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Top Performance Metrics HOA Property Managers Should Track
September 19, 2024
Like any job or long-term career, employees are given metrics to ensure they perform at their best. The same principle applies to homeowners’ association (HOA) property managers and property management companies. Metrics such as key performance indicators (KPIs) are used to assess growth, identify opportunities, and guide organizations to success. Read on to learn more about KPIs, KPI benefits, and which KPIs property managers should be tracking.
What Is a KPI?
KPIs are quantifiable metrics that help manage and measure a company, team, or individual’s performance. There are many different types of KPIs, and each business has its own goals and benchmarks to gauge progress and define success.
Why Are KPIs Important?
KPIs are a large part of what builds well-rounded property management companies and happy communities and clients. Accessing and analyzing these insights helps outline actionable steps to refine business operations. Setting and monitoring KPIs is beneficial because they can help:
- Set targets
- Project goal achievements
- Highlight areas for improvement
- Align teams
- Identify opportunities and challenges
- Maintain accurate budgets
- Create strategic plans
- Promote accountability
Five KPIs Property Managers Should Track
While each property manager and community have unique needs and expectations, the following KPIs are essential for all property managers to track:
1. Net Operating Income
Net operating income (NOI) is a fundamental KPI that reflects the community’s overall health. It measures a community’s revenue against ongoing costs and shows the projected profitability of a property portfolio after expenses. A positive NOI is a good sign that a property is earning money. If your NOI reveals that expenses exceed the community’s actual income, costs and expenditures may need to be reduced.
How To Calculate Net Operating Income
Understanding how to calculate NOI is vital for determining the financial health of a property. To determine NOI, subtract operating expenses from total income:
Net Operating Income = (Total Income) - (Operating Expenses)
2. Vacancy & Occupancy Rates
Vacancy and occupancy rates measure a property’s use and availability. Depending on the condition of the market, vacancy and occupancy rates can vary and fluctuate. However, knowing your property’s rates can help you understand the real estate landscape, determine pricing, inform growth strategies, and evaluate performance.
How To Calculate Vacancy & Occupancy Rates
To calculate a property’s vacancy rate, divide the number of vacant units by the total number of units, then multiply the result by 100. To determine the occupancy rate, divide the number of occupied units by the total number of units and multiply by 100:
Vacancy Rate = (Vacant Units) / (Total Units) x 100
Occupancy Rate = (Occupied Units) / (Total Units) x 100
To assess these figures, compare your current vacancy and occupancy metrics with market benchmarks and other KPIs, such as rental rates in surrounding areas. If your rates are better than the market average, highlight this to attract potential clients and increase conversion.
3. Average Arrears
One of the most challenging areas of property management is ensuring tenants pay dues and rent on time. Arrears indicate financials that are owed to the property management company, including past-due fees and rent. They track the company’s cash flow—money that’s present in theory but not yet available—and keeping an eye on averages is critical. If you need to reduce high arrears, consider:
- Sending monthly payment reminders
- Offering online payment options through a mobile app or community website
- Providing channels for tenant feedback
- Including an IT support contact for technical issues
4. Churn Rates
Churn is a measurement that illustrates the retention rate of a business. The higher the churn rate, the more the retention rate suffers. The lower the churn, the more a business thrives. Client retention is crucial for resident satisfaction and profitability, so it’s important to calculate churn rates regularly.
High churn may result from poor management practices, ineffective communication, or a reluctance to act on client feedback. To address this, investigate the underlying causes and make necessary adjustments, such as implementing client polls and surveys or investing in comprehensive management and leadership training. These steps will help minimize churn rates while supporting the company’s growth and reputation.
How To Calculate Churn Rates
To effectively manage customer retention, calculating your churn rate is imperative. To do so, divide the number of lost customers over a set period of time by the total customers at the start of that period, then multiply by 100:
Churn Rate = (Lost Customers) / (Total Customers at the Start of a Time Period) x 100
5. Customer Acquisition Cost
Customer acquisition cost (CAC) provides accurate data on how much you pay to gain a new client. Your CAC should be significantly lower than your customer’s lifetime value (LTV), or the amount of revenue generated over the course of your relationship. Your LTV/CAC ratio should net out to at least three, meaning for every dollar you put into acquisition, you’re getting three out. A low CAC indicates that acquiring new customers is cheaper, which can lead to increased revenue and an optimized marketing funnel.
How To Calculate Customer Acquisition Cost
Knowing your CAC is key to assessing the efficiency of your marketing and sales investments. To calculate CAC, simply divide the total cost of marketing and sales efforts by the number of customers acquired within a specific timeframe:
Customer Acquisition Cost = (Total Cost of Sales and Marketing) / (Number of Customers Acquired within the Desired Interval)
