Daniel Craig - 3 Metrics Every Property Manager Must Know

there's only two ways to generate more profitability. You either charge more for what you do or spend less to get the job done. And so direct labor efficiency looks at both of those factors by asking the question, how many dollars of revenue do we generate for every dollar we spend on direct labor? And that's the people that are doing the property management work. And so, you know, industry average is kind of around 2.5, the benchmark, the top 25% of performers. Is about $3.50 of revenue for every dollar spent on direct labor. And so if you can improve your pricing, that's going to help the metric. If you can lower your costs, that's going to help the metric.

Welcome to season 2 of Owner Occupied on the business of property management. Owner Occupied is a show about property management in the real world. I'm your host, Peter Lohmann, co-founder and CEO of RL Property Management. For season 2, I have a different guest each week and we go deep into conversation about what actually works when trying to build and scale your property management business. Thanks for listening. Now let's go. Welcome back to Owner Occupied. I am so excited today to introduce Daniel Craig. Daniel is the CEO and co-founder of Profit Coach. If you're in our industry, you may recognize that name. We work with Profit Coach here at RO Property Management to help keep our financials on track. Danny has been an innovator and a leader in our industry around areas of financial performance and analysis for property management company owners. So I'm really excited to hear what he has to say today. Danny, if you wouldn't mind, just take maybe a minute or two and give your background in your own words. And paint the picture of where you are today.

Totally. Absolutely. Hey, thanks for having me on, Peter. Great to be on here today. Enjoyed getting to know you and working with you. I appreciate what you're doing to elevate the industry as well. So just quick background here. I started my career in sales and marketing, spent a number of years in that, and then I had this itch to start a business and always had kind of wanted to go into business for myself with my brother. And so we started looking out at the landscape of business opportunities and tried a bunch of different things. We looked at We looked at starting pet washes. We looked at starting invoice billing services, just some random things. And finally we were like, why don't we just settle on something that we actually know something about? My brother had a background in finance. We were like, all right, you know how to do accounting. I know how to sell. Let's start a business. So we started an accounting firm and we felt that there was an opportunity in the finance space to help business owners leverage their financial information to actually boost their bottom line, which really shouldn't seem like that much of a novel concept, but is actually a very novel concept in the world of traditional accounting. You ask the average business owner, do you get financial advice from your CPA? And they're going to tell you no. So we thought that was the opportunity for us. So we started this business with the goal of boosting profits and then quickly realized, all right, you know, if we're going to really be able to provide that kind of insight, we need to find one industry where we can be the experts. And so started looking around at different industries, pursued software as a service for a while, and then just through a series of circumstances and God guiding us, we landed on property management. And so in partnership with Jordan Whaler, who you know, Peter, and is an innovator in this industry as well. And so we conducted some customer discovery interviews and also participated in a financial mastermind for property managers to kind of get a feel of the landscape and ultimately created this beta, basically financial performance coaching offering that was highly data-driven and rolled that out to 5 initial prospects and they all bought on the first call. So I'm like, all right, you know, 100% close rate on my first 5 calls. We might have something that's, you know, an industry product market fit here. So that was in 2017. And then we basically had this harebrained idea of Why don't we penetrate the industry by doing an industry financial benchmarking study? That sounds like a great way to put ourselves on the map. And that idea, I think, actually came from Jordan. And so we had no idea what we were getting into or what the scope of that was going to be. But my brother, who was going to do the heavy lifting on the finance, I acquiesced and we dove in. And it was fairly nightmarish. We enrolled 50 companies. Each company had, you know, 50 different, you know, a different chart of accounts. And of course You know, when it comes to small entrepreneurs and bookkeeping, it's sort of the Wild West. Like, you know, why is Disneyland in here? Well, that's just what we put in our books, right? And so we had to go through massive data sanitation cleansing process and also had to figure out how to mine important unit data out of property management softwares. And ultimately we were able to produce a study that was released in January of 20— or rather, yeah, January 2018, and released at one of the PM Grow conferences. And it was a hit. And as a result of that, the National Association of Residential Property Managers hired us to write what are now called the NARPM accounting standards to really formalize standard chart of accounts for the industry, standard set of financial performance metrics and benchmarks. And Profit Coach is advocates of, as an advocate of those standards, and we're a business that's focused on actually helping property management entrepreneurs understand their numbers, know and commit to where they want to go and then understand the best path that will help them arrive at their desired destination. So there you go. That's Profit Coach in a nutshell.

