Defining and tracking key performance indicators – or KPIs – is one of the most effective ways to leverage data for the improvement and growth of your property management business. KPIs also enable you to determine your budget for things like marketing activities, as well as helping to make more informed decisions about the future. Let’s look at the four most important KPIs for the property management industry below.
Annual Contract Value (ACV)
ACV represents the average amount of money each unit will generate over the course of 12 months. To calculate this, you’ll need:
- Total revenue for the last 12 months
- Total number of units under management at the end of 12 months
As an example, let’s say your total revenue was $1.6 million and you had 375 units at the end of 12 months. If you divide your revenue by your number of units, you’ll get $4,267. This is your annual contract value per managed unit.
$1.6m / 375 units = $4,267 ACV
Why is this important? Because understanding how much you can earn on each property will enable you to determine how much you can afford to invest back into your business.
Customer Lifetime Value (CLV)
If you’re wondering how healthy your business is, this KPI should provide a clear and accurate picture. To determine your Customer Lifetime Value, take your average annual contract value and multiply that by the average number of months your owners tend to stay with you.
Figuring out this last part can be a bit challenging, particularly for newer companies. If you’ve been in business for 5 or more years, you should be able to look back at historical data to determine your average client retention. Newer companies can use a general estimate, like 42 months, which equals out to 3 ½ years.
Using the data from the above example and an average retention of 42 months, calculating your CLV would look something like this:
$4,267 (ACV) / 12 months = $356 (Average Monthly Contract Value)
$356 x 42 (average months owners stay with you) = $14,952 (CLV)
Defining this number can help you visualize how much money is left on the table whenever a lead drops out of your sales funnel. It also demonstrates the critical importance of owner retention.
Sales Closing Ratio (SCR)
Your SCR compares the number of signed management contracts to the number of owner leads you get. SCR is fundamental in assessing your sales funnel. In order to calculate this KPI, you’ll need:
- Total # of management contracts signed during the last fiscal year
- Total number of owner leads you’ve collected during that same time frame
For the purposes of this example, we’ll define owner leads as anyone that has expressed interest in your property management services for whom you have collected contact information. Let’s say you signed 45 contracts and collected 150 owner leads over the course of the last fiscal year. Divide contracts by owner leads and then multiply that number by 100 to get your SCR percentage. In this case:
45 contracts / 150 leads = .3
.3 x 100 = 30% SCR
Generally speaking, a sales closing ratio under 50% should warrant a review and assessment of your sales and marketing processes to identify potential areas of improvement.
Customer Acquisition Cost
The fourth pivotal KPI for property managers is Customer Acquisition Cost. CAC tells you how much you’re actually paying (on average) to acquire a new client. To determine your CAC, you’ll need:
- Annual sales expenses (including salaries of sales team)
- Annual marketing expenses (including salaries of marketing team)
- Number of owners acquired within the last 12 months
As an example, let’s say you employ one salesperson at an annual salary of $65,000 and have an annual marketing budget of $60,000. Now, let’s say you acquired 40 new owners last year. To calculate your CAC, you would add your sales and marketing expenses and then divide that total by the number of new owners.
$125,000 ($65,000 sales expenses + $60,000 marketing expenses) / 40 = $3,125 CAC
Most experts agree that a healthy ratio between CLV and CAC is 3:1. So, in this case, your numbers would be favorable, since your CLV is ~$15k and your CAC is ~$3k. Numbers like this could indicate an opportunity to increase your owner marketing to acquire even more customers.
So, there you have it – four of the most important KPIs for property managers. Keep in mind that the examples provided above are general and simplistic in nature. They should, however, at least provide you with a guideline to start thinking about, planning and calculating your own KPIs. The better you understand your business, the easier it’ll be to pursue that growth you’ve been targeting.