[Five Reasons] Why Discounting Fees is Bad

Tuesday, December 05, 2023

An important message for bosses and managers.

In every marketplace, there’s an agency that decides to have a much lower management rate (and lower/less ancillary fees) than that of their competitors.

This is their main point of difference to win new business.

However from a business/commercial point of view, here are some reasons why this is NOT a smart business strategy:

#1- You attract ‘discount’ clients!

Having the cheapest fees tends to attract the ‘cheap clients’.

They don’t just want lower fees (they’ve probably asked for a discount on your cheap fees as well), but they will also demand more than 100% service. This causes strain on your staff!

#2- Good property managers won’t operate on discount salaries!

Good property managers won’t perform well on a discount salary. This places a strain on your profit margin, as you still have to pay a good salary to keep them.

#3- You may need to overload staff, to make a profit.

To earn a sustainable profit margin, you’re going to have to manage more properties per property manager causing strain on your staff and increasing resignation rates.

#4- Good property managers may lose respect for you!

If your strategy is just to ‘build the numbers’ to feed listings into your sales business, you will find it hard to retain good property managers – they just don’t want to work anymore for a boss that treats PM as second best to sales, or PM is simply something that only exists to serve the sales department.

You’ll be left with an incompetent/inexperienced staff! Not a good thing!

BUT wait, there’s more! It gets better!

#5- Discounts can mean discounted rent roll value!

HOWEVER this could be the end ‘nasty’ surprise that might convince you your discount strategy wasn’t worth it – but by then, it will probably be too late:

– Not only will your ‘discount point of difference’ lower your management fee base income (or overall fee income) but if your fees are low enough you may lower the value of your rent roll as well.

Instead of a rent roll multiplier of 2.8 (for example), you might only get offered 2 to 2.2 (multiplied by your annual (already low) management fee income).

Your rent roll overall value may ALSO have to be discounted, just to sell it.

Purchasers will most likely want a discount sale price for a low fee-generating business.

Makes sense really! Why would anyone want to pay full market rates!

It might leave you quite disillusioned in the end, and regretful of your discount strategy.

Something to know about, something to think about.

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