How Are We Screwing Up The Resident Turnover Battle?

I truly believe our industry is progressing rapidly, so I’m very optimistic about prospects in multifamily, but we still average around 60% resident turnover every year.  I think that this figure is so commonplace that people tend to forget how ridiculous it truly is that 60% of our customers take the time to move their entire life in order to leave our service.  I am particularly concerned that with the potential rising rents coming in our industry, we will lose focus on our inherent problems and just relish the changing market conditions.

So I’ve started a list of elements that I believe add to the fundamental problems we face with resident retention.  Please add your own in the comments!

1)      Our contracts are designed to end – With most other subscription-type services, contracts renew forever automatically or at least last for several years, such as car leases.  In a subscription-type revenue model, you hope that the customer does not enter the “buying cycle”, because once that happens, they are actively shopping for alternatives.  With many services, an average customer will stick with a service until something forces them into that buying cycle, such as the product doesn’t work, the product is outdated, the price increases significantly, or the customer’s personal budget changes.  In most cases, competing marketing will not impact their decision to change, similar to how you don’t even notice car commercials until you are looking to buy one.

However, in the multifamily industry, we are so fearful of losing out on potential rent increases that we place time limits on our customers, forcing them to re-examine their purchase every year.  Each year, we ask the question, “Do you really want to stay with us another year,” which translates to, “go ahead and take a look at what concessions all our competitors have going on right now.”  If our own communities had not put that thought in their ear, they would have never known about the free two months rent down the street.  We are doing this to ourselves.

2)      We only provide one-size-fits-all properties – I’ve really already covered this topic, but how many communities can really say their community is unique and compelling?

3)       We spend an inordinate amount of time on marketing versus customer service – Feel free to vote on the poll, but I recently asked how much time per week did apartment marketing take up compared to resident retention.  Not surprisingly, 55% of people said marketing takes up more time.  But this is really a chicken and the egg situation, isn’t it?  Let’s say we had happy and engaged residents who were truly fans of our community – we certainly wouldn’t have 60% resident turnover, which means we wouldn’t need nearly so much time on apartment marketing.  But since we are not there yet, we spend more time on marketing, which means less time on resident retention, which leads to high resident turnover.  It’s a cycle that apartment communities just can’t seem to get out of.

4)      Fee-managed companies receive a set percentage as compensation – Generally, fee-managed companies, those that manage a property for a separate owner, receive approximately 3%, give or take.  Now, there are some absolutely amazing fee-managed companies out there, but any company will operate to the highest potential profit.  You’ve heard about the concept of “low hanging fruit”, right?  Well, to get a community running on a very basic level would be considered the low hanging fruit.  Once that is done, it requires a little more effort to gain that next level of profitability.  Every incremental improvement in profit and revenue will become harder to achieve, which is where the problem lies.  If a property management company only receives 3% of the benefit, there comes a time where it simply isn’t worth the effort to progress upward to harder-to-obtain profits/operations.  Conversely, if you increase the profit sharing opportunities for the property management company, it creates incentives to cut corners, such as preventive maintenance, that boost short term profits at the expense of long-term viability.  But because of this concern about negative incentives, from what I have heard and seen, nobody appears to be trying to solve this issue of lowering compensation relative to increasing difficulty of achieving profits.

5)      Our customers are “trained” the wrong way – In life, people will treat you in the way you allow them to treat you.  If you let them walk all over you, they will do it.  Our industry has had a negative self image for quite a while, and we’ve taught our residents that we are simply a commodity.  In our resident’s eyes, there is no real difference between properties, so just find the best concession.

6)      No sense of “ownership” from our customers – What is the difference between these two statements:  “This is my home” and “This is where I live”?  One implies a sense of emotional ownership, while the other is a transitional place where they happen to store their stuff.  Are we encouraging our residents to make their apartment their own?  Are we giving them any ability to add their own touches to it besides an accent wall (which I do believe is a step in the right direction)?  We need to figure out how to make people take ownership of their home, even though they don’t own it in the financial sense.

7)      Are we finally fighting back against the “American Dream”?  This one actually seems to be taking a positive turn for resident retention.  For so long, not only had we given up the fight against homeownership, but we actually congratulated our residents when they left us!  There are some definite shifts in this mindset, so hopefully we can build upon it!

What other elements do you believe leads to our industry’s high resident turnover?