Awesome. Yeah, that was a really great summary and I think paints a picture for the listener. And, you know, as I was listening to you recap that, you mentioned kind of at the beginning how CPAs generally aren't giving very relevant financial performance data to small business owners. And that's a big area that's sort of lacking. And another place I feel like property management company owners should be able to go to get performance data like that is their property management software. But there's nothing there. Like, you would think, you know, we're on Buildium and you would think they would track things like average client tenure, churn rate, even some of the basic stuff like lease renewal rate only very recently became available. Maybe this is better with some other softwares like AppFolio who might be a little bit more advanced here. You guys step in and for this initial study, you had 50 management companies and you had to very, very manually go through their books because there was no standardization. Even things like owner compensation, just a classic confusing issue when you're in the world of small business. Is the owner taking a salary? Are they doing W-2? Are they doing owner draw? How's that classified? And you have to go through and parse all that. Another thing that I think, I'm guessing, made this challenging is property management software. Some of it is— well, most, I think most of them are property-level accounting, not unit-level. So you have to do a little bit of work there to figure out, you know, 123 Main Street got a management fee on July 10th, but was that one unit? Was that five units? You know, that's not always obvious. So yeah, that must have been just unbelievable, as in manual parsing and data entry.

Yeah, yeah, that was, I think, probably actually one of the most, you know, the financial piece was difficult, and, and, but we had some familiarity with that. I think the thing that was sort of new for us was how do you extract historical unit data out of a property management software? And interestingly enough, you know, with maybe some limited exceptions, your main property management software is going to offer that information. You can't pull a report that says how many units did I add in September of 2018. It just doesn't exist. And so we had to figure out how do you triangulate different pieces of data in terms of when a property was entered and when it was terminated to provide that unit data. But it was worth the effort because I think one of the transformative things that we were able to help bring to the industry was a unit economics model that certainly— it's not like people weren't talking about revenue per door before we came around, but I think we helped formalize and standardize a whole set of unit-based metrics that really help property management owners get clear on their business. And I remember one of the first times when we did this with an entrepreneur, you know, he had been, you know, probably more used to looking at his P&L in terms of total revenue, total expenses, bottom line. That's great. You should do that. But when you're able to break that down on a per-unit basis and understand what your income and cost structure and labor structures are on a per-unit basis, property management entrepreneurs connect with that. Like, I manage this door. It's making me $178 this month and $22 in profit. I relate to that. And it makes the data, I think, much more actionable. And I think in terms of just an overall direction that we want to help this industry go in. There's this idea for entrepreneurs, a lot of them don't perceive themselves as numbers people, you know, I'm not a numbers guy. And we're on a mission to help every property management entrepreneur in this industry understand their top key, and I would say top 6 numbers at a level of clarity regardless of whether or not you perceive yourself as a numbers guy or not. Know where you should be, know where you want to be going, and know the best practices of how to get there. And I think tying this back to what you were saying, you know, that breaking it down at the unit level is a key step in helping entrepreneurs grasp and get their hands around those numbers.

Yeah, and this is a perfect segue because I wanted to dive into some of these metrics that came out of the study and are now just part of the vernacular in our industry. You mentioned one already, which is the revenue per unit or revenue per door. And I love that metric because it really lays bare how important it is to be efficient in how you manage properties, both on the tenant side and the client side. The way you can think about this is most management companies are making somewhere on the order of $100 to $200, maybe a little bit more, per unit per month. The average office employee, I ran this math a few years back, it's plus or minus, roughly accurate, but the average office employee costs you, the owner, about $1 per minute. Like the all-in cost, salary, taxes, overhead, management, all that stuff. So when you have a, a tenant or a client that calls in and spends 30 minutes on the phone with one of your staff members, you didn't make any money on that unit that month. I can tell you that for sure. And this really shows— looking at that on a revenue per door makes that so clear, right? And so it really helped helps give a property management company owner the confidence and the sort of almost lights a fire under them to cull the worst of their properties and clients because they're truly destroying their profitability. If you took the worst 5 or 10 or even 20% of your clients and properties and just got rid of them, you'd probably be doing half the work and your profit would reflect that.

