Think of any real estate operator that is doing very well. It is highly likely that they are using metrics very effectively to drive their business. However, not all companies are using metrics effectively. In this post I will describe the four stages of the journey towards how to utilize metrics for property management.
These are the four stages in the journey towards effectively using metrics. These are: Unaware, Reactive, Proactive, Optimized.
How to utilize metrics for property management; The Four Stages
Companies in the Unaware stage don’t regularly look at the key numbers such as NOI, occupancy etc. As long as there is enough cash in the bank account, they don’t feel the need to regularly look at metrics.
We call this “flying blind”.
Companies in this stage look at financial statements at month end. They may or may not have budgets and targets. If something is below expectations, they will take a closer look at the numbers and determine the cause and corrective action.
However, financial statements are lagging indicators of business performance. So, any corrective action taken is a reaction to events that have already taken place.
Companies in the Proactive stage keep track of the leading indicators that predict NOI, cash flow, occupancy etc.
For example, the number of leads, applications, lease termination notices etc. are predictors of future occupancy, rental income and NOI.
These companies have figured out how to utilize metrics for property management.
In addition to the budget, these companies also maintain a forecast. Forecasting forces them to anticipate upcoming events and, if possible, proactively try to stay on plan.
Companies that have reached the Optimized stage have figured out what key ratios. For example, they know how many leads can expect from each dollar spent on advertising. I know how many leads will convert into showings and leases. They track economic occupancy and know how much a vacant unit is costing them each week, so they can price their units appropriately. They have organized their chart of accounts so that they break down their expenses by specific processes and activities.
These companies can continue to optimize how well they execute because they are measuring their processes (lead generation, leasing, unit turnover, collection etc.) and how much these processes are costing them.