Finding the right property management clients can make or break your business.
Experienced property managers often declare this with vigor: “Be very specific and selective about who your customers are.”
A simple idea, yet one that can feel tricky to execute. And like many things, there is no one-perfect-strategy-fits-all here. The right action plan likely depends on your situation.
So here are six next-layer ideas that might help.
1. Push up or push out toxic property management clients
Ok, let’s say you’ve made that grit-your-teeth, pain-in-the-keester client list. What’s next? Sure, you could just politely fire them. And if nothing is stopping you, then nothing is stopping you.
But there’s another approach that doesn’t torpedo all your revenue all at once: raise prices.
Some will leave. Great. Some will stay and pay. This makes it easier to afford resources that mitigate the distraction.
You can keep doing this until the premium is worth it or they’ve parted ways.
2. When the exact opposite advice might work best (for a stage)
Let’s say you haven’t been at this for years. You’re newer, just starting out. Being super specific about a customer this early could work. But it also could be the right advice at the wrong time.
Yes, you could say you’re only working with class-A, single-family rentals with intentional investors who have 2-20 units and don’t live in your market. Yet, while you have a specific idea, the reality is that it usually takes time and hard work to hone your business to actually deliver a service distinctly for this customer.
And after getting some reps in, you may learn that you have strengths and competencies naturally built for a different investor profile, a different asset type, etc. Or, you discover a new market opportunity you didn’t see before.
I heard an analogy once that early on, you try a wider net. The net pulls up all kinds of fish. Grouper, tuna, mahi, probably seaweed too. Then you start to realize which one you’re really a match for. And you start adjusting your net and where you fish, just for tuna. Or, you realize you want a different net tailor-made for shrimp or crab.
Doing this for months can be a good way of learning through doing what’s good and bad. What complexities do you want to take on, and which do you want to avoid?
But be sure you do start tightening the net eventually. The suffering comes from not monitoring and tightening when you’re ready. This wide net approach not being time- or stage-bound turns a thoughtful trade-off into the drag weight everyone warns against.
3. Powerful team incentives
Maybe you’re in the owner's seat, less involved in the day-to-day. It’s your team that’s bringing new clients on, and they’re responsible for handling good and bad-fit customers.
So, let’s say you want to drop bad clients because they’re keeping you from the next level, but you’ve invested in staff and need to replace the revenue.
Raising prices is one way. But here’s another: For every 2-4 good-fit clients the team adds, they get to drop one bad-fit client.
It may feel good to fire bad clients all at once, right away. But if the business is in the investment or break-even stage, tying it to replacement clients can be a responsible way to mitigate risk to cash flow.
This approach motivates the team to not just find any new client or just the ”easy” client. It focuses them on the most valuable clients. And as more are brought in, you can responsibly filter out the worst fits.
Empowering employees to improve their own experience at work by putting clear guardrails in place can be a powerful motivator for change. They now have a productive path that gives them agency, as opposed to feeling hopelessly stuck with a bad client until one of them leaves.
Perhaps commission changes for better-fit clients are a worthy consideration. A great incentive structure is usually marked by whether or not people “game it.” And your business still wins.
That’s a good segue to…
4. Shift your marketing and sales
You can address the existing client base, but if your acquisition strategy never changes, they will keep coming in. So, how do you get upstream of the problem in your sales and marketing?
Great marketing attracts who you are for and repels who you are not. Help your team understand both the ideal profile AND the anti-profile. Green flags and red flags. And it’s not just about what you’re messaging, it also can tie to where you find clients and invest in acquisition channels.
Ask yourself:
- Do your best-fit customers come from realtor referrals?
- Client referrals?
- Which realtors or clients?
- Do they come inbound from your content marketing?
Instead of spreading your budget all around, focus resources on places and programs that attract your best customers and tighten up less reliable channels. This doesn’t have the immediacy of other approaches, but the impact over time can be significant.
The same applies to sales. Great sales processes quickly qualify out vs. wasting time with poor-fit prospects. And they prioritize the Glen Garry leads. Even a simple A-B-C grading with entry and exit criteria is a great place to start.
When tracking marketing and sales KPIs as blended, it treats all activity as equal. Reality is different. Some leads are 20%-1000% more valuable. Putting policies and processes in place to prioritize and treat them appropriately is a win.
5. Is it possible to be too specific?
Most property managers say they once worried about being too specific with ideal client profiles but then were surprised that the problem was almost always in not being more specific.
Well, it’s a balance.
Here’s an example description: “We work with rental property owners who want a more passive experience in real estate.” That’s very broad. This sounds like a sea of other companies trying to win the same customer. That makes it harder to pick you.
How about his: “We work with Cincinnati SFR owners who are full-time OB/GYNs and want to hold for at least a full market cycle.” Ok, this is much more specific. Probably in ways that don’t really matter.
For example: Why OBs vs. doctors in general? Or doctors vs. busy, high-income professionals? Do they really have different problems that would materially change your offering or go-to-market?
But let’s stick with it, for example’s sake. Your messaging could definitely sound like nobody else. Let’s say it did work more efficiently, and you win 40% of leads instead of 25% with this targeting.
I asked Perplexity AI (replacing Google search for me) how many OB/GYNs there are in Cincy. It’s 322 or 478, depending on the source. Let’s say 200 own or would invest in real estate. Some number less for just single-family rentals. Some already have a PM and are happy. How many are willing and want to hold for a full market cycle?
This is likely not a viable business strategy for a dedicated PM business. It’s too specific a pool, and growth will likely be too slow even if you close 50% of leads. 50% of 100 is a lot less than 25% of 10,000.
So, it helps to think about the tension between the size of the prize (market opportunity) and the opportunity to design and earn a distinct position in it (differentiation strategy). Thinking about both sides can help you find a sweet spot to commit to and focus on organizing around.
If you map your market, you can ask and answer:
- What’s the smallest niche of the market that supports your business goals and model?
- What’s the biggest opportunity you can credibly develop and win in the near term?
- How might you expand as you win to keep growing toward your ultimate vision?
You can see how a couple of years later, you can expand or add an adjacent customer profile (accidental landlords, new location, new property type, etc.) or adjacent new services (RBP, brokerage, in-house maintenance, etc.) to add dollars to the same customer base to grow.
6. Focus on wallet-share vs. market share
Ok, so what if you want to remove problem clients but don’t want to raise prices, risk cash burn, wait until the team can add better replacement property management clients first, or test changes in your funnel or team’s comp?
You might feel stuck, but there’s another way to add the revenue and profit you need to confidently pull the trigger without investing more in acquisition or relying on efficiency improvements to justify it.
That’s adding more revenue per unit in a way that increases your customer lifetime value. If your ancillary revenue and profit per unit go up, you can afford to let clients go without risking churn.
Second Nature helps property managers do this through a fully managed resident benefits package. Industry benchmarking studies show the average PMC profits $10-17/mo per unit. Every lease with an RBP can replace the profits at risk or more.
And RBP isn’t the only ancillary revenue opportunity. Pet rent is another good example if you haven’t implemented it yet, amongst others.
What are your thoughts?
The goal of this article is not to be prescriptive; it’s to spark thinking about key considerations and paths to get there.
To that end, did you find this content useful? Anything you can add that’s missing? Connect with us in our Facebook group or get in touch! We’d love to hear your input.
October 10, 2024
