Keep Your Business on Track: Key Performance Indicators

Keep Your Business on Track: Key Performance Indicators

Key Performance Indicators (or KPIs) are business metrics used to measure, monitor, and manage your property management team and business. These indicators show you how effectively targets, objectives and goals are being met and whether or not your property management business is on track to success. So, which KPIs should you be tracking and why?

KPI 1. Management Fee Annualized Income

Your Management Fee Annualized Income is the total annualized income a portfolio is earning or, if you have more than one portfolio, the sum total of all portfolios. This figure fluctuates as portfolios grow, due to the increased number of properties under management or increased rental rates.

Once your portfolio and business’s annual income targets have been set, your Management Fee Monthly Income target should then be set and monitored. If monthly targets are not being achieved by your team, it is your job to determine why. Causes might include a high-arrears percentage, lack of rental increases, lost managements or high-vacancy numbers. Once the reasons have been determined, it is important that you implement effective measures to fix the issues and ensure your team remains on track to achieving your Management Fee Annualized Income target, and overall business goals.

KPI 2. Average Weekly Rent

Your Average Weekly Rent target can be determined once you have prepared your annual business plan. This target should take into account your market area’s average weekly rent and the make-up of each portfolio. However, your target should, in fact, aim to achieve above-average market rental rates. Achieving above-average market rental rates results in increased income for your business and sets you apart from competitors.

Therefore, setting your Average Weekly Rent KPI allows your business to achieve average or above-average rental returns for your property owners. As a result, if properties are receiving less-than-average rental returns, you can either take necessary actions to help property owners achieve market rates or decide such management accounts are not viable for your agency. In this way, setting this KPI keeps your business on track and helps achieve greater returns for you and your clients.

KPI 3. Average Management Fee

Your Average Management Fee determines your monthly and annualized income, and therefore, significantly influences your property management business’s overall asset value. For this reason, your Average Management Fee target should be as close as possible to your current management fee rate. That’s because, anything less suggests your team may be discounting fees, which is a big no-no, as it devalues your business.

As a result, setting this KPI and measuring it on a month-to-month basis safeguards against team members discounting, deleting or, worse still, not charging management fees at all. In this way, setting this KPI helps protect your business’s brand and reputation and also keeps you on track to achieve your Management Fee Annualized Income target.

KPI 4. Average Arrears Percentage and Income

Your Average Arrears Percentage and Income determines how each team member is managing their portfolio, as well as the impact arrears have had on your monthly income. Since most principals focus solely on their arrears percentage, many fail to take into account the monthly income lost in management fees. To protect your bottom line, your Average Arrears Percentage target really should be 0% (and Average Arrears Income target $0), which is achievable with the right processes in place.

Setting your Average Arrears Percentage and Income KPI puts you in control of this critical factor. Tenants that are in arrears not only negatively impact income targets, but also increase the risk of losing management accounts. Monitoring this metric therefore allows you to pinpoint where and why arrears are occurring to ensure they are managed and removed. As a result, setting this KPI puts you in a better position to coach your team to achieve 0% arrears and 100% income.

KPI 5. Average Percentage of Fixed-Term Tenancies

Your Average Percentage of Fixed-Term Tenancies target should be as close to 100% as possible. To do this, you must monitor this metric every month to ensure your team is not allowing tenants to lapse into periodic tenancies. Periodic tenancy terms put your business and property owners at risk of losing income. The key is to understand when tenancy terms are due for renewal, so you can manage workflow, productivity levels, and income targets.

Tracking your Average Percentage of Fixed Term Tenancies KPI helps reduce the risk of management accounts being lost during the renewal process. If renewals are not properly managed, property owners are more likely to terminate the management agreement during this time due to lack of renewal, lack of rental increase, lack of priority in managing the outgoing tenant notice period, and loss of income in between tenants. As such, tracking this KPI allows you to proactively manage this risk factor and set factual income targets for your team to work towards.

As you can see, tracking KPIs is critical when it comes to keeping your business on track. Since every metric impacts and, in many cases, determines other metrics, each one must be accurately set and effectively managed in order to fulfill your individual, team and business objectives. As a result, this will keep your business on track to achieving your agency’s overall goals.

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Residential Resources: October/November 2016 Issue: Volume 27, Number 10