Do you know what you're doing? It's the strangest thing, but it delights you when it happens. Then, over time, it just keeps you coming back. It's the customer ascension model, which is the belief that those who spend with you and do it often will buy anything you produce over time.
In retail, they call it RFM analysis: recency, frequency and monetisation. If a customer was recently involved with you, they are likely to buy from you. If a customer is frequently involved, they'll be more likely to buy again. And if they spend money with you, they'll buy even more. Retailers put loyalty card programs in place to track each consumer's spending, then place marketing bets on those specific customers, so they receive the right messaging at exactly the right time.
High-end Italian footwear manufacturer Golden Goose is one of the great masters of RFM analysis. If you don't know about Golden Goose, it's probably because your friends haven't bought them yet. But once you're exposed to the brand, you'll see them everywhere. Famous for their dirty sneaker look and connecting with their consumers, the 'big dreamers', they've made an art form of creating customers that keep coming back. From NFT tokens installed in each sneaker that you can add to your collection, to an app that houses all your previous purchases and a virtual showroom of your collection, to a weekly email customised to the size and style of shoe you like, it is a masterpiece in modern marketing — tailored, intelligent and savvy.
I purchased a pair of Golden Goose shoes during the pandemic and loved them so much that I bought them for friends and family. Recently I made a trip to their Melbourne store as I had an issue. Some of the lettering on the back of the shoe had fallen off, and now I was an 'old goose'. Upon purchasing a new pair, the shop assistant was delighted when she pulled up my profile to see that I was a 'fan.' They have several layers to their ascension model, each level receiving different benefits. The highest tier receives an invitation to the factory in Italy, including a sit-down lunch with the designers and CEO to produce your own set of custom shoes. No one knows that the ascension model exists except their internal staff. You won't see it in the app or in-store; it's only by chance I happened to find out the whole thing even existed. This is what's at the heart of all good business strategy - being so good at what you do that the customer always experiences delight when doing business with you, both now and into the future.
So if a buyer enquires, comes to an open, books a private appointment and orders a pest and building inspection, then registers to bid at auction, they are now recently and frequently involved with you, and most likely to spend money in purchasing the property, hence paying your fee.
The secret is to take the insights gained, identify the different customer types across your service lines, and discover which ones knock the lights out on your RFM analysis.
The lifetime value of a customer.
If an average customer completes five property transactions throughout their lifetime (think first purchase, second home, family home, investment property, downsizing/retirement home), each transaction is worth $20,000 in fees. Then, if in each of those transactions they refer you to just one person who also does a transaction, that now means that one customer successfully served could have a customer lifetime value of $200,000. How much of that $200,000 are you spending in your customer retention and delight program to ensure you retain customers and create raving fans?
The customer ascension model.
Your ascension model could be based on the size of the customer's spend, the frequency of their spend, their propensity to spend more in the future (based on their lifecycle), or the depth of the relationship.
It forces you to consider who your multis are, those people who've already done more than one transaction with you. The belief is, if they've already done one, they'll do another, and then refer you to family and friends.
One client has a client who's completed over 40 transactions during his lifetime. Every year that client takes his core group of 15 clients to lunch. That one lunch is worth all the major deals he'll do every year.
Service lines with freak data sets.
It gets you thinking that the property management service line is the most important in any business, not only for the recurring revenue and saleable value, but also for the opportunities it creates. If landlords spend money with you in management fees every month, that means they hit a high score regarding RFM analysis.
In any property management business, there are four specific customers on the landlord side:
Multi-landlords - those landlords who own multiple properties.
Landlords - your current landlord with one investment property managed by you.
Enquired-on-fee - landlords who enquired about your fee but made the decision to use an alternate property management service.
Archived landlords - those landlords that used to be landlords, but either sold, moved back into, or took their managements elsewhere.
What's stunning is that businesses today have no concept of how they serve their high-value clients, plus past and future clients.
It starts with the strategy and moves quickly to the tactics. We believe there are big changes coming to the property management and sales service lines, and if exploited correctly, they will become some of the most lucrative, high-margin business you'll ever do.
Property managers are in charge of managing the portfolio. Think arrears, routines, entries and exits of tenants, maintenance, rent collection, proactive capital expenditure, and the overall client relationship. Are those PMs currently in charge of the growth of the portfolio? In the future, they'll specialise in those areas and identify opportunities for growth.
Most business development managers believe they only work with new clients, where a property manager may have to look after 200 landlords for management. What would happen if we renamed the BDM to property management growth specialist (PMGS) and put them in charge of the growth of the property management portfolio, both on behalf of the agency and the landlord?
