How do you handle customers who never stop asking for a discount on your services? Learn how Darren Hunter, international property manager-trainer, and consultant, gracefully manages clients who ask for a reduction in fees and services.
In this dynamic conversation, we outline specific scripts and techniques you can use when haggling with clients, reasons why you shouldn’t take on every client, and how to build trust between you and a client without smearing your competition.
[4:00] Why a property manager is not like a printing press: Avoiding discounts on multiple properties
[6:30] Having confidence in your value to your client
[8:28] “The Lure of the Main Game”: Techniques for when a client wants to price match your management fees
[19:10] How to handle other property managers pricing themselves too low
[23:00] Who are C-Class owners?
[26:00] Making a filter for bad clients
[28:20] Scripts and techniques for dissuading landlords and vendors from asking for discounts
[33:45] The benefits of having different price points for buyers
[37:35] What to say when clients ask for a “small and simple” 1% discount
[45:35] Why you can’t afford to take on every client
[54:00] The cycle of suck
[56:30] A final script for battling property manager comparisons
[58:00] Building trust by revealing the “dirty secrets” of your industry
[1:01:30] Why studying Australian property management is interesting for Americans
Jason: Welcome, DoorGrow Hackers, to the DoorGrow Show. If you are a property management entrepreneur that wants to add doors and expand your rent roll, and you are interested growing your business and life, and you are open to doing things a bit differently, then you are a DoorGrow Hacker.
At DoorGrow, we are on a mission to grow property management businesses and their owners. We want to transform the industry, eliminate the BS, build awareness, expand the market, and help the best property managers win. If you enjoy this episode, do me a favor, open up iTunes, find the DoorGrowShow, subscribe, and then give us a real review. Thank you for helping us with that vision.
I’m your host, Property Management Growth Hacker, Jason Hull, the Founder of OpenPotion, GatherKudos, ThunderLocal, and of course, DoorGrow. Now, let’s get into the show.
This is episode number 19 of the DoorGrow Show. In this episode, I’m hanging out with Darren Hunter. We just have this awesome jam session. It’s a bit long, but we get into everything to do with how to deal with potential property management clients asking for discounts.
Really, what we’re talking about in this is how to value yourself high enough to not have to give into discounts. We go through several different scripts, several different closes, several different strategies for dealing with people that are putting pressure on you to give you a discount. I think you’re gonna love this.
Take notes, pause this, get out a pen, take notes, and you’re gonna get a lot of insights. This is an episode you’re probably gonna wanna listen to two to three times over. Both myself and Darren are giving away a lot of information that normally only our private coaching clients get to hear. Let’s get to the show.
Alright. I am here with Darren Hunter. Darren, how is it going?
Darren: I’m doing fine. Good day to all of the people there in the United States.
Jason: How is the weather over there?
Darren: Actually, the weather’s been not good, it’s been in the news. Last week our whole state of South Australia was completely without electricity for at least five hours. Some places three days but we have these massive storm systems with category two winds come through with lots of rains. We’re dealing with flooding at the moment. Lots of fun. Let’s just say that I’m glad I don’t own a rent roll at the moment, otherwise I’ll be busy out there fixing things.
Jason: Oh my goodness. It’s been gorgeous here in SoCal, especially today, it’s really nice weather. Last time we had you on, we talked all about fees. I kept you on for quite a while and we talked all about how to maximize your rent roll increasing fees. I got some really positive feedback on that and people really enjoyed that conversation. It’s really awesome. I’m really excited to have you come back on. You had volunteered the topic. You’re here to talk with us today about?
Darren: We’re gonna talk today about dealing with discount requests with new business. We’re not gonna talk about increasing fees with current clients today. We’re gonna talk about when owners throw questions at you like, “Well, if you could match your fee with the other agent down the road, or why can’t you do cheaper? The other agent can give a discount, why can’t you?” We’ve really gotta know those things today, and how to overcome those objections without necessarily having to give in or pave in discount.
Jason: Fantastic. I know it’s a real common thing for property managers to feel like they have to give somebody a discount if this person has a certain situation. Everybody’s special. Everybody has some special circumstance and they’re always saying, “I’ve got this many properties. I’ve got this many units.” Some of the worse situations seem to be taking on these big properties that have lots of units, and then they take a month like they feel like they have to give them some massive discount and they do it free. Then last they would do a single family home, and they hate these. They hate having these properties on.
Darren: Let’s talk about that first. When an owner comes in and he’s got five, eight, ten doors. They automatically think that you’re like a printing press. If you wanna get something printed down at the printing press, they’ll give you a price if you wanna print 500 and they’ll give you an even cheaper price if they print 800, and boy, it’s gonna get even lower if you print 1,000. But you see, property management, I believe, is not like that.
One property is one property worth of work. Is that a bad thing to say? Two properties is two properties worth of work. 10 properties is 10 properties worth of work. If you’ve got 10 properties worth of work, it’s no use billing that for 7 properties worth of income.
I’m a real believer, I’ve seen when I’m working with offices and increasing their fees, and I’ve seen owners with 5, 10, 15 properties that they’re renting, very commonly I’ll say, much less management fees, that’s 30%, 40% less fee income, than what they would do with individual properties. That’s unsustainable because the average profit margin in the United States, as well as here in Australia is just 20%. That means that every dollar earned in rent or in rent roll growth, the agency has to pay at 80 cents to salaries and car expenses, and insurance. All of those things to keep the business running, they retain 20 cents. You take on an owner with 10 properties and you take off 30% of your income, you just kissed your profit margin goodbye.
This really comes down to one thing. What are you worth? Because you always adjust the fees to what you believe you’re worth and what your services are worth. I’ve seen many agency discounts, but also I’ve got a client right now in New Mexico that I was working with them. We went through all of these multiple property owners, and every one of them were paying for fees. Why? Because he believed, he was actually worth it. He told them, “If you want our service, you need to pay for a fee.” He provided them value in other ways than just giving a discount.
