Happy Residents Are More Profitable (And Less Risky)
Manage your Move-In Experience to Improve your Bottom Line
In our work managing a large number of residential units, we see that the largest impact on the organization, both operationally as well as financially, is the turn over of a rental unit. It turns out that if you focus your efforts on providing a stellar move-in experience for a new resident, you will lower your overall churn costs. In our most recent analysis, the poor move in experience was costing the organization approximately 2% on the bottom line every year! This equates to 5% to 7% improvement in margin. Increased margin improves the Cap rate!
We know that the turnover costs us in manpower to manage the end of the lease, elevator booking, inspections and other activities of our property managers that are not adding value. We also know that we have to invest with each new resident. This could require incentives, advertising costs, and the churn cost of cleaning, repainting and managing the new resident move in. This cost is sensitive to your building practices and local market conditions, but it would be reasonable to estimate this cost at $2000 to $5000 per turnover. We all know about this economic lever, but how do you manage it?
Acceleration Strategy (ASI) provides resident experience services based on the Net Promoter System (NPS®) supporting thousands of residential units. The system collects feedback from the residents at key points in their relationship with building management, then uses that feedback to drive the priorities of the organization by directing the property managers actions. The goal is to ensure the residents have a great experience. Executed successfully, the building will reduce their vacancy, reduce their churn and optimize their average rent. In the process, they will also reduce the cost of operations and increase the market value of the asset!
Consider the added cost of the detractors. Not only are they more costly while they are tenants (more demanding of maintenance, creating a less neighbourly feel to the building), they are less likely to take care of their rental accommodations. It follows that when these detractors leave, there is likely to be more issues and costs associated with refitting the residence, causing an extra month vacancy in markets that have zero vacancies!
In our most recent analysis, we looked at the impact of move in on the ultimate decision to move out. In any market, there is what we call an “Externally Driven” move out. These are people who must move for work, school, family situations or when they have purchased a home. All other reasons for moving out are considered “Discretionary Driven”. In any market, there are both drivers to greater or lesser degrees. Not surprisingly, detractors leave for discretionary reasons more often than promoters do.
In fact, we found that in a sample of 000s of units, Detractors were 75% more likely to move out. Put in other terms, about 16% of those who were originally promoters when they moved in eventually moved out. In this same period, 28% of those who were originally detractors moved out. In financial terms, the cost of the negative initial experiences resulted in up to 5% negative impact on our annual operating budget.
I ask you – what are you doing that is ensuring a positive resident experience at every opportunity? And are you driving continuous improvement of the resident experience? Our programs leverage the resident perception to improve the resident experience through operational alignment based on resident preferences. Put more simply, ask the resident how we are doing, and adjust according to the resident’s answers.
Overall Improved Resident Experience Over Time:
In a more holistic perspective, where we are measuring all aspects of the resident experience, from application to maintenance to move out, we have a balanced NPS score. We have seen a direct correlation between improving resident experience and loyalty leading to lower costs and lower vacancy.
When compared to local market conditions, these changes were even more impressive. Locally, the vacancy rate increased from 2% to 7% while the units that we were managing decreased from 6% vacancy down to 0% at the end of 2017!
Based on a cross-section of projects in the past few years client data that shows that across a broad mix of residential units, when we tracked the NPS score, we saw an increasing NPS over 3 years. In that same 3 years, the vacancy rate for these building dropped from 7% to 0%. (See Figure 1). In financial terms, this added about $3.2 Million to the top line and had the operational efficiency impact of the lower cost of churn! The lower churn represents roughly 5% improved operating margin.
Acceleration Strategy has built a world-class closed-loop resident (link to 10-minute overview video) experience management system that is guaranteed to improve your bottom line. We encourage any interested party to contact us at firstname.lastname@example.org for further information.