Price to Profitability for Property Management Companies

Research shows that pricing is the element of the marketing mix with the greatest impact on profitability, in one study a 5% price increase led to an average 22% increase in earnings. While it might seem obvious, your profitability depends heavily on your service fees and product pricing. If prices are not optimized, organizations often end up selling themselves short, cutting out the opportunity for profits. On the other hand, if prices are set too high, profits can be put in jeopardy due to overselling your value.

Pricing is a delicate balance, so here are a few considerations for companies reviewing their rates:

Evaluate

To adjust your pricing, it’s important to understand the current conditions of price and profitability with your existing customers. Determine who the most profitable customers are and be aware of potential biases or areas where true profitability can be overlooked. Sometimes, even when a customer offers a high volume of business or a wide revenue channel, the costs of serving that customer may reduce profitability leaving you at a lower net income than you might think.

Access detailed reports and analysis to get targeted insights into the profitability, revenue, and costs of your service. Leveraging a comprehensive property management platform that integrates every area of your business from maintenance to accounting and customer relationship management. An ERP platform that provides organization-wide and departmental insights is often a good place to start. Studies show that 60% of ERP users use the platform for reporting and leveraging business intelligence.

Value Pricing

According to an Andreas Hinterhuber report, only around 15%-20% of companies modeled their pricing based on their value to customers. Sometimes businesses let factors like costs and competitor benchmarks influence their pricing, but pricing is a direct way of communicating your value, so it’s helpful for profitability to take value into consideration when determining service fees.

Value based pricing, according to experts, is the best way to increase profits as other methods require businesses to lower pricing to attract customers. However, some organizations run into the problem of pricing too high and pushing potential customers to choose competitors with more economic options. An effective way for a company to adopt a value-based pricing module and for customers to perceive the organization as worth their listed value, is to expand service offering or differentiate from competitors. This could mean anything from delivering the highest customer service like self-service property management portal software, specializing in vacancy marketing, or bundling multiple services to improve brand value.

Competitive Pricing

Competitive pricing is a strategy dependent on how your competitors are charging, and often happens as markets become more saturated. Jumping to a competitive pricing strategy too hastily can mean reducing your opportunity for greater profitability. However, the number of property management companies active across North America is undoubtedly large, sitting at tens of thousands of active competitors in the market with more joining every year, which may lead some companies to consider competitive pricing. Modelling prices according to customers while delivering a service that outshines your competitors can positively effect growth, encouraging customers to choose your company, edging out competitors. An increase in customers means an increase in revenue channels which expands opportunity for profitability.