Jason: It makes a lot of sense. If somebody doesn’t really value themselves, or really feel confident about their own value and what they do, then it’s very tempting when somebody comes and says, “Can you give me a discount?” Or, they have some sort of justification in their mind, “No matter how small it is, I deserve this discount because of A, B, C or D.” Whatever it is. It doesn’t matter what they say. It doesn’t matter their justification. What matters is what you’re saying is, what your belief is as your value. If you don’t have that confidence, then they’re gonna win.
In sales, you’ll hear in a lot of sales conversations or trainings, the person with the higher or stronger frame wins. If you have a strong frame that, “This is what I’m worth, and this is absolutely what I’m not willing to budge on, this is where I’m going to set my fees, and I’m not going to change this and here’s why…” then they’re going to end up as the strong frame. From my experience when I do that with clients, they usually say, “Okay.” But I thought they would ask.
Darren: Well done, you’ve identified that. The person with the best persuasion wins. If you believe it, if you know you’re worth it, your client will believe it too. That’s where it really starts. It’s very much that X factor.
Jason, do you wanna go through some common scripts, some common objections that come up all the time?
Jason: Yeah. I would love that. Let’s do that.
Darren: Alright. Let’s start with the first one. This is a really big one. This is big here in Australia as well as the United States. Let’s say that we’ve done a talk to the owner, we’ve done our presentation, we’ve talked about our services, whether it’s on the phone, or it’s meeting with the client in the office, or maybe even out of property or something like that. What if they turn around and say, “If you can match your fee with the other agent down the road, we’ll sign up with you.” That’s a very common line.
Firstly, what I’d like to say before we get into this is property managers generally aren’t very good at math. They’re not very good at all. If they’re not good at math, then your clients aren’t going to understand it either. The most common discount that is generally asked is surrounding the management fee. That’s generally where the discount requests are going to be.
That’s what I call The Lure of the Main Game. The main game that the owner generally focuses on is the management fee, if not or beyond the leasing fee, but mainly the management fee. If it’s on the management fee, generally they’re arguing about 1%. They want a 1% discount. At most probably 2%, really depending, but let’s just say it’s 1%. Now, for all of the property managers out there that aren’t very good at math and all those terrible high school, I failed math in year 12th, to understand that if your rent is $1,000 a month, what is 1% of that?
Jason: Very simply, that’s gonna be $10.
Darren: If it’s $12,000 rent in a month, what’s 1% of that? That’s $12. If it’s $600, if you got low rent properties, if it’s $600 a month, what’s the 1% of that? It’s going to be $6. With that in mind, let’s just get into the script. If the owner says, “If you can match your fee with the other agent down the road, we will sign with you.” Firstly, we need to understand, let’s just turn this around and let’s just paraphrase what the client is really saying here.
This is what they’re saying. Subconsciously, when they come up with this statement, they’re saying, “We love you. We wanna go with you, and we think you’re great. In fact, for me to sleep well at night, I’ve gotta feel that I’ve won something out of you. The other guy down the road, well he’s cheaper than you, but we don’t like him. But if we can have your services and you, because we like and trust you, and have his fees, and if we can have our cake, and we could eat it too, then I’m gonna be very, very happy with myself and I’m gonna sleep well tonight knowing I’ve really won something.” That’s what they’re really saying.
With that in mind, let’s start this script. Let’s acknowledge that the client wants to sign up with you. Now, remember when it comes to scripts, we understand the concept, we understand what we’re trying to say, what’s the angle of persuasion, and then we put it into our own words because only our own words are believable. If the client doesn’t believe us, we’re not going to win. We gotta be real and we gotta be honest. We gotta believe in what we’re saying.
I suggest to come back with Mr. Smith, I can see that you wish to use us. I can see that you wanna sign up with us. Then, it’s a juggle about price. Let’s get the client to agree, and identify it’s only about price now. “Mr. Smith then, if it’s about price, don’t you think that we’re worth more than a cup of coffee a week? Because that’s all we’re really talking about.” Let’s have a look at this, because Jason, gonna ask you the question. Starbucks, how much is a cup of coffee down in the Starbucks?
Jason: I don’t know. I don’t go to Starbucks. Let’s say it’s like $7.
Darren: $7 for a cup of coffee? My goodness. You’re gonna have to fly to Australia.
Jason: I don’t know.
Darren: Let’s just say that you’re gonna get two cups of coffee for $7.
Darren: But let’s just say this $7 is $12. Break it down. What can you get for $12? Make some suggestions to you, Jason. What can you get for $12 that people buy every week, even everyday on a regular basis that everyone can relate to?
Jason: I don’t know. My wife would be really good at this. She’s the one that I have go shopping.
Darren: Is it a couple of bottles of water? Is it two or three cups of coffee? Or we just gotta break it down because we just gonna wanna know what the actual dollar difference is.
Jason: Yeah. Let’s say, maybe like a fast food meal restaurant.
Darren: Correct, correct. We get the percentage difference, turn into a dollar difference. Then we turn it into an everyday consumable product that everyone can relate to. “Look Mr. Smith, didn’t you know, you wanna sign up with us, but did you know that our price between us and the other agent down the road is actually a cup of coffee a week? If you’re like me, a lot of other people, they’re probably doing two or three a day. That’s all the difference is. I can only hope that the value I’ve showed you that we’re worth far more than a cup of coffee a week.” Does that make sense?
Darren: It’s breaking it down from a mathematical point of view. Now, that script isn’t gonna work with everybody but should work with most people. Here is another one as well. Also, we’ve really got to use your points of difference. Whether you’re using a property owner’s handbook, or whether you’re using professional photos to market the property, or whether you’ve got an online booking system, or whether you’re using a phone agency to pick up your calls. Whatever your points of difference are, if you display those points difference first, if you talk about those points difference, if you say it in a way that the client understands when they throw the line at you, “Look, if you can match your fee with the other agent down the road, we will go with you.” You can now bring out your points of difference again.
