How (And Why) We’re Leveraging Revenue Management

Jun 3, 2023 | Industry Articles

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For the better part of the past year, we’ve been running a grand experiment across our portfolio.  Most of our assets have been running some form of revenue management software, utilizing one of the three main providers in the space, while a couple of assets have not used any software and we’ve been setting rents manually. 

Revenue management is a relatively recent addition to the world of property management.  It is a software program that dynamically sets the rents for each unit on a daily basis.  At its core, revenue management involves optimizing rental income by aligning pricing strategies with market conditions, demand patterns, and property performance–both your property and your competitive properties. Through comprehensive market analysis, it sets rental rates aimed at attracting and retaining quality tenants while optimizing revenue streams, and helping you achieve your business objectives. 

The sales pitch of revenue management to owners is that without it, you run the risk of revenue leakage and missed opportunities. Pricing units too low can result in missed revenue, while pricing them too high can lead to prolonged vacancies. It also has the added benefit of taking the pricing conversation–and negotiation–off the plate of your leasing team.  “The system” has set the rates being quoted, not the leasing consultant, which in theory frees them up to focus on the close and the benefits of living at the asset. 

The experiment we’ve been running was to see which of the platforms performed the best and was the easiest to work with.  We also wanted to keep a couple assets off any system to see if we could match a similar performance, since the software isn’t free and we wanted to ensure a positive ROI.  

After looking at the results over the last year, we do feel that revenue management made a positive impact and is worth paying for.  And we selected AIRM as our revenue management software of choice. During the evaluation process, we considered several factors such as ease of use, reliability, and overall performance. AIRM stood out because of its ability to adapt to changing market conditions. Even during Q1 of 2023 – a period characterized by a cooling market – we experienced higher revenue per unit compared to Q4. This demonstrated to us AIRM’s effectiveness in optimizing pricing strategies and maximizing revenue potential.

With this tool, we can anticipate fluctuations in demand and adjust pricing strategies accordingly. This enables us to capture the maximum value for each unit, whether during high-demand seasons or in periods of slower market activity.  Forecasting seasonality, leasing trends, and future move-outs play a vital part in present day rental rates for new leases and renewals. 

Strategically managing lease expirations and tenant renewals is another critical aspect of our revenue management approach. We want to see small bell curves on a rolling twelve month basis, which translates to fewer lease expirations in the winter and more in the summer. By implementing proactive renewal campaigns and reviewing renewal inputs, we’re able to utilize the technology to smooth out chunky expirations and get ahead of potential pain and heavy months of exposure at inopportune times of the year. 

Revenue management helps from a non-monetary perspective as well. It ties directly into improving resident experiences. As part of our software package, we’re able to have real time insight on amenity menus and pricing of our competitors. Not only does this help us compete in our submarkets on rental rates, but also on other services and benefits. 

While we are excited to continue to leverage revenue management, a key learning for us has been how active we need to be in managing it.  It certainly takes a human touch to review the settings on each asset on a regular basis.  It is not a set-it-and-forget-it system.  Like any other software, its performance relies heavily on the accuracy and relevance of the data provided. Recognizing this, we dedicate considerable time and effort to ensure that the software’s settings are calibrated correctly. We understand that precision in data input is crucial for achieving optimal results. As hands-on asset managers, we have taken responsibility for ongoing maintenance, regularly monitoring and fine-tuning the software’s performance to ensure its continued success.

Now firmly operating in a market where rent growth has cooled and operators are having to work much harder to push revenue growth, we’re glad to have settled on a singular tool to help drive our pricing and look forward to seeing positive revenue per unit numbers quarter over quarter. 

Andrew Campbell
Written by Andrew Campbell

Andrew Campbell is a native Austinite and Managing Partner at Wildhorn. He is a real estate entrepreneur who first broke into the business in 2008 as a passive investor. In 2010 he transitioned into active investing and management of a personal portfolio that grew to 76 units across Austin and San Antonio. He earned his stripes building and managing his personal portfolio before founding Wildhorn Capital and focusing on larger multifamily buildings. At Wildhorn, he is focused on Acquisitions and maintaining Investor Relations, utilizing his marketing and communications background to build long-term relationships.

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