Understanding the Law of Alternate Costs: A Game-Changer for Justifying Your Fees (5 minutes)
The Law of Alternate Costs is a powerful tool for justifying your fees to property owners.
By highlighting the higher costs they would face without your services, you can turn fees into an investment, not an expense.
For example, charging a fee for an annual summary statement might seem high, but when compared to the hundreds an accountant would charge, it becomes a bargain.
This article explains how to apply the Law of Alternate Costs to various fees, helping you confidently charge what you're worth.
Learn more about this game-changing strategy and boost your revenue today!
If you’re looking for a way to justify the fees you charge, understanding the Law of Alternate Costs can completely change the game for you. Let me break it down with a personal story.
A Real-Life Example of Alternate Costs
A few years ago, my son was learning to drive in our current-shape Toyota Corolla.
One day, while practicing with his L plates on, he clipped a wheelie bin, smashing off the passenger-side mirror.
Now, the car was still drivable, but with the mirror gone, it was defectable and we had to get it fixed immediately.
A friend suggested, “Why not get a cheap part from the wreckers?”
So, I called up the local wreckers, and they confirmed they had the part. I asked for the price, and they told me $660. I nearly fell off my chair. Who pays $660 for a side mirror off a wrecked vehicle? It seemed absurd.
The next call I made was to the Toyota dealership to get the price for a brand-new, fitted mirror.
They quoted me $1,300—more than double what the wreckers wanted! Suddenly, that $660 didn’t seem so expensive anymore when compared to the alternate cost.
Now, although I ended up going with the new part for insurance reasons, the point remains: once I understood the alternate cost, I was able to see the value in the cheaper option. This is the Law of Alternate Costs in action.
- 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.
Applying the Law of Alternate Costs to Your Fees
When you charge your fees, they may initially seem expensive to your clients. But if you can put those fees in light of what the alternate cost will be for the owner if they don’t take your option, you can justify your pricing.
Example: Annual Summary Statement Fee
Take the annual summary statement fee. This is a fee charged for compiling a year’s worth of monthly statements into one, easy-to-read document for the owner’s accountant. Without this service, the owner would have to take their 12 monthly statements to the accountant, who would then spend 1-2 hours consolidating the information themselves—charging the owner anywhere from $500 to $600.
If you’re charging $70, $80, or even $90 for this service, it’s easily justifiable when the alternate cost of having the accountant do the work is so much higher.
But if you fail to explain the alternate cost to the owner, they might see your fee as expensive because they don’t understand the full value it provides.
How to Use the Law of Alternate Costs for Different Fees
The Law of Alternate Costs can be used to justify almost any fee you charge:
• Routine inspection fees
• Lease renewal fees
• Leasing fees
• Even management fees themselves
By presenting your fees in comparison to the alternate costs the owner would face without your services, you turn your fees into a valuable investment rather than an expense.
Learn More in the PM Fee Scripts Secrets Book
In my book, PM Fee Script Secrets, I cover how to justify every fee you could ever charge, with detailed scripts to help you communicate effectively. We discuss the Law of Alternate Costs and ten other fee laws that can help you confidently explain your pricing to clients.
The book is free—we’ve already paid for the printing.
All you have to do is cover the shipping. Just head over to StopDiscountingFees.com to grab your copy.
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