Performance indicators are the key to measuring the effectiveness of your property management business. They provide a way for you to track if your company is doing well or not, and if not, they can help you figure out what needs improvement. Tracking KPIs is important because it helps you know if there are any problems with your products, services, processes or systems. This blog post will explain all about performance indicators and why you should be using them in order to improve your business's overall health!
Every solid KPI program is built around the year end objectives for the company. This is different for every company. Some companies are focused on stable rents and strong occupancy and some are focused on driving up rents and taking a risk of increased vacancy. Some are looking to increase marketing efforts to expand their owner base and some want to maintain their current book of business. Once you decide on those goals you are ready to determine your KPI’s.
Your business has a lot of moving parts and making sure that they are all working toward the common goals of your organization is imperative. Although it may seem counterintuitive, working backwards to develop KPIs is the best way to move forward.
Starting with your year end goal, break it down into quarterly goals. Knowing your market and your property and it’s ups and downs based on demand is key to knowing when to push the limits and when to dial back and adjust accordingly.
From there, break it down by department. What is the core responsibility of each department as it relates to the company goal? What impact can they make either directly or indirectly to achieve that? For example, if your goal is to reduce unit turnover rates to decrease vacancy and in turn increase income, you might have a goal for the office staff to increase renewal rates for 70% to 80%. You might have your maintenance staff reduce work order response time from 48 hours to 24 hours. We all know how related maintenance is to retention.
Here are some common mistakes property managers make when developing KPIs:
1. KPIs are not aligned with strategic objectives:
They must be “key” to the organization. Make sure those numbers mean something and they aren’t arbitrary placeholders.
2. You are using easy to measure KPIs:
If your KPIs are easy to measure or don’t challenge their owner you won’t grow.
3. Focusing too much on the past:
Lagging indicators are a good measure of where you were but leading indicators should be driving the behaviors for the future.
4. Not defining the time frame expectations.
Clarity on expectations and deadlines lets everyone know where they stand and the ability to plan their strategy to achieve the desired outcome.
5. Not holding people accountable:
If you don’t take it seriously, your staff won’t either. Meet with your team regularly to review progress. If you see them going off course, this gives you an opportunity to correct it quickly and not wait for failure.
6. Not giving people the tools they need to succeed:
The leaders in your company should be listening to the staff about what tools are needed for success. Their support plays an important role.
Here are a couple examples for our industry. In our opinion these are the must-haves:
DLER (Direct Labor Expense Ratio): Total Revenue / Cost of direct labor
- For example, you have maintenance revenue of $10,000 and your maintenance tech wage is $5,000. This gives you a DLER = 2.0, which is the minimum you should expect from your company. The bigger, the better. For maintenance it should be 2.0, but property management needs to be closer to 2.5
- The measure is designed to make sure you are not spending too much on labor. It’s also nice to use for determining when it’s time to hire a new employee. If the DLER gets too high then you might be pushing up against employee fatigue.
TBR (Time Billed Ratio): Total time paid to hourly staff / amount of employee’s time that is billed
- Needs to be about .9
Rent Roll Growth: Probably self explanatory. Rent roll growth over last month
PPU (Profit Per Unit): Total profit divided by the number of units in the portfolio
Be prepared to disseminate feedback on the achievability of the KPIs. While you may hear excuses, you need to prepare yourself for the possibility of a flaw in the procedure or service. Being open to the viewpoints of the frontline can be extraordinarily helpful when creating the KPIs. Regular reviews help to make sure you are on track and make sure you are agile enough to make appropriate changes to the strategic plan if needed. Encourage the departments to work together because if one team is reaching their KPIs and one team isn’t, your goals can tumble like a house of cards. This is why any KPI program must have the CEO be the central driver for the company.
Whether you’re an entrepreneur just getting started with a new property management business or marketing manager at a well-established company, chances are that your business is doing more than one thing. As such, it can be difficult to know which metrics are the most important for measuring success and what constitutes success in the first place. We have found that KPIs are not just valuable for businesses with multiple goals but also companies who want to measure their progress towards their vision over time by us