Let’s just say for example that you’ve shown them your property owner’s handbook, your user manual, how you operate. Let’s say it has a guarantee of service in there as well. You go, “Mr. Owner, that’s fine. If you would like us to match the fee with the other agent down the road, is it fair to say then that you think that our services are the same as theirs as well? Is that why you want us to price it the same?”
Generally, that’s a loaded question. You’re really asking, “Yeah, maybe, we do feel you’re the same as the other agent. If that’s the case, Mr. Smith, remember we talked about the property owner’s handbook before and just get it out or talk about it again, did the other agent also show you their property owner’s handbook? Did they also talk about their guarantee or whatever point of difference that you’ve already talked about?” Do you see how we’re using that now, Jason?
Darren: We’re beginning to leverage over something that we’ve already displayed. To show them, “Mr. Smith, what you’re asking here or what you’re hoping to get is of course, no, the other agent didn’t have our property owner’s handbook. If that’s the case, well Mr. Smith, that’s why we’re financially price a little bit differently than the other agent. By the way, did you know that the difference between us and the other agent is a cup of coffee a week? A can of drink, a subway meal, whatever.” Does that make sense?
Jason: Yeah, yeah. One of my favorite tactics is to say it’s not A, it’s B. It would be like to say, the real issue here is not really the price difference, but the real issue is whether or not we have greater value or not than this other agency that you’re not considering going with, something along these lines. Maybe I’m kind of a jerk but I would recommend some of my clients just say, “Look, if the only difference you see between us and them is this fee, if really that’s the only thing after we’ve gone through everything and you’ve talked with us, and you really just see us this way, I recommend you go with them. You might be happier.” In sales, we call that a take away.
When you do that, they naturally feel this, they’re like, “Oh.” In sales they also call it prizing. No longer are they the prize that I’m trying to earn, I’m the prize that they need to seek after. Then, they’ll say, “Oh. No, no, no. We do see that you have more value.”
The other thing I love to do is if they have business, I just tie to their business. I just ask business owners this. If a property managers comes to me and says, “Hey, can I get that website or this service for this kind of rate?” I’d say, “What would you say to a client that asked you for that?” They would say, “No.” I’d say, “Yeah, that’s probably what I would say too.” They go, “Okay.”
I think you can also tie that to them if they say, “Well, I run this sort of business.” You say, “Well, if people come to you and say, ‘Hey, just give me a discount because this company down the street who has less value and is less effective than you but I want that rate,’ would you do that for them?’ If they say yes, then I would still say we don’t do that.
Darren: That’s good. Also, are they after the cheapest agent to manage their greatest asset? That’s another good one as well.
Jason: I love that. Do you wanna place your most expensive asset in the hands of the discount property manager? Another thing I like to do is just say compare, if they’re focused on price, another great close is to focus on instead looking at something else that’s more costly in property management fees such as vacancy. I don’t know if you have that on your list. But this is one of my favorite things to say, “Look, if the property is even vacant for a month, that’s like a year’s worth of management fees.” That’s the real hidden cost in going with some of these cheap firms is they may have vacancy on a regular basis like every year you may have a lengthier amount of vacancy because their priority isn’t to provide really great service and get it rented right away because they make their fees up anyway.
Darren: I think that’s a great line. I actually call that the Lure of the Old Tenant Cost. What’s gonna be the cost of going with the cheaper agent? We can talk about that. Here’s another line as well, I’ll give you a couple more here. The other agent will do it for much less. Did you think that’s a common objection that people hear?
Jason: I think that if you’re priced effectively, they’ll hear that. But the property managers, they price themselves low in the market which is a mistake. They don’t get to hear that. If you’re hearing that objective, that’s good news.
Darren: Okay. Should we do a sample script to deal with this one?
Jason: Yeah. I’d love to.
Darren: Mr. Smith, we are aware of what the other agents are charging. But did you know that they’re also aware of what we’re charging too? Despite knowing that, and knowing that they cannot compete with us in our level of service, and because they still have to get new business, they’ve simply then adjusted their fees down to their level of service so they can compete too.
Jason: I love that.
Darren: “Again, if they can’t compete with our level of service, they’ve simply adjusted their fee to where their level of service is. At the end of the day, you get what you pay for. What’s the most important thing, Mr. Smith, when it comes to managing your greatest asset?” That’s another line there. Here’s another one. This is a really, really good one. This is one that I learned from a man called George from Blackbird Realty based in Las Vegas when I was there in April.
George was taking me out on the town and I threw this one at him and he said this is how I answered that same script. “The other agent will do it for much less.” The comeback that George uses he said, “Well, Mr. Smith, if the other agents is charging that and you would like us to match the fee, is it fair to say then that we also need to match their service level too? Because if you want us to match their fee, then we’re gonna have to match their service, it’s okay then if you don’t get your phone calls returned for a week. Are you okay if your in-house don’t get returned? Are you okay that urgent maintenance doesn’t actually get attended to because that’s actually what you’re asking me to do. To actually match their fee, we’ve also gonna have to match their service. As you can see, I’m able to compromise on my service, therefore, I’m able to compromise on our fee as well.” It’s a good one, isn’t it? It’s a really, really good one.
Jason: With that one, if you can get back it up with your online reviews like if you’re using a service like we have, like GatherKudos, and you have better reviews in the company, that becomes really easy because you can just give them the actual visible proof. You can say, “Go look at their reviews on Yelp or go look at the reviews on Google. Do you want a two star level of service? Because we’re rated over four stars and our level of service is high for a reason.” Then you have something, a third party verification that’s backing you up. People trust Google, they trust Yelp.
Darren: I absolutely agree. Most people understand that you get what you pay for. Most people understand that and accept that. If you can simply demonstrate that you’ve got better value, better service, then naturally paying more is expected. What’s a Kia car priced at, as opposed to a Toyota? I’m assuming even in America they price differently. It’s for an absolute reason. You do get what you pay for.
