Leasing vs. Retention - A Contrarian View

I read an intriguing point in an online discussion about revenue management: “Turn cost is a factor, but it is also a sunk cost unless you wish to favor renewals over new leases.” Ah, “unless” you favor protecting your existing revenue stream!  This is a huge issue…leasing/marketing vs. retention. Which should be the priority? Loss minimization vs. revenue/cash flow maximization. Filling empty boxes vs. saving costly and controllable move-outs (ranges from $3,000-$4,166) and maximizing NOI. I don’t know about other folks, but I sure know my business makes more money when renewals are maximized and new sales are the icing on top of the retention cake!

If a move-out costs $4,166 (vacancy loss, concessions, marketing costs, staff time, hard turn costs) and a new renter is paying $50 more than the resident who left (keeping in mind 60+% of turnover is controllable)…that means the new resident must stay for 83 months (6.9 years) to pay back the NOI hit for a controllable move-out.

I am perplexed by how some in the industry seem to accept 55-60% turnover…that so little attention is given to the fact that most customers leave each year…and that it can be reduced with huge NOI impacts. That so many industry leaders tell conference attendees that you cannot reduce turnover. “The world is not round!” Our clients report turnover being 9.5 points below the NAA average. For a 5,000 unit portfolio, that means that our client’s NOI is $1,978,850 higher…and at a 7 cap that means the portfolio’s value is $28,269,285 higher…than the typical firm in the industry. We have clients achieve up to a 6 point reduction in turnover their first year working with us. Check this out.

How can an industry where “re-sales” drive NOI…focus so much more attention on the front door rather than the back door?

I went through this conversation with someone, and I shared some rather unique policies we recommend to clients (like never letting staffs respond to prospect voicemails or emails until every resident call or email has been responded to, until every delay handling a resident request has been communicated to a resident, until every completed work order has been followed up on). He said I was nuts (OK, what was his point – lol!). I then asked what he would do when he walked into his office one morning and had a voicemail from a client and one from a perspective client – which message would he return first? He said, “Of course I call my client back first!” When he was done saying that…over the phone I could literally hear the light bulb go off in his head…”Oh, I see what you are saying.”

BTW, want to know what best practice, when not done, has the greatest negative impact on renewal likelihood? Not promptly responding to resident calls and emails. It’s common sense isn’t it? If you make it hard for me to be a customer…as soon as I can I will take my hard earned money elsewhere…then you can let the unit sit vacant for 45 days and give away a couple months free to finally get it occupied again!

A simple shift in priorities/focus can have a ginormous impact on performance. Our clients prove it to us all the time!