Funny thing about bonus systems you often get exactly what you incent. Now that doesnt 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:Read More
As we enter the dog days of summer, its time for pricers to look ahead. Things are usually good right nowwe have a strong tailwind from seasonality so rents and occupancies are trending upward nicely. And with various summer vacations going on, the pressure isnt quite as high as it usually ismost operators and executives are happy with the trends, and some of them arent even in the office today anyway.
But as anyone whos 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 its almost equally evil sidekick, the operators bonus.Read More
So Ive been doing this D2 Demand Solutions thing since I left Holiday Retirement a bit more than 7 months ago. I counted that Ive now worked with an even dozen clients [oka) theres no such thing as an odd dozen and b) why is it that Im compelled to count things? Have been since I was a kidno 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 whats really going on in our business. And Ive realized that part of why this is a virtually impossible quest is that there are really two VERY DIFFERENT purposes for a metric.
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, theyre really what our owner cares aboutits 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 numberBUT 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 rentsif I sold 10 2BRs last month and 5 1BRsand this month I do the reverse and lease 5 2BRs and 10 1BRsmy MOM new rents look way down. But its just a temporary sales mix thing, not poor sales performance.
The thing is that these metrics still matterif 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 DONT 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 wont 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 wont 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 wont tie to financials because amenity upcharges are real, but this metric wont have volatility simply due to changes in sales mix of highly amenitized vs base units being rented.Read More
So this past week was an interesting one for travel. I was attending the Folk Alliance Internationals conference in Toronto through Sunday. Nothing to do with multi-family housingjust an organization Im 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 Rainmakers LRO User conference in Palos Verdes, CA. Side note: Bruce and Tammy sure know how to pick resortsthe Terrenea is just a fabulous resort with view of the Pacific Ocean and Catalina that are just spectacular.Read More
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. Theres a lot of debate about what to do with ratings sites, but everyone seems to agree theres 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.Read More
Those of you who know me well know that my brother is a sales coach. Well, more than that but this blog isnt really about him, so Ill leave it as a gross simplification of what he does. He and I used to work togetherhe 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 thingsthey seek to avoid pain and they seek to gain pleasure. But its not symmetrical. Were actually wired to put more attention to avoiding pain than to seeking pleasure. Thats why its easier to sell something to someone solving a crisis than it is to someone whos doing very well and says they want to do better.Read More
Understanding your competitive set when pricing is obviously important. If youre constantly at low exposure, you can push pricing and ignore whatever comps are doing. But if your exposure ever goes up, youll want to make sure that youre not priced out of the market such that you cant reduce exposure.
In my experience, Ive 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 thingsage, 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.Read More
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 theres 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.
Heres something that Ive wondered about for the 15 or so years Ive been doing pricing and revenue management in multi-family housing. Two different deal scenarios:Read More