In the many years of my legal practice, and not going to count, I've been involved in pricing strategies for multifamily and commercial rent scenarios. The question usually starts with "are we priced right for the market?"
What I ask is - "have we invested the right time and money in our people, property and marketing to achieve the top price our property should bring?"
Pricing and revenue management systems are incredibly powerful. There are a number of new software packages for commercial real estate management that has brought substantial management tools to the market. This gives operators the foresight and the discipline to address predicted fluctuations in demand through data-driven pricing strategies. But as the old saying goes, “To a hammer, the whole world looks like a nail.” Left solely as its own device, a pricing system will solve any performance challenge with the main strategy at its disposal.
This might not be wrong but it may not always optimize profit against demand. The other balance is “The Three Ps”:
PeopleFirst question is whether there could be a people issue. If they aren’t converting leads into visits or visits into leases, then price may help; but it’s really just subsidizing poor execution.
It’s important to understand both those conversion numbers rather than an overall lead-to-lease conversion ratio since the prescription for solving the problem depends on which (or whether both) of these issues is the diagnosis.
A poor lead-to-visit ratio may point to the need for improved sales skills. It may point to an issue with the quality of the leads being generated. It may be poor follow-up or telephone skills. It may also point to poor online photos, reviews and other pre-sale issues. It may also motivate an owner to consider adding different training, changing compensation calculations, add telemarketing, or changing management companies.
Meanwhile, poor visit-to-lease ratio indicates the people issue is much more focused around sales performance and/or the quality of physical appearance. Curb appeal, to take a residential term, may be turning off the prospect. There might even be a staffing issue if we are making prospects wait too long for someone to meet with and tour them. This applies to commercial rentals and multi-family. Each have their own specific issues but same principles apply.
ProcessProcess issues mostly deal with marketing, specifically “Are we generating enough leads?”
Reducing price can help increase leads, but that is probably the most expensive method for correcting a lead generation issue. The good news when there’s a demand management issue is that there are many tactics that can be employed. Some require spending money (e.g.. increasing ILS or PPC spend); some require time (e.g. outreach or increasing online posting); and some are driven creativity while requiring time and spend (e.g. running a leasing expo event, attending networking events, etc.).
The options are vast but evaluate and track marketing efforts. Add new efforts as fast as possible and end efforts that are clearly not working. Don't go for straight lowest cost or lowest effort, think highest impact.
PriceSince reducing the rent roll has the largest negative effect on property valuation, this is the last change after eliminating people and process as the reasons for underperformance.
Many property owners hit the price lever as the first default to change…either actively or passively by just standing by while their pricing and revenue management software does it for them. But just because it’s easy doesn’t make it right.
One way to make it easier to address people and process issues is to have the data and technology platform in place that makes it easy to see lead, visit and lease counts. Quick performance visibility into total counts and conversion ratios allows us to quickly diagnose where the real problem is and only implement price changes when we know that we don’t have people or process issues. If the platform gives us simple drill-down to data by marketing channel and by leasing associate, it’s easier to avoid hitting the pricing lever just because pricing changes are simple.
The first step is to evaluate you data platform to make sure that People and Process is part of the formula to Price so price change doesn't become the only solution your people use to defend a decrease in lease sales.