- Is your business scalable?
- How do you make pricing/fee decisions?
- Do you have a 12-month growth plan?
- How will the new services you are rolling out impact profitability?
- How many people do you need to hire if you add 130 units and lose 23 units in 2017?
- Is your company ready to hire a Business Development Manager (BDM)?
- How much profit can you count on by the end of the year?
If you are asking yourself these questions, congratulations! You are a successful entrepreneur looking to blow the lid off of your business and set your business on on the path toward:
Constant Growth and Constant Improvement
(A phrase we borrowed from our client, Matthew Greeves of EJF Real Estate)
Here at Fourandhalf, we solve marketing and growth for property management companies, and now we’d like to help you realize more profit and model your company growth to take maximum advantage of every new lead and new unit under management. If you already know these key ratios, jump onto part 2 of our post: applying the property management KPIs
Introduction to Property Management KPIs
Establishing and tracking Key Performance Indicators (KPIs) is the first step to using data to enable growth and the success of your business. We use these very same metrics here at Fourandhalf – all the way from working in a garage five years ago to a 24-person, multi-million dollar company. We’ve grown by carefully and deliberately tracking our KPIs and modeling every new product and initiative against our Unit Economics Model (UEM).
Many companies underinvest in marketing and end up stagnating their growth (Yeah, yeah, we are a marketing company, so of course we’d say that – but Fourandhalf suffered from the same ailment early on). The truth is, if you don’t know how each incremental dollar of input connects to the output, you are flying blind. Marketing is a key function of your business, but if you don’t have these metrics dialed in, it’s hard to recognize how much you can afford to spend on marketing, and how much your organization can scale.
The model as a whole is fairly complex, but if we break it up into small chunks, it is super manageable.
Let’s go to KPI school! (Your business depends on it)
Let’s start with the first 3 key metrics:
- CAC – Customer Acquisition Cost
- CLV – Customer Lifetime Value
- ACV – Annual Contract Value
Customer Acquisition Cost (CAC)
Businesses are born and die on CAC; it is the backbone of every marketing campaign because it tells you what you’re actually paying, on average, per new client. You can calculate this by door or by owner, but we recommend running both metrics. If you also increase your average number of doors per owner, you can earn more revenue from each customer.
So here’s how you work on CAC: Choose a time period, like 12 months. Open up your Profit & Loss for the period and total up your owner marketing costs and your owner sales costs. For example, how much did you pay a sales person for that 12 month period? If you are the one that does all the selling, take the appropriate portion of your salary and commit it to sales expense line. Add all of your marketing and sales costs and divide the total by the number of owners you brought on board during that period. This will give you your owner CAC. Divide it by the number of doors you acquired to get your per-door acquisition cost.
Sales and Marketing Costs for 2016 – $140,000
Units under management acquired in 2016 – 80
$140,000 divided 80 equals $1,750
Your 2016 Customer (per Unit) Acquisition Cost is $1,750
Annual Contract Value (ACV)
We use this metric to figure out the average amount of money you’ll receive per unit over a period of 12 months. It requires only simple math and it helps you figure out if your business really works. You get this number by taking your total revenue for the period and dividing by the number of units under management at the end of that period.
Total revenue for 2016 – $1,200,000
Ending Units under management as of 12/31/2016 – 360
$1,200,000 divided 360 equals $3,333
Your 2016 Average (per unit managed) Contract Value is $3,333
How does your ACV compare to CAC? Do you pay back your customer acquisition cost in 15 months or less? We’ll discuss on how to use these ratios later in this series.
Customer Lifetime Value (CLV)
This metric can truly tell you the health of your business. To find your Customer Lifetime Value (CLV, sometimes called CLTV), you will take your average annual contract value and multiply it by the average number of months your customers stay with you – owners, not tenants. That can be tricky. If you’ve been in business for 10 years, you can look at how long your customers have stayed over the course of those years. You’ll be able to track it and get a good average. But if you can’t do that, use a number like 42 months (three and a half years), which is the national average for property management companies. Once you understand your CLV and CAC, you have some serious metrics to continue perfecting your operations and figuring out where and how to spend your marketing budget.
ACV ($3,333) divided by 12 equals $227.75
Average number of months unit stays under management – 42
$227.75 x 42 = $11,665.50
Your Customer Lifetime Value is $11,665.50
Every phone call you miss from a prospective lead, equals the value of a gently used, low mileage 2010-2012 Toyota Corolla S. Ouch. Knowing this number changes the optics through which we view our businesses, doesn’t it?