So far in our blog series on improving renewals pricing, we have discussed the changing market conditions that cast a new light on renewals. We have explored how renewals contribute to the uniqueness of revenue management in multifamily, and we have considered the many factors that makerenewals inherently challenging, particularly in comparison to new lease pricing. Furthermore, we have shown how getting even slightly more aggressive with rate increases at renewal can have major impacts on community revenue. In this today's fifth installment, we will propose a series of steps that operators can take to bring a permanent improvement to renewal pricing.
Better Batches and Timely Timing
Earlier in this series, we discussed how inflexible technology makes it hard to create batches that optimize renewal pricing. Imagine instead creating a separate batch, for example, for 3-bedroom units across Atlanta and managing that as easily as we manage a single community in our current platform.
When users are able to define renewal batches across combinations of communities and unit types, they have complete flexibility to use the same or different parameters across communities and across unit types within a community. This functionality alone enables users to frame the renewal pricing process more strategically than they can today.
Greater flexibility should extend to timing, so that batches of offers can be created weekly or even daily, thus timing the offer much more closely to when the resident must make their decision. Equally importantly, this allows users to make “early renewal” offers well in advance of a notice period if revenue managers anticipate deepening weakness and want to shore up occupancy by offering incentives for such early renewals.
Elasticity in defining batches is a key component of Renewal Pricing 2.0, but users can only reap the benefit if the functionality allows them to complete their analysis of renewals without over-writing current pricing, as most platforms do on a daily basis.
A much better approach is found in a “sandbox” functionality that creates an environment where analysts can work on a set of pricing recommendations. This allows users to test out different renewal scenarios, to understand which one will yield the best results for the property and ultimately bring rigor and consistency to the renewal process.
Bring the Approvals Process out of the 1990s
The problem with today’s approval process is that it is slow. Revenue management platforms have historically generated batches of renewal offers based on a set of default strategies and system settings. Pricing managers then typically pull the recommended pricing for those batches into a spreadsheet and pass the spreadsheet around among an audience of different executives and managers, which is extremely time-consuming.
Operators can fix this problem by replacing the spreadsheets with a review workflow within the revenue management system.
The sandbox functionality described above replaces the amount of time spent looking at each renewal offer with a review of the parameters and their impact. Individual renewal offers are simply a function of new market rent, expiring rent and renewal strategy. Therefore, time is better spent reviewing the parameters and an overview of what their impact will be (e.g. how many offers will fall into various cohorts of increase as well as where those offers will be versus current new lease pricing).
The time saved by paying attention to overall outcomes can be reinvested in serving associates and residents; and it has the added benefit of limiting the opportunities to “negotiate with ourselves.” Provided we trust the expiring and new rents (which should be true with contemporary PMS and RMS), then the only remaining question is whether we have applied the appropriate parameters to meet our strategy; and that is best determined by looking at the proverbial forest rather than examining each individual tree.
In the situation where operators insist on reviewing each individual offer, we would then be better served by a workflow that alerts stakeholders to new renewals that are ready for their review. This allows them to review these renewals within the revenue management system, where all of the supporting data resides.
This process has several obvious benefits. It creates a much-needed single point of truth on renewal pricing. Spreadsheets can lead to stakeholders performing multiple different pieces of analysis, often introducing new and inconsistent data points into the process. With the analysis all in one place for mutual review, stakeholders stay on the same page. This process also saves considerable time. The workflow can be configured so that stakeholders can perform their reviews at the same time, with the same set of facts.
The platform we have described so far enables a powerful data-driven process for analyzing, pricing and approving renewals also provides new ways to frame performance measurement. Operators can define strategies and make changes across multiple communities – regions, for example. But irrespective of the level at which pricing is being executed, results can be tracked and measured at a higher level than today’s community and unit type focus.
This transparency and ability track the performance relative to the predictions that were made at the time when the stakeholders signed off on the strategy has three powerful impacts:
- With everybody seeing the same data at the same time, all the decisions are made using the same data. This is a marked improvement over “spreadsheet hell” where mistakes propagate, and different people end up seeing different numbers.
- A good data platform makes it easy for operators to see why renewal offers are what they are, thus enabling them to confidently explain those increases to residents. This results in a much stronger resident experience.
- A transparent platform allows us to track actual performance against predicted performance. This creates a natural feedback loop allowing us to adjust strategy and recommendations based on this learning.
In the sixth and final installment of our renewals blog series, we will explore how analytics provide a better way to set renewal prices than arbitrary caps.
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