Why regular fee reviews are your ticket to sustainable growth

When was the last time you did a detailed review and adjustment of your management fees? If you’re like most South African property professionals, the answer is probably: “Not for a long time.”

In fact, many property management business owners we’ve spoken to say their current fee model is not too different from the one they first started out with. They’re still cutting costs on every level, and offering a host of value-adding freebies.

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What has quickly become apparent, however, is that the same competitive pricing techniques that were so important when building an initial client base are now effectively strangling these business’ ability to achieve their full potential.

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Here’s why.

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Fees and scalability

In order for a business to grow, it needs to be able to do two things: cover its running costs and actively work towards improving scalability for a more sustainably profitable future.

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That doesn’t just mean attracting more clients to grow your portfolio and income. It means investing in improvements that optimise your ability serve a growing client base while minimising overheads to increase long-term profit margins. That could include anything from hiring top-notch talent, to adopting productivity-enhancing technology, to adding additional income streams, and running innovative marketing campaigns.

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The thing is: all of these improvements require some kind of capital.

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Ideally, this “growth capital” is built into your original business plan and fee structure. It’s far more typical, however, for property management businesses to launch to market with fees as low as humanly possible in order to attract an initial client base. That would be fine if those fees were later adjusted to more realistic levels, but in most cases, they simply set a standard that is never truly reassessed.

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As a result, “growth capital” is often limited from day one. A situation that is made steadily worse every time new regulations add to the workload, or rising overheads eat into already minimal profits.

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What’s preventing fee increases?

The real question is: why are property managers hesitant to adjust their fees to enable them to invest in their businesses? The easy answer, in most cases, is fear.

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Property management is a competitive industry and clients have their pick of service providers. Given nothing more to base their decision on, most of those clients will choose their representative based on price.

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It stands to reason, then, that property managers would be hesitant to increase their fees beyond that of the competition for fear of losing the only edge their clients seem to value.

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The link between value and compensation

The interesting thing is: our research has consistently shown that property management businesses that charge a higher rate for their services outperform their competition on every metric – including portfolio growth.

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How are these businesses overcoming their cost-cutting competitors? That’s easy. Instead of focussing on price, they’re focussing on value.

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Unlike their competition, they’re taking the spotlight off their administrative duties to let their strategic asset management services take centre stage. By refocussing on their ability to help investors achieve their primary goals (building secure, profitable and growing property investments) they’re aligning their services with other – far more highly valued – asset managers like financial advisors.

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To investors, this presents a far greater – and more obvious – value proposition. One that is reinforced, rather than weakened, by a correspondingly premium price point.

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Communicating value to drive fair fees

It’s one thing to charge a fair rate for valuable services. It’s another thing to convince clients to pay more for services they already receive. Getting this right requires a careful evaluation of the value you’re currently providing (and how that value has evolved over the years), and a way to convey this information to your investors in language they understand.

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In this, WeconnectU’s Rental Asset Management solution can provide a critical edge, giving you access to all the data and trend information you need to demonstrate exactly how your services have – and continue to – contribute to asset performance.

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In our experience, working with more than 1700 business owners across our 3 solutions, presenting investors with this kind of tangible evidence of value is the most successful way to secure fair compensation that supports your own sustainable business growth.

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