Revenue management isn’t just about establishing rent prices in multifamily housing. Many apartment operators believe that industry solutions are sort of a one-trick pony – they set rent and are limited to certain classes and leasing verticals.
Not true, according to industry experts.
Upwards of a quarter of the multifamily industry uses revenue management tools, and they do far more than establish rent in today’s market. They also aren’t limited to certain apartment classes, as some in the industry believe.
The systematic approach – an application of disciplined analytics that balances supply and demand to maximize revenue growth – works in all rental segments, including student housing, and establishes rent based on investment strategy given the place and time in the market.
“There is a huge difference between a rent-setting tool and revenue management,” Industry Principal Andrew Bowen said recently in the RealPage webcast, “Beyond Rent: Unlock Other Benefits of Revenue Management.” “Revenue management moves past rent setting tools and truly optimizes the rent presented to a prospect on the new lease side and current resident on the renewal side. It systemically prioritizes the investment strategy and assures that it is at the core at every pricing decision we make. Rent-setting tools just don’t have that capability.”
The hidden advantages of revenue management
The beauty of the right revenue management system is what’s within. Along with Industry Principal David Polewchak, Bowen outlined a handful of the meaningful benefits that the analytical approach based on lease transaction data generates beyond just a rent price.
The primary hidden advantage of a revenue management system is ensuring a property’s or portfolio’s investment strategy is at the heart of every pricing decision made on an asset. The tool also provides transparency into internal and external performance through market knowledge, and effective management of the lease expiration process to maintain more consistent occupancy.
Bowen is particularly fond of the people-friendly nature of a revenue management system. Automatically setting a revenue-neutral price not only removes the potential for human error, it also puts the leasing agent and prospective resident on equal ground. The solution enables the leasing agent to be more accommodating during lease transactions, which encourages the renter to sign.
“When implemented and trained well, the revenue management leasing process is an incredibly customer-focused way of selling,” he said. “From the prospect side, we have revenue-neutral option for every available combination of apartment, move-in and lease term. Prospects have an opportunity to get exactly what they want.”
And leasing agents rarely have to say no, an answer that often kills deals.
“Since we have multiple options, it’s easier for a leasing professional to overcome that dreaded price objection without having to lean on concession-based selling,” Bowen added. “It empowers the leasing professional to lease, not run back and forth to the community manager’s office looking for the latest deal.”
Getting lease expirations right
Revenue management balances a number of factors, including available types of apartments, market rents, seasonality and lease term. Each price is individually optimized to be the best for all options presented, Polewchak said.
That’s especially necessary when managing lease expirations, which, when done manually, can be tedious and not deliver the needed results.
It’s important to maximize revenue but equally important to position all expirations to expire in the best possible months by alignment of supply and demand, the cornerstone of revenue management in achieving optimal rent.
“Incorporating the appropriate statistics and data to determine the correct amount of lease expirations for every month then aligns with the anticipated demand for that specific month,” Polewchak said. “Better yet, lease expiration incorporates seasonality, specific to your assets, which enables insights specific to where you’re operating.”
Details provide greater visibility
Getting lease expirations wrong can have a huge impact on revenue, Polewchak said. Overbooking can result in operational constraints but demand constraints. With under-booking demand realization and revenue is negatively affected.
Achieving increased compliance and new savings opportunities
But there are more benefits for what revenue management can do for a property or portfolio.
Bowen emphasizes that revenue management works with all asset classes, all strategies and all markets, from lease-ups to renewals. It’s also distinctly different than rent-setting tools and provides performance transparency and data integrity.
“There’s so much more to it than setting rent.”