Yeah, and I think that is what, what you just discussed precisely One of the reasons that it's so important that the conversation shift in this industry from, you know, how many doors are you managing to how profitable are you and how profitable are those doors. We've seen multiple instances where, you know, property management companies get more profitable after firing doors. Like, you know, you just fired the headaches and probably need to trim a little bit of cost in, in correlation with that if you want to boost profits. But You know, that's a sure way to just, just having a focus on doors without the profitability of those doors is a sure way to lose a lot of efficiency in your business. And I think one of the cool things, you take the revenue per unit model and then you layer on top of that a standardized cost structure that the accounting standards gives you. You can take that, let's call it $200 of revenue per unit, and you can start to basically say, or on a monthly basis, If we're operating at standard efficiency, we should be only spending about a third of that revenue on our direct labor. So, you know, 33% of $200 is $66. Okay, so now I know I have $66 to spend on this. And all right, if we're supposed to be getting that kind of profitability, you know, the standard kind of profitability from each unit, probably about 25% profitability, then we need to make sure that at the end of every month we've got 50 bucks left over after all of our costs. So there's just some great ways to, you know, again, break down the cost structure on a per-unit basis that help entrepreneurs connect the dots to the things that they need to— the levers they need to be pushing and pulling.

I want to stay on metrics for just a little bit longer. We did discuss revenue per unit. The other two out of— you— Profit Coach has like a 6 do-or-die metrics that they talk about. There's two others I think are so important to introduce to the audience if they're not familiar with them already. One of them is direct labor efficiency ratio, DLR, and the other is unit churn. Maybe if you don't mind just giving a few minutes to each of those and why it's important and how we can track that as property management company owners.