If most people believe that you do get what you pay for, there is a small portion of people that don’t think that way. There are people that perhaps don’t value peace of mind with the good service. They actually value keeping or retaining as much money as they can. I like to call these the C-class landlords or the C-class owners. C-class owners are an interesting creature because this is the typical, there are six characteristics that make up a C-class landlord. I think we may have spoken about this last time, Jason, but let’s just quickly run through it again.
Number one, they like to be unreasonable over the money. You can call them up with some good news and very quickly they’re gonna pee all over your parade and make you feel bad. Number two, they like to take up lots of your time, and they might send you a five page love letter, email everyday. You think, “How do these people have this time?”
The third thing that they get as characteristic of a C-class owner is whatever the rent is, they just simply want more. They want more than just market rent, which means a property is likely to stay vacant or what we call attracted desperates. They are the people that will pay anything, and in the end likely pay nothing.
The fourth characteristic is whatever your fees are, they just want less, they want a feel of winning. The fifth characteristic is they put little to no money into the property, therefore they don’t keep in it a good state of repair. Number six is they likely, and you’re gonna have to excuse my language here, but somehow Jason, I think you’re gonna be fine with this one, but they tend to have a crap property that simply attracts a crap tenant.
We really have to come to the decision, do we value this type of business? Because I honestly think that the C-class landlord is like a packet of cigarettes and they will take years off your life. If you feel that when you’re discussing your fees with, that they just keep on coming back to the fee no matter what your comeback is whether you talk about competing on service, you talk about your cups of coffee, it’s not working for them, then perhaps a script like this, and it’s really on the lines of what you said before, I’m actually now even preparing myself to walk away from the C-class landlord.
Script could be, “Look Mr. Smith, I can sense that perhaps what you’re really wanting is the cheapest agent in town of which we are not. Did you know, I used to give out the phone number of the cheapest agent to save that owner ringing everybody around and wasting time so they can go straight to the source, but I stopped doing that because what I was finding the most owners were going to the cheaper agent, they were placing their property with them to manage, and then they’re getting bad service, they were getting upset, and they were coming back at me angry. I stopped doing that. The end of the day Mr. Smith, do you want cheap service, do you want cheap fee, or do you want quality service? But in my experience, you can’t have both.”
Jason: In my sales trainings that I do with property managers, these six would be a fantastic list for what I would call the filter you wanna create for clients you don’t wanna take on. This would be a great list to go through. I tell property managers to make a list of the types of client’s qualities that you don’t wanna take on and then figure out how you can qualify them during your sales process. But if you find that they’re unreasonable over demanding, they’re time wasters, they want more than market rent, they’re not going to trust you and let you be the expert in that area, they want lower fees in than you offer, they don’t wanna put money on their property, or their property is crappy, or they’re crappy, or you’re gonna get crappy tenants, then they automatically are out. They’re not somebody you wanna take on because it’s gonna take 10 times the amount of work to deal with them in that property.
Meanwhile, you could be moving onto business development, other stuff, taking on 10 additional properties and this is one of the areas where property managers get stuck, and I think why so many property managers are trapped under 60, 50 units and they’ll never break the 100 door barrier because they’re taking on bad clients. They can do all the tenant screening in the world, but if you take on bad clients, this really is like this limit and barrier to growth because they get to that level, they can’t afford to hire anybody because they’re not profitable enough and they’re spending so much time, they can’t focus on business development, so they’re trapped. They’re just stuck. I talk to these people like every week.
Darren: One of my favorite sayings is that just because it’s got a roof in the front door, it’s still not good enough. You have to have more criteria than that to take it on. That’s another training session. Are you ready for another script?
Jason: Yeah, let’s do it.
Darren: Okay. “The other agents will give a discount, why can’t you?” Certainly here in Australia, agency, I get thrown those types of objections. Firstly, this particular script is not mine, it’s a well-known script. I really think it goes back to the days of Tom Hawkins, he was a very famous real estate salesperson in the USA, going back 20, 30 years ago. But let’s just have a little bit of this script. “The other agents will give a discount, why can’t you?” A good come back script on that would be, “Mr. Smith, if the other agent was quick to panic and drop their rates that quickly to get your business, what does that say about their negotiation skills? If they lease your property for rent, and your tenant then wants a discount of your rental income, what do you think they just demonstrated they’re going to do? To manage your property, you need the best negotiator you can get. Therefore, we need to get the best income that we can so you can be confident that you’ve got the best negotiator for your rental property.” Another script that might work…
Jason: Oh, is this question?
Darren: It’s over to you.
Jason: Oh. I like what you were just saying.
Darren: I’m just coming up for a breath. I just keep on pouring this stuff out. I’m just coming up for a breath.
Jason: Basically, what you’re saying is if they’re willing to fold on their price to you just because you ask, how willing do you think they’re going to be to fold on the rent price when tenant’s come knocking? Is that something that you would want in a property manager? Because I’d really be surprised if that’s the kind of manager that they’re looking for. I’d say, “Well, yeah. I guess not.”
Darren: What about if a vendor wants too much as well for their work? In a negotiation, having a good negotiator is important across the board. But we’re just trying to win this in that listing presentation or in that opportunity.
Jason: Oh, one thing I’ll point out. Going back to what you said about C-class landlords. Typically, studies indicate there’s three types of buyers, just in general, psychologically. I call that first category you call C-class landlords, the cheapos. They’re very price sensitive, they’re focused on just on getting the cheapest price. They generally aren’t as attracted to property management in general because they’re so cheap, they’re gonna try and do everything themselves.
A lot of entrepreneurs that might be listening to this, you’re that kind of person sometimes too, you’re so cheap, you won’t hire a business coach, you won’t hire somebody to do your website, you try to do everything yourself and you’re gonna attract those same types of clients. You’re gonna wonder why it’s so frustrating and difficult. There’s a big mindset shift that happens when people start getting out of and escaping that and valuing themselves.
Darren: I agree. When I’m working with clients, and I’ve seen agents that their fees are so low, they’ve actually gone into a zone where they’ve become that light that attracts mainly the C-class owners. You only need to have probably 10% of your owners, see if there was C-class even 10% enough to probably give you enough burn out to make the job very, very unpleasant because they can give you 80% of the stress and 80% of the issues.
