Topic: Revenue Management?

I'm researching revenue management systems. Anyone here using one? What is your experience?

Don-

We are using Yieldstar with Realpage. It can be a long conversation. Do you have some specific questions/concerns?

No concerns, I'm just thinking about the value of products like Yieldstar and LRO by The Rainmaker Group. it seems like a good time for companies to invest in such a product.

Well, I think it's good for a number of reasons.

1. A 3rd party does your market surveys for you. The less your leasing team knows about their competitor's specials the better.

2. Get rid of the gimmick pricing. No need to give away Free Rent or other gimmicks.

3. Your leasing teams can't quote exact prices without having a conversation with the customer first. Without building some rapport and learning more about the customer needs you can only quote a price range. This forces the leasing consultants to ask questions so they can pinpoint an exact floorplan and unit.

4. Each unit is priced differently, and priced differently based on move-in date and lease term. When you need to use price as a closing tool it's not a gimmick. If a customer wants a better price you ask them what they will do for you, either move in sooner or sign a longer lease term.\

5. Ability to offer any lease term you want. We offer 2-15 month leases.

6. New prices are recommended daily. Get a lease one day and the next the price could go up. Future lease expirations, notices, and historical demand could also recommend a decrease to insure you achieve your desired sustained occupancy. Again, get one lease after a recommended decrease and the system may recommend an increase the next day.

7. Historical move-ins, move-outs, and a seasonal lease matrix help to monitor expirations and help to better maintain consistent occupancies.

8. You still have control over your prices. Just because the system recommends a price does not mean you have to accept them. Also, you set your "Sustained Occupancy" objective. Want to stay full set it at 96% or 97%. Want to push rents set it at 89% or 90%. Or just let the system auto calibrate to maximize revenue and most likely you'll see (as I did) 94% is ideal. I've always thought that if you're occupancy is above 94% your rents are too low anyway.

9. When you do actually quote a price it's only good for a set amount of time. We have ours set to 48 hours. After the 48 hours the customer risks the price going up if they have not applied. We hold hard and strong on this as well from a corporate level to reinforce the importance of follow-up from our leasing teams.

10. Speaking of follow-up, the 48 hours give our leasing teams something to actually call about vs. just leaving a message asking them if they have made a decision. In addition, if a prospect doesn't make the decision in the first 48 hours our teams have great reasons to follow-up to reinforce a price has not changed, a price went up, or even if a price goes down. It just gives a great reason to call and not feel annoying. The leasing teams actually have new information to share.

OK, now I'll just list a couple struggles we have with it.

1. Depending on how you set your renewals, your rents on the renewal side could out pace your new leasing. This can be a resident satisfaction issue, especially if the gap between new and renewals becomes significant.

2. In a down economy you have to make a tough decision on the renewal side to potentially lower rates to be more in line with the new. If you have online availability features this can create issues with current resident's comparing their renewal quote to a new rate.

3. You can't quote an apartment rate unless you have one available or on notice to quote for the requested move-in date. Depending on your required notice to vacate, this could limit who you can give an exact quote to. Waitlisting can be an issue as the system does not guarantee a price. We have developed a system to guarantee a maximum price, but it still can be challenging to pre-lease 60+ days out for us.

I'll end for now. Hope everyone enjoys my lists. If anyone has any other specific questions I'm happy to share what I know.

I think you just wrote my blog! Great discussion!

Mark,

Wow - well done.

Don,

We used LRO at EQR. The key to me is making sure that your amenity based pricing is dialed in. Our biggest struggle with it was trying to apply it to high rise buildings where rents could vary by thousands of dollars. In all fairness that was better than five years ago so I assume the system has improved since then.

M

I agree with both Mark and Mike’s comments. I am a firm believer that a revenue system of any kind is better than no revenue management system. Grand Peaks has been using YieldStar for over 3 years with great results. Other items worth mentioning:

1. Any system (regardless of YS or LRO) needs daily monitoring and training. The system is not human so it doesn’t know to react to a down turn in the traffic patterns, new construction of 1200 units in the area (if not put into the system), etc. The system works only as good as the configuration settings you have in place.
2. Each community’s turn costs are entered into the system. Because of the daily pricing YS adjusts the vacancy loss and turn costs and increases the price to ensure you are recovering the expenses. A warning, holding an apartment for too long can be detrimental in that it will out price your on-notice apartments. One way to get around this is making sure you have a substantial “staleness adjustment” factor entered into the system which will begin to reduce the rent once it has passed the “average expected days vacant.”
3. YS is flexible in that if your market is offering a concession and your on-site team feels they need to do the same in order to stay competitive, you have the ability to enter the concession into YS and the system will gross up the rent.
4. Because of the lease term flexibility for new leases and renewals the system also helps monitor your renewal expirations. If someone wants to stay for 1 month or 18 months, the price is adjusted according to the length of stay, amount of historical traffic/leases/renewal, etc.
5. I completely agree with Mike. The key to the pricing system is getting the amenity pricing, square footage adjustments, and floor plan grouping correct in the very beginning. If you have the floor plan groups with too few units and have the system capacity for that floor plan set too high it will give a dramtic decrease in the rent if it is not hitting the targeted number (and vice versa).

There are lots of moving parts to consider. I am on the YieldStar User Subcommittee - happy to answer any questions you have.

I am a leasing agent (not consultant anymore as our company won't let us call ourselves consultants why I don't know) and I dislike this pricing system. From what I have noticed is apartments stay completely empty when the rents go up too high and then we lose tons of leases. When the price finally goes down we are set to lease again and that is what happens. WE end up leasing with the prices lower than the set prices we had before. By the time we get people in the units months have gone by with the apartments unleased and no revenue. I wish the human element was back in swing particularly since we are dealing with people and the most sacred of places, their homes. Frankly, I hate what has become of this industry. It is clear people feel they are just cattle to be dealt with by the highest bidder. The owners only care about the bottom line, period end of story. Regardless, I feel this system is like the "Emperor's new clothes" The creator's of this have duped the owners who are going Ga Ga over something that does not really work. Yet, they tell each other how beautiful the Emperor's clothes are.

The Love is completely gone out of this industry from top now working its way to the bottom.
I am a lowly Leasing AGENT so what can I possibly know?

Kim, please try not to feel de-valued due to your title. But that's a whole other posting! What type of revenue management system are you using? The only ones I am familiar with is Yieldstar through Realpage and the one we developed and I managed. I had the ability to manipulate the proposed rents based on my personal knowledge of the market in the area. In this manner, if I could get a higher rent, we changed it and if there was a unit sitting for too long, we could lower the rate. The biggest issue is pre-leasing, but again, with one person in charge or able to manipulate/calculate a rate, we did so units could be pre-leased well ahead of the move out date. It sounds like someone at your corporate level is not paying attention to "real life" which is making it impossible for you on a day-to-day basis. Believe me, you are on the front lines and your opinion based on experience counts.