Thursday, February 18, 2010

#AptChat Discusses Revenue Management

Last Friday, the discussion on the weekly #AptChat focused on the use of revenue management (RM) solutions, which are software programs to efficiently determine rental pricing, while taking the emotion (and potential for overcompensation) out of the process. We're reposting the recap of that conversation here for our readers ... enjoy.

With representation from both Rainmaker (LRO) and RealPage (YieldStar) throughout the discussion and apartment operators on both sides of the fence, this turned out to be a very interesting, enlightening discussion.

First, it's important to understand what a revenue management system is and why apartment operators might want to use one. Here's how you defined revenue management software:

  • Gary Katz: "For those unfamiliar with RM systems, they price apartments kind of like hotels price their rooms. Prices can change daily."

  • Keith Dunkin: "RM systems provide the optimal blend of internal fundamentals and external data. Protects from over reacting to comps."

  • Keith Dunkin: "Improved Revenue Performance, Increased Visibility, Pricing Efficiency, reduced carry costs."

  • Steve Matre: "Classic yield mgmt, matches price to demand based on lease exp's and historic traffic, system sets price."

  • Gary Katz: "The idea is too not price apts too low and leave $ on the table and not price them too high and leave them vacant."

We gave both Rainmaker and RealPage the opportunity to describe how they derive their pricing. Here's Rainmaker's response: "LRO optimizes rents based on supply & demand (traffic, leasing, availability, etc). Market response is measured & prices adjust." Bruce Barfield also added that "LRO uses electronic web scraping technology to get dynamic prices."
Janine Jovanovic answered for RealPage: "YS gets factual leasing data daily from 15k+ properties across the US + 5m MPF units + any data entered on site."

On to the recap!

Are you using revenue management software for your business? If yes, why? If no, why not?

  • Jennifer Kennedy: "No....not sure that there is enough ROI."

  • Donald Davidoff: "Been using it for 9 years with multiple tests that prove the ROI."

  • Heather Blume: "I've worked with the software before, and talked to many clients who use it. Some love it, some don't."

  • Keith Dunkin: "To echo Donald at Archstone, Rev Mgmt has been in place for years with proven revenue premiums to market in 2-5%, compelling ROI."

  • Heather Blume: "What mgrs have said to me is that they lose the push/pull ability and it's difficult to stay competitive sometimes."

  • Mark Juleen: "Nearly 2 years now with Yieldstar."

  • Janine Jovanovic: "Managers and leasing staff have told us that they love it because it empowers them to sell more."

  • Keith Dunkin: "On the ROI comment RM systems have been measured consistently in up and down market and both solutions have proven out."

  • Trachelle Spencer: "We have been actively using LRO for over 6 years and would not go back to a manual process."

How long does an RM system take to 'pay for itself'?

How many units before companies feel they need a "pricing guru" to over see the system? (Asked by Steve Matre)

  • James Flick: "I would suggest 50+ properties for a dedicated individual in YS. Otherwise, use the consulting services w/ RealPage."

  • Janine Jovanovic: "You can outsource pricing oversight to us. Makes sense to have your own internal resource at 10,000+ units."

  • Trachelle Spencer: "We have 44 communities currently on LRO; there are two of us managing them. Doesn't include Lease Ups."

  • James Flick: "It is probably more cost effective to outsource to an experienced consultant at Realpage vs. a full time person in house."

  • Chris Long: "We have 150 properties and 3 dedicated resources."

  • Trachelle Spencer: "It is important to have pricing professionals and not have the system run independently."

How tough is it to renew someone when their rent can, in effect, go down one day after they sign their renewal?

  • Donald Davidoff: "Rents can go down in one day on manual systems."

  • Janine Jovanovic: "This is a function of market conditions not RM - happens with or without RM in place."

  • Leigh Curry: "What about the person who finsw out their airplane fare has decreased by $100 or hotel room by $50...fact of life."

  • Mark Juleen: "We have struggled the most with making renewals as fair as possible."

  • Trachelle Spencer: "We have processes in place to review renewals if necessary."

Along the way, there were a lot of great comments about implementation and the use of revenue management systems in general. Here are a few of the highlights:

  • Mark Juleen: "We played with it for the first year trying to override too much. We just let it run now."

  • Mark Juleen: "No more 'concessions' or 'specials' rents, just adjust both renewal and new."

  • Mark Juleen: "In 2009 our Rev. was up 2% in Indy while most competition has reported they are down 2%."

  • Lisa Trosien: "You have to know/learn how to 'sell' it to the prospect. It really does simplify the process."

  • Janine Jovanovic: "Prospects can do math. They like the "check writing" price. You can say "concession" is built into the price."

  • Trachelle Spencer: "Our communities do weekly competitive surveys. We are finding more accurate pricing online."

  • Trachelle Spencer: "We have classes offered by our Training Dept. Site Visits, 1 on 1's, conference calls, webinars, etc."

  • James Flick: "Have we aligned incentives and compensation for managers and leasing associates to get them to embrace rev mgmt?"

  • Lisa Trosien: "RM is great: it's fair; it increases the bottom line; it creates urgency. It removes the 'fudge factor'. I'm a big fan."

One advocate for revenue management, Mark Juleen, laid out in detail why he likes using the program over manual pricing. Here's what he said:

Even though Mark is a fan of the system, he still thinks there's room for improvement (and others seemed to agree). For more comments on this, and for the rest of the discussion, check out the full transcript.

What do you think? Are you using a revenue management system to set pricing? If so, what has been your experience so far? What can RM systems do to improve their models? Are you evaluating your options? Let us know what you think in the comments!

(#AptChat is free and open to anyone ... I encourage you to check it out!)

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