Your mindset can actually attract these people too by having your fees so low and attract the discounters into your business, which in the end will just make it really bad and a horrible place. You’ll just become delusioned and burn out a lot quicker.
Jason: I had a client and he called me up and I said, “What’s your biggest challenge in your business right now?” He said, once we boil it down, it was basically people not valuing him in his services and his time. I said to this client, I won’t say his name, “Look, person, how many times have you called me up asking for advice and I was talking about this stuff, and you haven’t paid me anything yet and I’m still trying to close you on this package that we’re trying to close you on.”
He laughed and he said, “Yeah.” I said, “The only reason I’m pointing it out is because when you start to value other people’s time, you’ll start to value your own time. But I think your challenge right now is you’re not valuing your own time. You probably do this in other areas” He’s like, “Yeah, you’re right.” I said, “Start valuing everybody else’s time and you will start getting more money for your time.” He was like, “Oh.” Like it was like the light bulb went on, but he was trying to extract and burn out a bunch of time for me for free, not realizing it, and he didn’t close the deal. He’s like, “Alright, I’ll sign up right now.” He signed up.
I think the other thing we need to do is you can’t expect your clients to do something you’re not doing yourself. Take a look in your own business. Are you being a time waster? Are you wanting more than what somebody is for a fee, or less for a fee, depending on how it works out? Are you trying to get some sort of benefit that you maybe internally know you don’t deserve? Or you’re discounting other people’s services? If you’re willing to do this to other people, you will get those type of clients, and they will be attracted to you like a magnet. I think that’s important.
Darren: Like attracts like.
Jason: Yes. But if you hold your ground, usually I find that the lower end, the cheapos, they tend to be about 15% of the market. Then you get about 60% or so that are just willing to go with whatever the normal fee structure or price point is in place. Then you get the smallest group, they’re usually maybe about 10%, 12% but they’re usually the smallest segment, they’re the premium buyers. They have a much higher threshold to pay when it comes to spending. They’re willing to spend, spend, spend until it finally hurts. They’re usually willing to sign up for a premium price.
One of the greatest ways I’ve found to sell things at your normal rate is to have a premium rate to price anchor to. If you have like my normal fee service is X percent, and then we also have our premium service which is X percent plus two percentage points, whatever. It’s higher. If you say, “We have this premium one.” Usually you wanna anchor first and then present the normal one. Then this gives them this natural need they have to compare because everybody has this need to compare the price. Why not have them compare it among your different plans instead of with your competitors? This eliminates this natural instinctive need people have to go compare to other people.
This is why I recommend my clients have a pricing page, and have at least three price points. One for the cheapos, which might be just a lease only service, and then your full management service, and then maybe your premium service which you only get a small percentage.
I found that in property management, you have a higher percentage of people in that premium category because I believe property management is a premium service. It’s not attracting all the people that are so cheap, especially in the United States where we have very small percentage that are professionally managed, usually it’s the premium buyers that are looking for property management and looking to offhand that to somebody else. Hopefully, it’s helpful to those people listening.
Darren: With different fee packages, when I’ve worked with agents that do have two or three different choices, we find that the client will tend to negotiate which package they would like instead of negotiating the fee.
Jason: Right. What a better negotiation to have. It’s like my kids. If I wanna manipulate my kids to get them to make right choices, I can say, “Look, do you want to wear the red jacket or the blue jacket?” If they’re fighting with me on putting on a jacket, instead of saying, “Let’s put your jacket on. I want you to fit into this jacket.” Rather than trying to crowd somebody into your one fee, give them a choice.
People want choice, especially people that really want to be in control of things. As soon as you have a high enough and strong enough frame and you’re willing to say, “This is how it is. I’m the expert. If you don’t trust me as expert, you probably should go with another manager.” They’re going to fold and say, “You’re exactly what I’ve been looking for. Everybody else I had to micromanage, and I had to tell them to give me custom reports.” They’re looking for the expert to say no, this is how we do it, and why? You either trust us or you go somewhere else. They’re gonna say, “Oh. Great. You’re exactly what we’ve been hoping for. We’ve had to tell everyone else how to do it.”
Really, what they were just waiting for somebody to push back against them and say this is why we do it a certain way. We believe in our process, we believe in our service. You have some more scripts for us, Darren? I’m loving these.
Darren: I wanna make sure, are they relevant so far?
Jason: Yes, absolutely.
Darren: Okay, here’s another one. Now, let’s just say the owner says, “Okay. You talk about cups of coffee and things like that, but it’s just a 1% discount. If it’s 1% to me, then it’s 1% to you, it can’t be any big deal.” Is that a [inaudible [00:37:58]?
Jason: Yeah, it’s pretty good comeback. What would you say to that?
Darren: Okay. Let’s just deal with that because what we need to understand firstly, again, we’ve talked right at the start of the show, that property managers are really bad at math, because mathematically, that was an incorrect statement. We really have to look at the mathematics of it first. Now, I’m just gonna get myself a little device that is probably seen these days in a museum, and it’s called a calculator.
Jason: What is that thing?
Darren: We could do a YouTube video, I’ll give that to your five-year-old kid and say, “Hey, what’s this?” See them try to work it out and get all confused.
Jason: We probably need [inaudible [00:38:43] property managers that if you have an iPhone, you can just swipe up from the bottom and touch the button that looks like one of those things, probably calculator. Then you go with the flow.
Darren: Okay. But now, firstly, let’s understand, let’s just say, give me an average rent, throw a rent at me. What’s an average rent?
Jason: Let’s make it really easy, let’s just say it’s $1,000. Very easy. How much is that over a year? $12,000.
Jason: Yeah, $12,000.
Darren: You didn’t need this, right? $12,000. What we need to understand is that the 1% difference is in relation to the $12,000. It’s actually in relation to the owner’s income. Now, is $12,000 our management fee for that property in a year?
Darren: No way.
