For property managers, profitability is the key to long-term success. But maximizing profitability isn’t just about increasing revenue, it’s about optimizing efficiency, reducing expenses, and creating scalable processes. Property managers can build businesses that thrive in any market condition by focusing on key financial metrics and operational strategies.
1. Profitability as a Business Priority
While profitability should be the bottom line, many property managers focus solely on revenue without considering net gains.
- The industry average profitability, adjusted for owner compensation, is 11%, while the top 25% of performers achieve 32%.
- Profitability fuels business growth, allowing for reinvestment in technology, staff, and marketing.
- Tracking and optimizing financial performance is crucial for long-term sustainability.
2. Labor Efficiency: The ‘Desert Island’ Metric
One of the most powerful profitability indicators is Direct Labor Efficiency Ratio (DLER): The revenue generated per dollar spent on direct labor.
- The industry average DLER is 2.90, meaning for every $1 spent on direct labor, $2.90 is generated.
- The top-performing 25% achieve a DLER of 3.96, significantly boosting profitability.
- Improving labor efficiency requires refining processes, investing in automation, and ensuring every team member contributes to the bottom line.
3. Revenue Per Unit
Revenue per occupied unit (RPU) is a key driver of profitability. Increasing RPU even slightly can have an outsized impact on your bottom line.
- The average RPU is $222, while the top performers bring in $317 per unit.
- A 10% increase in RPU can double profitability.
- Property managers should evaluate pricing structures, add revenue-generating services, and ensure fees align with the value delivered.
4. Controlling Expenses as a Percentage of Revenue
Expenses can creep up unnoticed, eroding profitability. Monitoring costs relative to revenue is critical.
- Industry benchmarks show that top performers maintain operating expenses at 10% of revenue.
- Payroll taxes and benefits should stay around 4.8% of revenue.
- Reducing unnecessary expenses, renegotiating vendor contracts, and leveraging technology can help maintain cost efficiency.
5. Churn: The Silent Killer of Profitability
Losing properties is one of the biggest threats to profitability in property management. When owners decide to remove their properties from your portfolio, it directly impacts revenue and can be costly to replace.
- Retaining property owners requires consistent communication, proactive maintenance solutions, and value-driven service offerings.
- A strong owner retention strategy that includes clear reporting, transparent fee structures, and exceptional service can reduce door churn.
- Ensuring property owners see the value in your management services will help maintain and grow your portfolio over time.
6. Unit Acquisition Cost (UAC)
Spending more on marketing doesn’t always lead to greater growth. The most efficient property management companies acquire new units at a fraction of the cost of their competitors.
- The industry average UAC is $1,666, while top-performing firms bring it down to $769.
- Property managers can maximize UAC by focusing on acquiring clients with multiple properties.
- Optimizing digital marketing, leveraging referrals, and improving conversion rates can lower acquisition costs and boost profitability.
Building a Scalable Property Management Business
Profitability isn’t just about numbers, it’s also about having the right operational strategies. Scaling efficiently requires a mindset shift and a focus on sustainable growth.
Four Keys to Scalability:
- Move Fast, But Stay in Control: Operate with urgency while maintaining quality.
- Get Comfortable Being Uncomfortable: Growth comes from pushing boundaries and adapting to change.
- Focus on ‘Who’ Instead of ‘How’: Build a team that shares responsibility and decision-making.
- Embrace ‘Type 2 Fun’: Scaling a business is challenging but rewarding in the long run.
Streamlining Operations
- Delegate Decision-Making: Empower team members closest to the work to make informed decisions.
- Avoid Perfection Paralysis: Prioritizing perfection slows progress. It’s best to implement an iterative process of evaluating and adjusting so your processes are constantly evolving.
- Simplify Everything: The more complex a system, the harder it is to scale. Identify and eliminate inefficiencies.
Final Thoughts
The most successful property management companies aren’t just good at collecting rent, they’re strategic about profitability, efficiency, and scalability. Property managers can increase profits, improve service quality, and grow their businesses sustainably by focusing on the right financial metrics and implementing scalable processes.
Content from this article was created from a webinar presented by Brad Johnson, CEO of ProfitCoach. Watch the full webinar here.
