Thinking About Implementing Revenue Management? Five Things You Need to Know Before Starting

DALLAS, TX - Perfecting the art and science of setting rents appropriately to fill vacant units has long been the Holy Grail for the apartment industry. To that end, many apartment owners and managers have turned to automated revenue management systems, which use sophisticated mathematics to determine real time rents similar to the way the hotel and airline industries set their demand-based pricing. Large national and regional firms were the early adopters of this technology—their bigger footprints suggested scalable benefits—but many of the up-front costs, integration hurdles and cultural shifts that go along with implementing the systems left many smaller firms on the sidelines, waiting to see how the transitions to the new systems would play out.  

But as the balance-sheet benefits have become clearer since the early days of revenue management and pressure from the ROI-seeking investment community continues to grow, smaller and mid-sized industry players are now more seriously considering pulling the trigger on automated revenue management systems. While these systems offer many advantages for smaller owners and operators, there are numerous questions that they should be asking beforehand and implications both during and after implementation. So, before making the big purchase, revenue management experts offer up five things that every smaller owner and operator needs to know about revenue management.

Lesson 1: Business Strategy Is the Key
Revenue management systems don’t fix a broken company or a bad business plan. They exist as a tool to better help an apartment owner or manager execute its business strategy, according to Donald Davidoff, founder of Denver-based consulting firm D2 Demand Solutions. For instance, Davidoff recalls how revenue management helped Colorado-based Archstone push rents in the boom of 2007 and maintain occupancy in the recession of 2009. “We used technology to enable the strategy,” Davidoff says. “It wasn't about technology substituting for strategy.”

Lesson 2: Not All Revenue Management Is the Same
Many companies offer revenue management systems in their suite of products. But even among the big three providers—Real Page, Yardi and The Rainmaker Group—these systems are distinct. “The reality is the way those three systems go about creating a price is very, very, very different,” Davidoff says.

Davidoff says owners and operators must ask questions to really get under the hood and understand the distinctions. “Savvy operators don't have to be math experts to get what the key philosophical differences are,” he says.

Lesson 3: Your Culture Will Change
Whenever an apartment owner or operator starts to integrate a revenue management system into its platform, things inevitably change. For instance, community managers may no longer have pricing responsibilities. And rather than reducing positions, companies may find they need to add some to be able to fully leverage the systems. “Whether you're big or small, adding revenue management is going to change people’s roles and the balance of power,” Davidoff says.

That requires some thought before the new system is introduced. “You need to not just plan the rollout of the project, but you also need to plan change management within the organization,” Davidoff says.

Lesson 4: Get the Most Out of Your Pricing Manager
David Butler, founder of Residential Equity Partners, a small Portland, Ore.,-based owner with 1,373 units, says the person handling the pricing, known as the “pricing manager” must have a good balance of “art and science.”

Butler says small owners and operators should focus on whether this manager, who oversees the daily and weekly fluctuations in the market and individual unit pricing, is an employee of the revenue management company or the property management company—and what they’ll cost. The firms will also need to determine what kind of access they have to this person. “You need to find out how often your managers will have pricing calls with the pricing manager (every week or two?) and whether or not you will be allowed to join and participate in the pricing calls,” he says.

Lesson 5: Know Thy True Price
Butler says small owners and operators have to establish how much the true overall cost of the revenue management systems will be beyond the initial price tag. He says he generally sees a monthly per-unit price to go along with a set-up fee. But that isn’t set in stone.

Butler adds that revenue management companies are eager to reach out to smaller owners and operators so there may some negotiation room around cost.

To hear more on revenue management, from both the apartment executives who’ve been there and done that as well as those just getting started, be sure to attend the 2013 NMHC OpTech (Multifamily Business Operations and Technology Conference and Exposition), Nov. 11-13 at the Hilton Anatole in Dallas. Wednesday morning’s programming features a Revenue Management Software 101 Workshop, which will provide smaller owners and managers with a deeper understanding of what revenue management can do, what it can’t and the questions they should be asking.