Pricing and Sales: Collaborators or Combatants?

Capacity-constrained industries like multi-family housing have an interesting challenge. In most industries, pricing and sales tend to get along. Both want to maximize sales, and both ultimately want the company to succeed. There are occasional areas of conflict—sales may want lower prices to make it easier to sell while pricing may want higher prices to protect margin and profit. But usually they can agree on what constitutes success—things like high closing ratios, overall volume, growth in volume and margin.

But in capacity-constrained industries like multi-family housing, these normal rules don’t apply. In fact, when sales succeeds, pricing makes it harder to continue to sell by automatically raising rents. This makes it particularly hard for organizations to agree on what the key metrics are and what the standards for performance should be.

As a simple example, take closing ratio. Every good manager knows a higher closing ratio is better than a lower one, right? If you’re Oracle selling software, that’s pretty much true. But if you’re business is leasing apartments, that’s not true. Sure, at high exposure, a high closing ratio is good; but at low exposure, a high closing ratio is bad since it means you probably weren’t setting rents high enough.

Similarly, metrics like raw volume and year-over-year (YOY) volume may not be useful. If exposure is low, leasing associates don’t have the opportunity for high volume. If exposure was high last year and low this year the YOY number will look bad even though the property is doing better. We don’t want confuse our associates yet we need to measure, so what should we do. Here’s a few ideas:

• Look at “lease to guest card ratios” instead of “closing ratios.” Since every salesperson has been taught to have a high closing ratio, let’s abandon that term. Calling is a “lease to guest card ratio” makes it easier to have the conversation that sometimes that number should be high and sometimes it shouldn’t.
• Measure % of available units leased. This metric deals more with what you expect given a level of exposure. At high exposure, associates need to lease more while at low exposure they can still be rewarded for just a few leases (which is all you need)
• Measure how quickly new leasing associates get up to speed. Do you even know how quickly your leasing associates get to “full productivity?” Do you even have a definition of what “full productivity” is? Measure both, and then you can use that data to judge new associates and give them more or less additional help as needed; and you can use that statistic to measure whether new sales system and/or training initiatives actually move the dial.