‘On the Ground’ with Eric Brown: Why Are You Poking Your Best Customers in the Eye?

Are you raising the rent across the board on each renewal? If you are, you are poking your best customers in the eye at lease renewal.

I posted a question this week on Facebook regarding rent increase that turned into a 35-comment thread. I think most apartment marketers are seeing rent increases, which is good, very good. While everyone agrees rent increases have been a long time in coming, they are finally starting to take hold as the economy recovers. The question becomes what to do with renewals, which is where the conversation heated up.

It seems that most can agree that in any given year the average turnover should be around 50 percent, or something close to that. There are fierce camps of beliefs that 50 percent of your resident base is moving irrespective of anything you do, good or bad as a management company. For the sake of discussion, let’s assume that your apartment management company is doing a good job, and your retention is in fact 50 percent, so half of your lease expirations are not renewing.

Let’s also assume that the apartment rental market is heating up and the new rent is $100 per month higher than the old rent. Are you raising the rent across the board on each renewal? If you are, you are poking your best customers in the eye at lease renewal. If this is your stance and position, that is fine, but don’t tout customer service as an attribute, because your actions are inconsistent. I get all the reasons why apartment marketers and operators justify raising rents at renewal, but what if there were a better way.

Apartment operators have long discounted the real cost of a unit turn, and unless you are fetching north of a $200 per-month rent increase, you aren’t even breaking even over a year. Most rent increases average something much lees. Why are you aggravating your best customers over a $25 to $50 rent increase. The best thing that happens is that the resident accepts it and is mad at you and tells all their friends about the negative experience. The worst thing that happens is the resident moves and you go backward a couple of thousand dollars. If that happens only once, you have gained nothing with all of the other alleged successful renewal increases.

There is a better way. If 50 percent of your expiring leases are moving anyway, you can increase your year-over-year revenue with those units and no one is mad or upset. The other remaining 50 percent of your residents who did renew are happy and talking up your apartment community. If you are having a hard time wrapping your head around this concept, think about Southwest Airlines no-fees, bags-fly-free program, which blew the other airlines into the weeds. This can become a significant marketing tool if positioned correctly.

Eric Brown’s background is rooted in the rental and real estate industries. He founded metro Detroit’s Urbane Apartments in 2003, after serving as senior vice president for Village Green Companies, a Midwest apartment developer. He also established The Urbane Way, a social media marketing and PR laboratory, where innovative marketing ideas are tested.

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