Most apartment management companies have multiple departments working hard to manage a successful apartment community. There’s a marketing team that sees to the print and digital marketing presence of the community. The leasing staff answers the phone, gives tours, helps with move-ins, manages complaints, and so on. Management attends to issues of rental rates, revenue management, and so on. While there are benefits to keeping these various aspects of the work separate, there is also a great danger that we hope to warn you against in this blog.
How do you integrate these divisions?
In this post we are going to specifically tackle just one aspect of that question: the relationship between marketing and revenue.
Let’s start by talking about how rental rates are set, because that will play the biggest role in determining your revenue levels. Rental rates are ultimately just a product of supply and demand. You will have a ballpark idea of “market-rate” rent in your area and then those rates will rise and fall based on movement in supply and demand. That is all sensible enough, right?
Here’s where a lot of properties start to go sideways: How do you determine what the demand is? What kind of demand do you expect in a given month? If so, you’re going to start adjusting rent rates when you may not need to.
For simplicity’s sake, let’s suppose your supply is 10 apartments and your expected demand is five to seven leases. In that case, you’re seeing that supply exceeds demand. So what do you do? Well, basic economics tells you that you lower the price, which in turn increases demand by expanding the pool of people that could potentially buy. But did you catch the problem with this?
How certain are you that demand is capped at seven? What if you could increase demand not by lowering the price, but simply by marketing to a broader audience?
Once you’ve asked that basic question, you’ve drawn your marketing team into working on revenue management.
Leasing, Marketing, and Revenue All Reinforce Each Other
If the ultimate goals of each division were completely distinct, it would make sense to keep their work separate, but that is not actually the case. True, there are metrics that marketing and leasing could point at as measures of their work: lead counts, conversion rates on closes, etc. But, ultimately, these metrics only have meaning if they are connected to improved revenue for the property.
Take lead count, for example: If your marketing generates leads, but the leads are all bad and don’t turn into leases, what good does it do you? Or take your leasing team’s conversion rate on in-person closes: If they are closing deals but having to charge below-market rent to do it, those closes could actually be hurting your bottom line. We believe that successful apartment management involves discerning how these divisions interrelate and optimize each team to advance the common objective of improved revenue.
Can marketing increase demand? If so, how much?
In one sense this is a weird question: Of course, marketing can increase demand. That’s the whole reason you have a marketing team in the first place. But too often, multifamily operators think that the degree to which demand can be influenced is fairly limited.An underperforming marketing team could certainly drag demand down and hurt occupancy rates, but a high-performing team is not usually expected to move demand in a positive way and impact rental rate decisions.
There are other problems as well: Tracking marketing performance has traditionally been a challenge in our industry, which in turn makes it hard to know how much marketing is influencing demand. Also, many marketing vendors are listing services with fixed products and long-term contracts. If you’re experiencing slightly less demand than you want, it may be cheaper to knock down rental rates, than it is to get locked into long-term deals for higher-level packages that you only really need for a month or two out of the year.
We underestimate how much marketing can influence demand.
We struggle to quantify the value of marketing’s work.
We often use stagnant marketing tools such as listing services, so it is usually cheaper to take a hit on rental rates than to increase demand.
Is there an alternative?
Traditionally, in our industry, the answer has been “no”
That is no longer true.
Two major developments have started to change marketing in the multifamily industry.
First, search engines have replaced listing services as the go-to source for apartment shoppers. Because of this, you can build a dynamic marketing platform on search engines without needing to rely on listing services.
Second, because of this shift in marketing, a new kind of marketing partner is needed in multifamily. Listing services are the past. (And don’t just take our word for it! Others in the industry are saying the same thing.)
This new marketing partner needs to understand digital marketing and, specifically, how to help individual communities become more visible on search engines using the various tools that are offered—organic search, paid search ads, and local search listings. Agencies will know how to move quickly and make dynamic changes to a community’s marketing strategy.
Their marketing strategy isn’t built on rigid, monthly contracts that lock properties in to a single marketing strategy. Agencies can make changes based on what is happening month-to-month at a community. It also means that they will often be able to identify opportunities to create far more demand than many think possible for the community. And that is why revenue and marketing need to talk.
Let’s return to our example above. We have 10 vacant units, while demand is expected to be at around 5-7 leases for the month. In this scenario, the way to turn those vacant units more quickly is to slash rent across the property. But what if marketing can use Google Ads or Facebook Ads to create higher demand? What if they can bump it up to 9–11?
In that case, you probably don’t need to adjust rent at all, or you may only need to decrease it for a very brief time. What if you could grow demand such that you could sign 13-15 leases that month? Now you’re suddenly looking at being able to raise rent rates because you have a waitlist for your units. To get a bit more specific: A good marketing agency should be able to pump an extra $500 into an advertising budget for a month, bring in more demand, and then pull back on the spending once the vacancy problem is resolved.
As marketing tools grow more powerful and marketing teams become more adept at using them, we should expect marketing to be able to influence demand in more extreme ways. Because of this, the relationship between supply and demand that dictates your rental rates will need to be rethought. The old constraints that limited possible demand do not need to operate in the same way.
Obviously, revenue benefits by this arrangement and it’s not just your checking account that looks better. Think about the other downstream consequences: A community with solid revenue numbers, is a community that doesn’t have a panicky leasing staff that is nervous about bad vacancy numbers. A community with favorable revenue numbers has money to fix issues as they arise, which means the community will be able to look its best and also have happy residents. Communities with happy residents will have better renewal rates. And communities that look their best will start to organically attract more attention.
Integrating distinct divisions within the multifamily industry—leasing, marketing, and revenue—is a revolutionary way of thinking about how apartment communities should operate. But, the potential for growth if you are able to do this, and do it well, is enormous. If you’re interested in learning more about how marketing and revenue can reinforce each other and improve each other’s work, don’t hesitate to reach out to one of our Business Advisors for a one-on-one conversation about your specific situation. We’d love to help you figure out how to reduce your vacancy and grow your revenue.