Darren: I’ve gotta be careful here because people get upset about quoting percentages and things like that but what we need to understand here, if we’re dropping 1%, it’s not 1% in accordance with the client’s income. It’s a lot more. I gotta be very careful here, but you just gotta look at what’s the drop between 10% and 9%, or 9% and 8%, or 8% and 7%? You do your calculator, you’ll actually work out, the drops are a lot bigger. Your 11% and the more that you go down, you got 11% drop, there’s a 12 1/2% drop, there’s a 14% drop. You’ve really gotta look at it from that angle there. Actually where I got the drop difference in percentage is a lot greater for the agent as expressed on their management fee, as opposed to the client’s income of $12,000 over a year. Does that make sense?
Jason: Yeah, absolutely.
Darren: Alright. Coming back now with that script in mind, “Look Mr. Smith, yes, it might be 1% to you, but to actually drop 1% for us, we actually have to take off 14% or 12% of our management fee.
If we have to do that, what 14% or 12% of the services do we have to leave out? Perhaps, we’ll give the tenant screening over to you and you’ll have to check their credit and check their criminal convictions or hang on, you don’t have access to that information. We’re gonna have to do the tenant selection and the tenant screening. Or maybe it’s you have to do the assessment, or the routine inspection in the year, and you gotta give the correct notice to the tenant, actually no, that’s probably not a good idea. Or if the tenant gets behind in the rent, what legal steps have to be taken to collect, well actually we’re experienced in that too. As you can see, we have to do 100% of the services, we can’t take anything off, that’s why we’ve gotta have 100% of the income.”
Jason: Yeah. I think also if you wanna make it really simple, you can probably also just say to our listeners, “Look, we’ve got our profit margin, we’ve got our cost. That really cuts into our margin for profit, whereas for you, it’s a little bit off the top, it’s a little bit of a fee, but for us it’s a significant dip into our profit margin. This really wouldn’t be very interesting for us to manage in our portfolio.”
Darren: Correct. Let’s talk about that because NARPM did a national survey. They found that the average agency profit margin is only about 20% and that’s the same here in Australia. We’re dropping 1%, that could be a 14% drop, or could be a 16% drop, or 11% drop of your total income, you’re really throwing away your incentive to actually do a difficult job in the first place.
This is why we need to be smart, and actually looking at our fees, and knowing our profit margin, and knowing what the drops are from doing a mathematics and getting to know what those drops actually are from the business end point of view.
Jason: Right. I think ultimately it all boils down to if you really need to know what you want as a property manager, you really know what you want in your business, what you want your business to look like, what type of clients that you want, what type of properties, what areas you want to be managing in, you know what you want.
When you know what you want and you’re very clear on that, and you set your own limits, you set your own boundaries and you are solid on that, people will respect that. They will have respect for you. But if you don’t respect that, you will not get respect from your perspective clients.
If you know what you want and you’re clear on what you want and what you deserve, and they’re not willing to go along with that, they’re not a great fit, let them go. “This is what our fees are. If that doesn’t work for you, then we’re probably just not a good fit. You can go to the discount company down the street.” Or I know a property manager I can refer you to, but I have a referral fee of relationship with, which you don’t have to tell them that, you can say, “We refer business to these guys all the time, they take on the properties that we are unwilling to manage because it’s not a good fit. While I would love to be able to be that company they can do a great job for you if you’re willing to pay what we feel like we are worth. If there is not a good fit, it’s no big deal.”
Because I think when people, when you become too attached to the outcome, if the outcome is, “I want this contract no matter what,” you’re losing. You’re just set up to lose. If you understand you don’t want this if it hits a certain level of fee structure or a certain type of client or whatever, you’re very willing to let go of that, and that creates such a sense of power, and confidence, and control within yourself to just say, “You know what, Mr. Smith, that’s really not that interesting to us to manage. We don’t generally take on clients like this. Unless you’re willing to go along with our fee structure, and go along with our expertise and follow our processes which we’ve proven and tested, and trust us as the experts, we’re probably just not a good match. That’s okay, there’s nothing wrong with that. But there’s probably other companies that might be a good starter company for you. After you experience business with them, you’ll probably be much more willing to work with us.”
Darren: I think it’s a great, great things you’ve said there, Jason, and going back onto those, you’ve gotta have pride in yourself, and you can’t be after all business. One of the things you said there, you talked about not making yourself valuable to absolutely everybody which you shouldn’t.
There’s a great book that you may have read, or maybe aware of called Influence by Dr. Robert Cialdini. He goes through the six powers of persuasion. One of those is the law of scarcity, and that people always want what they can’t have. You’ve already reiterated, Jason, you’ve said that, “Hey look, Mr. Smith, we may not be the agent for you, we constantly, we do actually referred business to another agent who takes on business all the time that we’re unable to manage.” That really does create that, “Wow, I really want this agent now.” But you also gotta keep in mind again having a C-class landlord, because you really shouldn’t be accomodating that type of client.
One of the things we do in our training session with property managers here, Jason, is we like to do a survey, or we do an analysis. We look at a typical property here in Australia, a typical property to lease the property, and to do the inspections, to show the property, and to do an exit inspection. In a typical year, what we find is it takes about 20 hours approximately, sometimes it might be 25, sometimes it might be 18. But the typical tenancy with one turnover of a tenant in one year is about 20 hours. However, now we added the C-class landlord with a crappy property with a difficult tenant, people in our classes are easily adding another 15, in some cases, up to an extra 20 hours worth of work because of all the difficulties and having to show a lot more tenants through and the inspections helping up distraction, chasing the tenant down because of late rents and all those sort of things.
In fact, some of these properties, we’re spending 30-40 hours per year. But that’s not where the actual damage is finished, not just in time. Because we’re in our first quality property doing 20 hours a year, let’s say for example, our total fee income of management fee, of leasing fees, of any other fees from that property, let’s say it’s $2,000 in total fee income for that property we’ve earned. That’s $100 an hour worth of work. If you really have a look at where we’re priced in comparison to cleaners, and gardeners, and plumbers, and computer geeks are coming in and fix your computer, $100 seem like it’s sort of okay. But it’s not brilliant compared to us managing possibly hundreds of thousands, if not millions, maybe tens of millions dollars worth of other people’s assets. Let’s just keep it in mind.