Yeah, absolutely. Revenue per unit is probably the metric that gets the most sun in the industry. It's kind of cool to talk about, you know, how much revenue you're getting per door and like charging fees in this industry. Most, most people do anyways. And so that's, that's, that's fun. But what I've discovered is that if you separate that revenue conversation from an efficiency conversation, you can have high revenue per door and not be making any money. And so that's where efficiency conversation really comes in with direct labor, because direct labor is the largest category of expenses in any business. Okay. And so to kind of boil things down, the reason that direct labor efficiency, that ratio is so powerful, and I'll explain what it is in a moment, is because there's only two ways to generate more profitability. You either charge more for what you do or spend less to get the job done. And so direct labor efficiency looks at both of those factors by asking the question, how many dollars of revenue do we generate for every dollar we spend on direct labor? And that's the people that are doing the property management work. And so, you know, industry average is kind of around 2.5. The benchmark, the top 25% of performers, is about $3.50 of revenue for every dollar spent on direct labor. And so if you can improve your pricing, that's gonna help the metric. If you can lower your costs, that's gonna help the metric. And so the reason this is so significant is because at the end of the day, this metric again takes into consideration both the charge more aspect and spending less aspect in the greatest area of expense. So for me, this is the do or die metric of all metrics. This is sort of the desert island metric. If you can improve this, generally speaking, when we see this metric going up, we also see profitability going up, these two metrics. Parallel each other very closely. And so just to break this down a little further, the essence of how to think about this metric is what we call the 3 Ps of labor efficiency: pricing, pay, and productivity. Pricing, again, is essentially revenue per unit. It's not more or worse, it's how much you're getting per unit. Pay, and this is relative to the output of work, how much are you paying? One of the most common ways to impact pay is by leveraging global talent. And then productivity, And this would basically be relative to pay, how much output are you getting? This is where, you know, conversations around process efficiency, standardization, scope of services, workflow automation come into play. So that's kind of the high-level overview of labor efficiency. And again, that this is sort of the holy grail of how to boost profitability in your organization. Then churn. It's funny, later today I have to write an email on customer experience. And the funny thing about churn is I've never met a property manager who actually lost the door due to bad service. Like, it's always the market and it's always sales, right? I'm sort of being facetious, but generally we have very high opinions of our service and we have a pretty easy scapegoat for churn, which is the market. And certainly that was true to a large extent in 2020 and 2021, and perhaps a little bit in 2022, although I think that excuse is perhaps going away a little bit. But at the end of the day, the way to look at churn is, and a lot of these metrics is, through a segmented view to really understand where's the churn coming from. And I've had this conversation so many times. So, all right, you think that you got some pretty high churn and that's coming from the market. Is that right? Yes, that's correct. Now, are you actually tracking this? No, we're not actually tracking it. It's just my gut feel, right? So step number 1, you got to track your churn. This should be a regular part of, if you're losing clients, a regular part of your KPI and tracking system. I recommend people put this on their weekly leadership agendas is, you know, what were the properties that churned and why did they churn? And we typically recommend breaking this down into good churn, they sold and sold through us, neutral churn, they sold, didn't sell through us, and bad churn, which is we fired them, they fired us. And so that would be the high-level way to break that down. And then from there, you start to realize I actually have power over this metric. Certainly when it comes to the selling side of things in the hot market, well, you're not If you think you're a victim of the market, you will be a victim of the market. But there are ways to actually leverage the market to your advantage, certainly by capturing the sale. And so I would ask people listening today, are— do you have a proactive nurture campaign and marketing campaign geared towards positioning yourself as the fiduciary and investment advisor for your owners? When they think of your property management company, do they think of a transactional, they're going to collect rents, or these are my investment experts and advisors? If that's how they think of you, then when it comes time to sell, if you're trickling, you know, that kind of information and insight out to them through nurture campaigns and just recurring touchpoints with your owners, then who are they going to contact to list the property or to get advice on the buy-sell decision? Hopefully you. So there's a lot you can do to capitalize on the market. And then in addition to that, I think the other big piece of churn, and this is going to be the subject of an upcoming webinar for us, is really defining your customer experience. If you're listening today, and I went into your company, and I asked the average employee in your company, define the RL property management experience. What is the average property manager in your company going to tell me? Well, we work hard, we do stuff with integrity. Okay, is it possible to work hard, do stuff with integrity and still do a bad job? Yes. Okay, well, then that's probably not a great definition of customer experience. So really getting clear on what is the customer experience definition in your company that everybody's rallying around, such that we can ask the question, "Did we do our job today?" We know if we did these things in this customer experience definition, we did our job. And that is, to me, the kind of the essence of how you get ahead of churn and ultimately also ahead of marketing. We're going to talk about marketing, I think, later on today, but it's two sides of the same coin, marketing and churn. Are two sides of the same coin, which is customer experience.

Awesome. So I love that summary. And when I think about churn, there's a couple, there's a couple things that I think can be helpful to a property management company owner who's struggling with churn. And one of them is, especially if your churn is being triggered by sale, so you're losing customers due to a property sale, What you actually, if you kind of chase that back a little bit, you'll see that that most often happens at the end of a lease. So the tenant gives notice to vacate, then they move out, you notify your owner and they're like, okay, well I'm just going to go ahead and sell because the market's hot or blah, blah, blah, blah, blah. So with that piece of information, you can then go even further back and get ahead of it by prior to notifying your owner of an upcoming vacancy, Well, first, if you have an issue with churning out residents, meaning your lease renewal rate is below where it should be, you know, you can address that and the churn problem might fix itself. But assuming your lease renewal rate is reasonable, I think what you could do is prior to notifying the owner, first of all, go out and get an updated market rent for that unit. So you can go into the conversation with the property owner like, hey, 'Although your current resident gave notice, we think you can get $300 more per month on renewal. By the way, we've already prelisted your property. We have 20 interested prospects. And, you know, we went ahead and did a walkthrough. Property looks great. The turnover is going to be very quick. We're going to get this knocked out for you.' You know, that's a totally different conversation than, 'Oh, your property's going vacant soon, just so you know.' 100%.

Yeah. And it's so different that it just says a lot about the proactivity of you as a property manager and the way that you're thinking through the overall investment strategy for the owner. And so even if they are hot on selling, positions you to be able to navigate that conversation, perhaps redirect their thinking on that if appropriate.

