Owner and Qualifying Broker at Rhino Realty Property Management and Rhino Realty B&B, entrepreneur, investor, advisor, author and speaker.
Let’s face it, no matter what sector of real estate you are in, there is never an ideal time to inform people that you’re raising your fees or that prices are going up. The effects of the pandemic have negatively impacted supply channels globally across many sectors, causing goods to rise in cost and supply chains to be stalled significantly.
Unfortunately, the real estate world and property management sector have not been immune to these issues. In turn, we have had to find ways to keep up with the rising cost of doing business while at the same time providing equal or more value. Here are some tips on how to navigate this dilemma and maintain the highest retention for your portfolio once you announce an increase in costs.
The easiest and most effective way to break the news of a price increase is to be honest and upfront. Most clients, owners and investors are aware of what’s going on in the current world economy and have prepared for inflation as the normal cost of doing business with their properties. Providing them with a clear and justifiable breakdown of why the cost must increase is much easier than just springing it on them without reason. It is also a good idea to do this with a personalized phone call versus a mass email blast or text.
When implementing any price increase, it’s always advisable to give reasonable notice to help prepare your clients for the impact the price uptick will have on them. Often 30 days is used as the standard and deemed acceptable for small to moderate rises. However, if the escalation is looking to be higher, it’s not uncommon to give 60 to 90 days. If possible, it’s also a good strategy to announce any increases at the end of the calendar year, which enables them to take effect at the beginning of the new year. This can assist with smoother accounting for all parties.
Many times, with price increases, the only objective is to cover costs and maintain the business. And although it’s ideal to utilize the raised costs to also increase your company’s growth, at times margins may be too thin to make this happen. With all of these issues, finding more value can be quite challenging, but with some creative thinking, there are often ways to do this.
A great place to start is providing small discounts for services currently paid by clients. Use the price increase to absorb or reduce the cost of these smaller fees. Another option is to add other amenities to your services that don’t overextend your budget or time. Things such as quarterly thank you cards or phone calls really go a long way and show a personal touch in a heavily saturated and technical world.
Don’t be scared to lose clients.
Unfortunately, with any price increase, there is always the chance that clients will leave. Many times, the price increase will be an excuse to depart but not the sole reason. Regardless of the cause, you should be prepared to see some attrition and factor that into your projections. You will want to ensure that the increase will offset clients that don’t stay and that it won’t cause to much disruption.
Ideally, you may even be able to gain income depending on the volume of the portfolio. If you start to feel some pushback from larger clients whose departure could damage your income, even with all your other clients staying, you may want to consider some middle ground and do what you can to negotiate what works best for both parties’ situation.
In the end, it’s crucial that you don’t resist increases, as it is a normal part of doing business and dealing with inflation. If your service has provided value and was consistent, then it’s safe to assume the majority of your clients will understand it’s more economically advantageous to stay with you versus opting to go somewhere else for a lower cost and not know what kind of services they will be receiving.
Why raise prices?
Without the implementation of appropriate price increases in your property management business, you risk several issues. From the simplest, like not keeping up with inflation, to the more specific, such as upgrading your website, your property management software and staying relevant on social media outlets.
Neglecting to make this a part of your business model jeopardizes your ability to compete and stay relevant. You may end up always playing catch-up or working far much harder for far less. There is always a fine balance when making price increases, and of course, it must be done with strategy and care. As you move forward with implementation, I hope using my suggestions will help you keep the highest retentions possible.