Darren: With this C-class owner, with the 30 to 40 hours, they’ve already screwed us down on the fees. We’re not earning $2,000. In fact, we could be earning $1,500 for that property over a year for 30-40 hours. Let’s just do that math on that. We got $1,500, let’s say we divide that by 35 hours, we’ve now earned $43 an hour. Now, here in Australia the cleaner or the loan mower man might be earning that. When we put that in comparison, we really shouldn’t be after all business, as you said before, because old business isn’t good enough and it’s only gonna burn us out. Over to you, Jason.
Jason: Yeah, I love what you’re saying. Basically, if one property takes about 20 hours, and then if you take on a bad client, it takes an extra maybe 20 hours. You’ve instantly decided by taking them on to discount your services in half. You’ve doubled the amount of work that you’re doing for that particular property.
A great question to ask is are you willing to take on a C-class client? If you are, are you also willing to just take on great clients for half price to get them on? If the answer is no, which it should be, then you probably don’t want to take on every client. I think the measure of how effective a property manager is in their business, and business development and growth, will directly correspond to the number of nos they’re willing to say during a sales conversation. How many clients have you turned down in the last year? Some will say none. A large percentage will say none. But the clients that I have that are really killing it, that are winning and are successful, they are absolutely willing to turn down. This is this hallmark of property management, this milestone, this lesson that every seasoned property manager seems to eventually learn, otherwise they are supplementing the business, only exception I think is they’re supplementing the whole property management side of the business for the brokerage. It’s like a loss leader for them or something.
Other than that, the property management side of the business, you do not want to be discounting your services to the point where you’re taking on half a night. Some clients will tell me that one bad property could take 10 times the amount of time as one of their great properties. Some of their best clients and their best properties are so easy to manage, they say easily it’s 10 times the amount of stress, work, staff, resources, effort to manage a bad property.
Imagine you’re dealing with addiction, and damage, and all this riff raff going on with the property. Sometimes what you can do as another sales tactic to close them on your price is just bring up the pain that they’re afraid of to avoid. Really we have two motivators. What are the two motivators? Pain avoidance and pleasure seeking.
These are the things that drive all behavior like training animals, any sort of behavior. If we wanna avoid pain, you need to identify what the pain is. If you identify that they’re trying to discount your services but you identify that the pain what they’re trying to avoid is their property turned into a meth house, or their property getting people and if they’re not willing to pay rent, they have to go through a legal eviction process or all these kind of things. This is why they’re coming to you to hire you to remind them of that.
Here’s all the things that could go wrong, “Oh, yeah. We use to take on properties like this.” Because I’ll tell people in my web design business, I used to take on clients for $1,000. They were my worst clients. They were my worst clients, they would micromanage me and tell me what to do, and I learned really quickly it’s a bad idea to take people on at a discount rate. You cannot afford to take on people that cannot afford you. It’s just not profitable.
Darren: This is very refreshing because in Australia, I sometimes feel that I’m the only one with this message and that we can’t take on all business, and sometimes what I say is quite unpopular. I’ve just written an article, only just releasing it this week. It’s called 11 Wrong Property Types You Should Not Manage.
This is really that criteria we’re talking about in going through the type of properties that you should be saying no to, should you be asked to manage them? I’m happy to supply you with that link, whether you wanna guide some of your readers to that article, how you do that’s up to you. There is one property type on there, I have to state that I teach very avidly here in Australia but if I’m in the United States, I don’t teach that one from the stage because you could be accused of being discriminatory but it’s no big deal here in Australia. In my article, I do make that comment about USA, not for USA readers as well, perhaps just shut your eyes to that particular property type. I’m very passionate about understanding what good business look like.
Jason: [inaudible [00:53:57] demographics in there, you have to be kind of cautious. But going back to that, here’s this fantastic book, I don’t know if you can see this, the viewers listening, it’s called The Pumpkin Plan, it’s written by Mike Michalowicz. I don’t even know how to say his last name, but The Pumpkin Plan basically kind of illustrates this principle that pumpkin farmers, it’s almost Halloween season right here, we just went to the Pumpkin Patch with my family, and the people on the podcast will get this probably quite a bit later. The Pumpkin Plan book, he talks about if you wanna create prize winning pumpkins like this is the thing you wanna create, it’s this ultimate awesome business, you have to weed out all of the moldy or gross pumpkins in the Pumpkin Patch, otherwise the whole patch will go south, it will get infected or will get rotten so you have to consistently get rid of or prevent these things from coming into Pumpkin Patch.
You really protect your business and protect your portfolio and value yourself by protecting yourself from the bad, moldy, cancerous, problem properties, tenants, and owners, and really tenant screening is not the thing that’s gonna save you. It really starts with the client.
Darren: We understand about the screening as well, we’re tenant screening. We all understand that we’re not gonna take on a bad tenant, and we screen for the quality tenants so we know that good tenant screening predicts our future, our workload, whether we’re gonna have stress or not. We should also apply the same principle of screening to our owners and properties as well. It’s quite logical.
Jason: Absolutely. Those of my listeners who have heard the cycle of suck, this is what I call it, you take on bad clients, you get bad properties, even if they look amazing, they’re not gonna wanna invest, put money into it, and then the tenants become bad tenants because they’re frustrated, they’re upset, and then you get bad reviews. If you have bad reviews online, you’re going to get more bad clients because everybody’s gonna view you as a commodity, and only look at you based on price, and that’s the last place you wanna be in terms of your business, is a commodity in the marketplace, having to eke out your living based on competing on price as opposed to value.
Darren, it’s really fun to have you on, is there anything we missed? Any other scripts or cool things, really loving the stuff you’ve shared with us so far.