What if we changed it, so a property manager looked after the management - i.e. 200 properties, or 3:1 revenue versus wage, i.e. $70,000 wage, for $210,000 in revenue managed - and the PMGS looked after the growth of 500 landlords? Then, multi-landlords would have a direct relationship with the director to increase customer experience and reduce the risk of loss.
Growth occurs in very specific ways, including revenue line items on sales lead generation.
Think:
The sale of the landlord's principal place of residence.
Additional properties that landlords may already own but, for one reason or another, are not currently managed by your agency.
Encouraging landlords to buy another to grow their portfolio.
Assume a rent roll of 1,000 properties, with a case value of $1,500 per property (annual management revenue) and a $3.50 multiple (for sale).
Say 100 multi-landlords - 20% buy another = 20 property sales and 20 new managements. We've assumed a higher conversion rate for multi-landlords given their higher RFM score.
Say we can get 10% of the other 800 landlords to buy another = 80 property sales and 80 new managements.
Sales revenue on the investment properties purchased:
100 sales x average sale fee $15,000 = $1,500,000
Recurring revenue:
100 PM’s x $1,500 case value = $150,000
Saleable value:
$150,000 ARR x 3.5 multiple = $525,000
Sales revenue on PPR:
10% of 1,000 landlords decide to sell their principal place of residence, i.e. a one in every ten-year sell = 100 sales x $25,000 = $2,500,000. Given the higher sale price, we've assumed a higher fee for a PPR than an investment property.
Now, with the dedicated strategy including your PMGS, director relationship, and landlord's first program, you can increase one-off revenue by $1,500,000, recurring revenue by $150,000 per annum, and build a balance sheet asset value of $525,000.
But what happens if we find an extreme data set? When a landlord sells (up to 5-15% of all landlords sold during the most recent pandemic property boom), moves back to their property, or moves the property to an alternate agency, most property managers 'archive' the client. Whilst they might not be a current customer of the property management service line, it doesn't mean they won't be in the future. Neither does it preclude the sales team from selling either the investment property or the principal place of residence for the owner.
Take the years of archived landlords: Let's assume you lose 10% a year through attrition, and you've had your property management service line for ten years. That's over 1000 landlords archived.
What could happen if we chased that data set and encouraged them to buy another investment property as prices come down during a decline, whilst rental yields are going up? Assume we can get just 10% of those archived landlords to buy another investment property; that's 100 PMs x $1,500 case value = $150,000. $150,000 ARR x 3.5 multiple = $525,000 added to the balance sheet. 10% of 1000 archived landlords have a PPR to sell = 100 x $25,000 = $2,500,000.
You get the idea. The fastest way to profit is to work with your existing customers to increase the size and frequency of their spend.
Then we look at additional data sets. If an agent conducts 150 market appraisals and lists 50, a 3 to 1 ratio, what happens to the 100?
Great agents have a plan - dialling up the RFM score of previous market appraisals by chasing the client with relevance, which drives frequency of communication. Then they're consistent in their actions.
Every time there's a listing or sale in the area by you or a competing agency, who does it impact? This is the first daily call session in the leading estate agencies we work for. If you have a previous market appraisal of $1,000,000 and you see the perfect property for them to upgrade into for $1,200,000, calling them about the $1,200,000 home they could upgrade into makes sense. And if you do that, you pick up the sales commission on the $1,000,000 property. Advising buyers of the sale will give them confidence around transactions and pricing.
Then there are past clients. On average, for 50% or more of the listings you won last year, your agency didn't sell the vendor that home. This means you're stealing 50% of your listings from your competitor's past client list. Don't let it happen to you.
Big misses on understanding the lifetime value of the customer include a complete blindspot around RFM analysis, no strategy, and a lack of understanding why you do what you do.
These misses lead to lower margins (profit squeeze), lower fees (having to compete all the time for business), and an instant gratification 'move-on' culture, all of which destroy the enterprise value of the business. You've got to learn how to serve customers in new and meaningful ways that add value to their decision-making for the future.
How do we change the game? We get clear on our multi-clients. Who are the big spenders with your estate agency? What's your customer ascension model? What are you doing to delight clients throughout their property journeys with you over the long haul? What's the plan with how you serve your highest rated RFM analysis clients, i.e. landlords, multi-landlords, archived landlords, and enquired-on-fee landlords? Which marketing items can you cut so that you can amplify your ascension model marketing and experiences program?
All of this leads us back to the first question - Do you know what you're doing? What strategies are you working on? What tactics are in play to nail those strategies? If it's not clear to you, it's not clear to your people, which means they won't deliver the service, and the customer will never be delighted.