Yeah. So you mentioned an upcoming webinar, and I wanted to talk about webinars because Profit Coach throws some of the most incredible webinars I've ever seen. So I want to compliment you guys on that. And not only is the content almost always extremely compelling, and I'm talking about totally unique, highly researched, highly original content that is not just filling an hour, it's not just, you know, getting somebody to come, you know, from the industry and talk about how they grew their management company. I mean, the bottom line is these webinars are just good. And so I guess my question here is, who is making these webinars? How, like, how much work is going into these? And then during the actual webinars themselves, of course you have like some slickly produced slides, that's a given, but I generally find that the pace is quick and you're jumping from person to person to kind of keep it interesting. You've got audience involvement, you're using all the different features that are available with Zoom, like you're polling the audience. And it's just, it's really good stuff. So frankly, I'm a little jealous because I tried to run my very own, for the first time ever, run a webinar for real estate investors in Columbus a month or two ago before my break. And it was kind of boring, like when I watched it back. So maybe share a little bit about how you guys are doing this because I love it.

Oh, yeah, thank you. Well, hey, work in progress, right? I've been doing— I did mention my background is sales and marketing, so I've been hosting and doing webinars for probably about 10 years. So, so that's probably maybe part of what you're, you're getting at. I also do some marketing consulting for a nonprofit and we produce online summits. And so it's strictly online content. And I've— that's been a context in which I've sort of had to learn how do you keep engagement high in a virtual environment. And that's just, to be honest, tough. I, I, my background also involves a certain amount of public speaking and the way that you can read the room and engage the audience in a live context is so much different than in a virtual context. And so the point that I'm making there is you do have to work extra hard in the webinar context. And I would say that probably one of the biggest catalysts, Peter, is the negative feedback that I've gotten about our webinars. You know, like I've had people, you know, in fact it was just last year I had someone on a call say, by the way, your webinars are just boring, you know? And so, and so I had to, I absolutely hate that, especially when some of the webinars are part of our paid services. And so I would say, you know, listening, number one, listening to feedback, even when it hurts, has been helpful. But in terms of the elements right now, I wish I could tell you that this is like a 5-person team and, you know, it's highly planned out. A lot of it does come down to me. And but we are expanding the team to do some more research and planning around what's going to be interesting. So just a couple of different ideas I'll throw out there. Number one would be polling the audience And as you know, we sent out a survey recently. What do people want to hear about? And we actually did kind of a statistical analysis on that. We came up with the prioritized topics. And then in addition to that, I would also say one of the huge things that has helped us is, as you know, I never do a webinar by myself. And so that's pretty significant. I'm always interviewing at least one person and typically 2 to 3 people. And so what you can do as a result of that is sort of create that, that, that, that, that room environment, you know, that in-person environment by having multiple people highly engaged in the conversation. I think the other thing is just is hosting and, you know, pull a page from drama. You have to be way more energetic than you think you need to be for it to actually come across on stage. And that's true in webinars. So I try to be a bit over the top in terms of energy. And that does have a little bit of an infectious impact, I think, on, on the audience and also on the guests. So a few other things would be just in terms of content, mixing it between various types of content. I think that's something that I try to do a lot in the webinars is mixing analytical content with interactive content with interview content. So it's a mix of me sort of unveiling the latest, you know, data So people feel like they're getting the inside scoop, plus, you know, more experiential information from the panelists that audience participants can connect to. It's where puns on there like, oh, I relate to the way he just said that. And then engage in content in terms of polls and chat questions. It's hard to get people to speak up on webinars. And so what we generally found is the best way to do that is to have people respond in chat. And then if you like what you see in chat, you can open up the mic and say, hey, heard this from Peter, you know, Peter, can you tell us more on that? And then music, an intro clip and outro clip live on the, on the webinar helps start with some energy. So there you go.

