There was a time when the average commission rate in a Property Management business was 7%. This enabled healthy profit margins of around 30%
A drop from an average commission rate of 7% to 5% is not a drop in income of 2%, it is a massive 28.5% drop potentially wiping out your profit margin.
There is pressure everywhere to reduce the 7% rate. It is not unheard of to see Property Managers reducing their rates to 3%.
With income falling, the only way to maintain a profitable Property Management business is for the expenses to reduce.
The following graph seeks to explain it.
Without action you will soon be losing money in your Property Management Department.
At this point you have 2 choices:
- Increase income
- Decrease expenses
Increasing income is not so easy but can only occur 4 ways.
- Increase the rents
- Increase the commission rate
- Increase the number of properties
- Increase the ancillary income
Someone in the office needs to be responsible for this and take ownership. In most offices the status quo applies and income reduces.
UPS has studied real estate businesses across Australia extensively.
We looked at Property Managers, Leasing Consultants, Inspection Managers, Campaign Coordinators, Trust account, General account and the list goes on.
- We took the time to timestamp each activity for each role, monitoring how long it takes to complete.
- This has allowed us to work out the percentage (%) time spent in administration for each of these roles.
- And these are conservative numbers
This is Onshore admin people doing these tasks. It worked out on average at 56% of their time spent on admin tasks. The full-time equivalent (FTE) is 9.6 people working full time on administration in this business today.
This is what we call the hidden cost of admin.
What is the cost of this? Massive. For a business with 1000 properties under management and 169 sales per year this hidden admin cost could be approaching $700,000.
That is massive in anyone’s language.
UPS has a tool that lets you calculate the amount for your business. Just reach out and ask.
What could be off-shored?
Let’s now assume that each of the FTE admin people are replaced 1-for-1 with an offshore person. Each task is still done. Instead of being completed on shore it is completed offshore.
The result is a saving if $428,000.
Now not all of this will be saved as there will have to be some onshore admin. This is because of compliance and other onshore requirements that are unavoidable.
In addition, if half of the Property Managers time is freed up then half of the team could be redeployed to other activities.
The combined saving is still around $400,000 per year, every year.
With 500 properties it is still a significant amount.
The tale of 2 businesses
Let me tell you about 2 businesses in Sydney that decided to embrace offshoring.
They decided to dip their toe in the water before going the full hog.
The business owner wanted to offshore the Property managers whinges so that he didn’t have to deal with it anymore.
No strategy, no clear understanding of what was to be achieved. Just stop the whinges.
They started with a Leasing Administration role where
- the new applications were checked by the UPS team member
- and then passed on to the Property manager to be signed up.
- Prepared the lease agreements
- As well as mange the Inspect Real Estate account
- Managed 1 -14 days of arrears
The business cost went up. No savings on shore.
But worse, the Property Manager accountability was exposed as was the true state of the office. The white noise of today’s latest drama that makes business Owners eyes glaze over was exposed for all to see.
The Property Manager set about undermining the value of the offshore position to protect their own position and after a while the business could see little value in it and stopped offshoring.
No saving and lots of whinging from the Property Manager highlighting every little error that is usually covered up onshore.
The way this position was embedded into the organisation just cost the business $440,000 It was an expensive waste of time.
What was tragic is that the business owner sold the business as he didn’t want to deal with the property managers anymore.
Contrast this to a business owner who was very focused on saving $440,000.
Who here wants to get a part of that $440,000?
They went about it in a systematic way
- Built a strategy
- Appointed a team champion to drive the desired outcomes
- Had a clear understanding of what was required instead of sending the tasks that the PM didn’t want to do offshore
- Figured out the job descriptions for onshore and offshore
- Then executed the strategy
- And held their nerve. More about that in the sealed section that I will talk about later.
- The Business took an ongoing interest in progress to ensure that the strategy was being enacted.
The result was hundreds of thousands of dollars saved.
What plan would you want to follow?
“Offshoring is certainly not hit and miss. UPS has developed a clear strategy that will assist you every step of the way to successfully offshoring.”
– Grant Fanning, Head of Financial Services, Universal Property Systems.