Darren: Here’s the last one. This is really, really easy, very easy one to remember. You get an owner that says, “The other agent doesn’t charge for inspection, or the other agent doesn’t charge for this.” A very simple comeback is, “Look, Mr. Smith, we’re getting properties transferred to us all the time from unhappy owners, and when we get to finally open it, guess what the other agent wasn’t actually doing? They weren’t charging for inspections, in a lot of cases, what we found was they weren’t actually doing it, that’s why they weren’t charging for it.” Again, a very easy comeback script to that type of scenario.
Jason: Yeah, yeah. On my brother’s property management, on his website, I put, “We actually do inspections and we go inside.” Anyone can claim they do everything. You can say this. Everyone can claim they do everything. Look, I get it, we all probably look the same, and say we do everything, but there’s a big difference between what actually happens in what we do versus our competitors.
A great tactic I love to use in sales is that you can use the strawman approach instead of the straw man but I like to not talk about specific competitors unless the client brings them up. That’s kind of dangerous territory but if they bring them up, I will point out here’s how we differ from them. Otherwise, you can always talk about the mythical competitor.
In web design for example, I would say most web designers out there are graphic designers. Here’s the challenge with graphic designers, they’re not focused on making you money, or sales, or conversions, they’re focused on making it pretty. There’s a big difference between pretty and effective, and making money, or just looking cool. There’s lots of things web designers will do to make websites look cool that hurt your conversion rate, or hurt you from making money.
If you can point out the differences, another great tactic when you’re focused there, and they’re talking with you about trying to discount you and discount your fees is just point out that some of the myths or blind spots that exist in your industry, this is a great way to create safety and a space of trust with somebody else is to expose and reveal some of the dirt that exists in your own industry and to say, “Look, one of the dirty secrets in my industry for example, in website design, or in internet marketing, is content delay. A lot of web designers, the person will say, ‘Well, who deals with content?’ ‘Oh you’re right, you’re the business owner.’” This is kind of this sort of white lie. You’ll do all the content. It’s really easy, super easy.
This is what web designer say, then what happens is the project gets to the point where they need content, the web designer says, “We need this content.” They say, “We need all this.” It’s like this 100 page term paper for them to fill out, and they don’t know how to do it effectively, they don’t know what to say or write, they don’t know how to chunk it to make it easy to digest visually. They’re not good at that.
Really, the crooks of the website is content so it’s very easy for me to point out this myth, this problem, and this is where projects gets stuck, in content delay. The developer’s waiting on content from the client and the client is waiting for the website from them, and they end up with a stand still in frustration. If they’ve ever done a website project with anybody, you probably experienced this before, I can point that out.
If you have stories, stories are really fantastic, if you have examples, I just got a phone call from a client the other day, came from another property management company on the street, and he was dealing with A, B, C, and D. This is why our fee structure is higher than theirs. Anyway, I think I can talk about this stuff all day, this is fun stuff. Darren, as always it’s a pleasure. Tell people how they can get a hold of you.
Darren: Just go to my website darrenhunter.com. Also on Facebook, Darren Hunter. You’ll find me there and we’ve got some great content on there. Also, we’ve got a separate website just for content, and it’s called pmdirectory.com.au. We’ve got a ton of good articles on there. Last month, we had 100,000 page visits to that site alone with property managers looking and reading good content. It’s all there to be used. I’ll get you that link as well for 11 Wrong Property Types You Should Not Manage.
Jason: Fantastic. For those that are just tuning in and haven’t heard Darren before, or aren’t familiar with Australia, I feel like I need to point out that the reason I love having Darren on and the reason Australia is just such a really cool area for Americans to look at is that property management in Australia is at least probably 20 years ahead of what’s going on in the US. A lot of people in the US don’t realize that. When I point that out to them they’re really surprised. But as a business category, the phrase property management holds meaning over there and is understood whereas in the US, there’s a lot of people that don’t even know what that means. It’s relatively new as a business category.
Any business in the US that existed in property management 10, 20 years ago, usually has a name like realty, or real estate because property management as a category didn’t really exist. It wasn’t really defined. It’s a new category, it’s a new opportunity. Also, in Australia, I believe you had pointed out that 70%-80% of rental properties are managed professionally.
Darren: Yeah, correct. But also on top of that, that does add to the professionalism in Australia. I do believe that our level of professionalism, and we are certainly a lot of years ahead of the United States, but also, for one very clear reason that just like for example, as an analogy, America has a very strong gang culture, in Australia, we have a very strong consumer protection culture.
I know in California, you’ve got a consumer protection culture against charging tenant fees that don’t exist in other parts of the country. We’ve got that right through Australia that you cannot in one tenant in Australia charge them any fees, except rents or getting water back or anything like that. That’s where the consumer protection starts.
But we’ve got what’s called The Residential Tenancies Act which is different in every state but it’s very, very strong, it’s very strict. Therefore, that is our minimum level of operation. Therefore, if our legislations appeal, that’s where the minimum operators have to be. That’s why I believe that Australia has some of the highest standards of property management, probably on the planet, because of our legislation and consumer protection.
Jason: That’s inevitable for the US. Everybody knows, with the HUD or housing requirements and all, the other stuff coming down the pipe that there is going to be a lot more legislation which is, for a lot of property managers, makes them feel nervous but it also increases the need for property management, which I think is another reason why Australia is kind of ahead, they have much stricter legislation going on there for property management. More people opt to leverage and use professional property managers.
There’s going to be a lot of growth, there’s gonna be increased legislation but America will be developing so we can reach out and leverage people like Darren, an expert, not just in Australia but globally on fees, increasing fees, maximizing property management and lots of other areas in property management and connect with some of the experts over there so I wanted to point that out.
Check out Darren’s websites that he’s mentioned. We’ll have links for those in the show notes, we’ll have links of those on our blog. Any last things you wanna say on those that are concerned about discounts?
Darren: Just don’t discount your fees inline with your competitor’s level of service.
Jason: Love it, love it. Darren, thank you, really appreciate having you on.
Darren: Thank you, Jason.
Jason: Thanks, Darren.