regional and site teams with very specific and prescriptive things they can do to improve their renewal conversations. 

No longer just “checking the PRM box”

The industry continues to see more options for PRM solutions. While that can be a good thing, the other side of that “double edged sword” was that many operators would simply pick the cheapest system, the system offered by their PMS or the one with the prettiest screens. This has been particularly true for fee managers who don’t share in the rewards of increased revenue and are looking for the quickest path to show their owner “they’re doing it” and for smaller operators who personally feel the pain of every dollar spent and/or don’t really have the time or sophistication to do a deep analysis of the options. “PRM is PRM, right?”

The good news is that I now see signs that people are looking at the quality of solutions, not just checking the box. The plain fact is that PRM is NOT just PRM. As proven in many other industries, sophisticated math algorithms may be scary…and even appear counter-intuitive at times, but they always outperform simpler algorithms in the long run. If you’re willing to settle for a system that isn’t the best just because it’s cheaper or a bit more convenient, then be my guest. But in an industry with an average rent above $1200, a 50bps improvement on a 250-unit property adds $300,000 of enterprise value (using a conservative 6% cap rate). I think it’s worth investing the time to understand the differences in the model and even to spend a dollar or two per unit per month more to get the best. It may feel challenging and/or expensive, but it’s the best ROI you’re going to get on any technology investment I know of!