Every property has its peculiarities and requires a professional who understands more than just buildings. Many property managers are very busy most of the time; it is therefore very easy to overlook key facts and issues. The fragmented nature of this industry calls for property managers to be on top of things and be constantly aware of how the business is performing.
Key Performance Indicators, or as they are more commonly known KPIs, are business metrics used to measure, monitor, and manage your property management team and company as a whole. They are critical metrics and indicators that give property managers better insight into their business and forecast future growth. These KPIs can also be used to show how well a business is performing. Additionally, they are a great way of measuring how you are performing relative to your peers, helping you earn more and remain profitable.
How to Choose the Right KPIs Can Be a Monumental Task
Many property managers have a problem deciding what they should be measuring. There are probably hundreds of KPIs that property managers use to measure their performance. Trying to track every issue relating to tenancy, maintenance, and profitability can be overwhelming.
On the other hand, many other property managers focus solely on traditional financial metrics such as profitability. But key performance indicators are more than just how much money the business generates.
So what metrics do you keep your eye on? Well, that depends on the nature of your business including the type of property you manage such as whether they are residential or commercial. They can change depending on the industry, company size, even the time of year. Therefore it is important to identify the business processes that drive your business and establish the data most important to you. Bottom line? Focus on a high-level overview of your business so you that don’t get bogged down with trivia.
The Most Relevant KPIs For Every Property Manager
As previously mentioned, there is a risk of having too many KPIs, and therefore this blog focuses on those that are most commonly used by leading property managers. Universally, we find the following 6 KPIs to apply to every property manager who’s focused on growth:
1. Inventory of Properties
Evaluating properties gained and properties lost over a specified time frame is an excellent measure of business performance. As an effective property manager, you need to keep track of how many properties you’ve successfully acquired while taking note of the techniques that attracted these customers.
At the same time, and bearing in mind that client turnover is inevitable, you want to be interested in those that you’ve lost. Seek to understand why they’re leaving and establish if it is something you can improve on. Similarly, if your efforts to pitch a potential client are unsuccessful, don’t hesitate to follow up and seek feedback from them. This information would be important for the future of your business.
In the final analysis, you want your gains to outweigh your losses. But keep in mind that having many properties to manage is not what necessary counts. Taking on too many of them and then being unable to offer your customers the quality services you promised them would impact your performance negatively and your losses will increase over time.
2. Occupancy Rates
Every property manager should know their occupancy rate as well as the average occupancy rate in the area. Remember, if nobody rents your properties, you’re not making any money! At any one time, you need to keep track of how many of your properties are occupied and how many are vacant.
To measure, you need to set a specific occupancy rate each month or year as your success rate. Setting this KPI enables you to monitor your occupancy and figure out, for instance, why you aren’t getting new tenants or why more of your current tenants are leaving.
Take note though that not only should you gauge your occupancy rates with your set standard, but you also need to compare it with the market average. For instance, consider if you meet the occupancy rates in urban areas that currently stands at 93%. And if you’re significantly beating this average, ask yourself: Are you charging enough for rent? Be sure to evaluate occupancy rates within the context of other property management KPIs.
3. Tenant Turnover
It is quite common for tenants to turn-over every year or two. In fact, the average is 12 to 24 months in urban markets and 24 to 48 months in rural areas. For multifamily, research has revealed that smaller residential units tend to turn over more frequently, as tenants tend to grow out of these spaces; subsequently, larger units tend to turn over less frequently. On average, there’s an estimated 10-20% tenancy turnover in a year, thus losing tenants is inevitable.
Still, these statistics shouldn’t make you complacent; you need to ensure you measure your tenant turnover for they can reveal vital information for the life of your business. For instance, if your turnover rates are higher than average, this could indicate that you are mismanaging the property. Hence, you need to consider: How often on average are tenants leaving? Is it because repairs and maintenance are always overdue? Do your properties lack standard rental amenities? Are you overcharging rent? Do you respond to your tenant’s concerns? Further, you need to consider: How many months of rent were lost due to vacancy? What are total costs associated with tenant turnover and vacancy?
Moreover, as tenants leave it’s prudent to follow up with them and inquire why they’ve decided to move elsewhere. Their feedback can help direct your business development techniques towards lowering your rate of turnover.
4. Tenant Satisfaction
Periodically, you need to survey your client base and establish what they think about you. Measuring customer satisfaction is vital to determining how well you are doing as a business. Such a survey allows you to get a metric value for your customers’ satisfaction level. You can achieve this by defining a KPI and setting an optimal value for which you can say that if your client satisfaction level falls below it, then that would be a forecast of dwindling revenue in the future.
Although this could be a painful exercise to do at the time, the long-term effects could be the lifeline for your business. Tenant satisfaction leads to tenant retention. Carrying out such surveys will ensure you make the needed effort to keep your tenants happy, which will surely reduce your tenant turnover thus keeping your business profitable.
5. Property Management Fees
You want to be sure that your property management fees are within market range. Depending on the standard of service provided, these fees usually range between 8% and 12% of monthly revenue. It is important to measure how your property management fees stack up against those of your competitors. So you want to keep constant track of how much your competitors in the area are charging.
Many property managers make the mistake of undervaluing their services in a bid to outdo their competitors. Doing so would be detrimental to your business at the end of the day. Therefore, even if you start by charging rates that are toward the lower end of the market, do not hesitate to increase your fees if you adopt new technologies, tools or unique services to improve your ROI. Conversely, beware of overcharging, more so if tenants are reporting any decline in the quality of your services.
6. Revenue Growth
As a property manager, this should be one of the most important metrics you measure. Ultimately, making a profit is one of the main objectives of business; if you aren’t making money, you’re not in business. Furthermore, it is all too easy to be blinded by the number of properties in your portfolio and forget about your revenue. But the reality is that managing many properties don’t always translate into higher income.
Monitoring your revenue growth will show you precisely how your business is doing year over year. It will give you an accurate picture of whether the company is doing well, or whether there are areas for improvement. And to get a deeper insight into your financial performance, the other property management KPIs examined previously can be of great help. For example, if your analysis reveals there’s been a downturn in your revenue, use the other KPIs to establish why this is the case: Have rents been keeping up with inflation? Were you faced with a major one-time cost, such as migration to new software or notification system? On the other hand, have you established where your best revenue gains happened? If so, can you replicate those successes?
Significantly, as you measure the growth of revenue don’t forget to forecast your expected earnings over the coming year. This will show you how much income you can expect, calculating the values based on expected rent from all current and future leases.
Don’t Just Be Contented With the Metrics; Act on Them Decisively!
Indeed, no property manager can afford to bury their head in the sand and assume that all is well in their business as long as they are “busy.” No! Each one of them should constantly and proactively be evaluating all the above KPIs to ascertain they are on the right track. As mentioned earlier, this list is not exhaustive. Property managers may also need to measure such matters as average days-to-lease, maintenance and repair costs, rent levels, rent-ready costs, net income, customer acquisition cost, to name but a few.
Much as data collection may seem burdensome and overwhelming, technology can make this a painless and enjoyable process. Deploying a cohesive management system, such as property management software or mass notification system, will allow you to effortlessly gather data in one convenient place to measure and plan your future strategy accordingly.
The insight garnered from your KPIs can be your biggest source of future revenue: it’s highly critical to the success of your business. Be determined to use the data derived from measuring these KPIs to make better decisions. Then be sure to follow through and make adjustments as needed to improve the overall value of your business.
