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The Consequences of Discounting: Why It's a Race to the Bottom (7 minutes)
Discounting fees might seem like a quick fix to stay competitive, but it's a race to the bottom that can severely damage your rent roll (and still not grow it!).
This video and article highlights the five major consequences of discounting, from attracting low-quality clients and repelling top talent to reducing the value of your rent roll and making your business simply unsustainable to operate properly.
Competing on fee alone erodes long-term profitability and growth.
Learn why maintaining strong fees, focusing on service quality, and avoiding the discount trap will safeguard your rent roll and ensure long-term success.
Read on to discover how to protect your rent roll asset value.
In this article, I want to walk you through the consequences of discounting. Whether you like it or not, if you get caught up in the race to the bottom, these are the challenges you’ll face.
Discounting is a financially dangerous game, and it can do lasting damage to your business.
Let’s dive into the five key consequences that come with discounting your fees.
1. Decline of Sustainability
When you start competing on fees, it’s a slippery slope. One agent drops their fees by 1%, then another goes even lower, and the cycle continues. Ultimately, this race to the bottom is not sustainable.
If you ever plan to sell your rent roll, a portfolio full of discounted fees will reduce its value. Buyers won’t want to pay a market rate multiplier because they’ll have to carry the burden of those low fees for a time before they can possible increase the fees.
As a result, your rent roll becomes less attractive to buyers, leading to a lower sale price.
Worse yet, quality property managers demand higher salaries.
If your fee revenue is shrinking due to discounted fees, you won’t be able to offer competitive pay, and that will affect your ability to attract and retain top talent.
Salary expenses can take up 50% of your budget, and they’re only increasing. The bottom line is this: discounted fees won’t pay quality salaries.
- Standard Marketing Fee This fee covers the costs of listing properties on portals. In Australia, you’re likely familiar with the two major portals that charge fees. New Zealand has its own marketing portal costs as well. Make sure you’re covering those costs, and if you haven’t updated your fee recently, ensure you’re adjusting it, as portal charges tend to increase on a regular basis.
Don’t forget to factor in any additional marketing efforts, such as Facebook or LinkedIn campaigns. Always check your local legislation to ensure you can on-charge these costs. - Professional Photos If you’re taking professional photos for listings, you should be charging a fee to cover those costs. It’s a straightforward service, but make sure it’s reflected in your fee structure.
- Video Walkthrough Fee Offering video walkthroughs is becoming increasingly common. If you’re walking through the property with a camera or phone, narrating as you go, that takes time—editing and uploading included. You should be charging for this service, and the suggested fees are detailed in the book.
- Virtual Tour Fee Using high-tech tools like Matterport or 360-degree cameras to create virtual tours can be time-consuming and require expensive equipment. This is another service where you should be charging a fee for the value you provide.
2. Cheap Fees Attract Cheap Owners
Here’s a harsh reality: cheap fees attract cheap clients. Think of it like a flame attracting moths—by lowering your fees, you’ll draw in the kind of owners who are only focused on low fees, and not the type of clients you were after in the first place.
These are typically the most toxic clients. They’re demanding, difficult to please, and often create more problems than they’re worth, blowing out the time to manage their property.
The more of these clients you bring into your rent roll, the higher the toxicity level, which makes your business an unpleasant place to work.
Your quality staff won’t stick around if they’re dealing with high-maintenance, fee-focused clients all day. You’ll find it harder to retain top talent, and your staff turnover will increase.
3. Good Property Managers Are Repelled
If you’re constantly discounting fees, your best property managers won’t respect you. They believe in the value of property management and don’t want to see their hard work thrown away for cheap fees.
Quality property managers want to work in agencies that value their expertise, offer security, and pay well.
When your business is driven by a discount mentality, you’ll start losing the respect and loyalty of your staff. They may even leave for agencies that value their skills and compensate them fairly.
4. Discounted Business Value
If you continue to discount your fees, the value of your rent roll will be significantly lower when it’s time to sell.
Not only will the discounted management fees reduce the overall value, but your multiplier—the number used to calculate the rent roll's value—will likely be discounted too.
I’ve seen cases where people expected a high sale price but ended up with 50% less than they anticipated because their fees were so far below market rates. This is a nasty surprise after years of hard work and can leave you with far less than you deserve when you decide to cash out.
5. Inability to Afford Resources and Quality Staff
Low fees mean low fee revenue, and that affects every aspect of your business. If your fees are too low, you won’t be able to afford quality technology, training, or staff.
You’ll struggle to invest in the resources you need to grow and stay competitive. This lack of investment can turn into a runaway train—as your quality declines, so does your business, leading to more problems.
Before you know it, your agency will become unsustainable, with cutting corners becoming the norm. You’ll lose control over the business, and it’ll hurt everyone involved, from your staff to your clients.
Don’t Fall Into the Discount Trap
Avoid these traps by maintaining strong fees, delivering exceptional service, and competing on value rather than price.
For more tips on how to avoid discounting and build a stronger, more profitable business, check out our book, Win Your Worth Secrets.
It’s free—you just cover the shipping. Head over to IGTCentral.com to get your copy and explore more of our resources, including podcasts and videos.
WIN YOUR WORTH SECRETS
The complete PM HANDBOOK on how to WIN THE BEST FEES with new clients and INCREASE YOUR FEES with your current clients without losing them to cheaper agents
PM FEE SCRIPTS SECRETS
Access 50 (plus) fee objection responses.
[UNLOCKED] How to WIN the deal and your FULL FEES with CONFIDENCE...no matter how low your rivals discount or reduce their fees.
Every PM fee objection you'll ever face has an effective response! You'll find it...in this book!
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The kick-butt time management handbook for crazy busy property managers who want to beat burn-out, reduce stress, take control and get their life back!
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Revealed...secrets to 40+ effective ways to generate hot leads to grow your rent roll without relying on salespeople.
Win Your Worth Podcast Show
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Rent Roll Growth Strategies...ready to go!
BDM Coach Podcast Show
BDM skills and techniques that will take you to 20-30 properties a month.