Let's take a minute to thank this week's sponsor, Resident Benefit Packages by Second Nature. So professional property managers understand how important creating a great resident experience is in order to deliver a great outcome for not only the resident, but the owner and your property management company as well. But it can be very difficult to devise a solution in which all three of those stakeholders win. This is where resident benefit packages come in. So Second Nature has an incredible package, which I'm about to tell you more about. 1,400 management companies are using resident benefit packages by Second Nature to help create this triple win experience. So here's a few of the things that you can include in this package. Filter changes, of course. Residents getting filters changed on time. They arrive in the mail. It's a really great experience for the resident and helps them save on utility costs. They also have a utility concierge service you can include where internet, TV, and all the other utilities are taken care of for the resident on move-in. Not only that, they have a renters insurance program so you can bake in a master policy. That way your renters have renters insurance as part of this policy. They don't have to go out and shop for it separately., and it's easier for you as a property manager because you can track certificates and compliance all built in. The last thing I'll mention here, which I love, is credit score reporting. So for your residents who are paying on time and in full, you're able to report that to the credit bureaus and help them build their credit score. You can wrap all this into a triple win resident benefits package by Second Nature. So if you're a property manager using an accounting platform, go to RBP. Rbp.secondnature.com, mention this podcast, and they can show you what packages, positioning, and pricing that other professional property managers in your area are using to win. Thank you to RBP by Second Nature for sponsoring. Now let's get back to the show. Well, we can't go any further without talking about the most important topic for today, which is the update to the NARPM accounting standards and the, the new study that's going to go along with that. So we talked earlier about, you know, the, the, the big study that Profit Coach did a number of years ago. Well, it's been almost 4 years now and everyone's been asking and, and the, the time has finally come to do an update on that. And so I'd love to hear you guys talk about, or hear you talk about why now, what, what made you feel like, okay, we're going to go ahead and do this and sort of just maybe some of the backstory and background on, on what's going to be involved and what we can expect. You know, once that wraps up?

Great question. We are super excited about this project. And to answer your first question, why is this the right time? Well, to be honest, the first one was so much work, it took us 4 years to recover and get up the courage to do another one. So it's definitely past due. We've had so much happen over the last 4 years. The industry has matured in significant ways. COVID-19 has happened. And I think that we felt that we were really just reaching the limits of what we could actually extract from the first study in terms of the longevity of the data. And so that's something that we are really excited about updating. In terms of what's involved, we are initially targeting doubling, roughly doubling the size of the study. The first one was around 50. We were targeting 100 to 125 contributors for this next study. We just launched promotion last month. We've had such a great response that we have decided to quadruple the size of the study. So we're now targeting around 200. So it's really important that we work together as an industry to contribute the data so that we can make this possible in terms of the best data set that we could possibly have. Part of the reason we also expanded the study is we had this initial conception that we wanted to use the Northam Accounting Standards to make it really easy to produce a study because everybody would be on the same chart of accounts. Well, as we got into it, we realized there's a kind of a, a, a potential problem with that, which is that there is gonna be some bias in that data as a result of the fact that people who have converted are more likely in tune with their financial performance than other companies. And so potentially can skew the data set in a way that is not something that we really want in the data. So that's why we're expanding and now including participants who do not have the conversion, the NARP standards in place. And that way we're also gonna be able to see, okay, you know, what is the impact of this conversion process and getting on the NARP standards? How does that actually impact your ability to run a more profitable business? So that will be interesting as well. In terms of the key changes to this study, we are gonna be able to get a lot more granularity. When we first did this, we had very limited granularity because Everybody was again on different charts of accounts. Now that we have a set of companies in the study who are all on the same chart of accounts, we're going to be able to look at things on a much more regular basis like what do highly profitable companies spend on rent? What do highly profitable companies spend on software and different aspects of expenses? Where are people generating revenue? What is the impact of pet fee income across the industry, right? Or is it a benefits package? So So more granularity both on the income and expense side of things. I think one of the things that I'm perhaps most excited about, and I say this with some degree of hedging because we still have to totally see what the data will give us, it's hard to commit to what the data will produce, but I'm excited to dig into year-over-year trends, which we did not do in the first study because we just didn't have the data, but now we have the data. To be able to look at year-over-year trends and ask questions like, how does fee maxing correlate to growth? That's one that I'm really interested in, in understanding. And can you— is it possible to price yourself out of market? So those are some of the interesting things that we'd like to look at in terms of year-over-year analysis. Also interested in looking at the impact of COVID to a degree. And then also one of the big things, probably the number one thing that people have asked for, is more insight on maintenance. And so we're looking forward to diving deeper into maintenance performance and providing industry with better insight on, on maintenance as well. So that's kind of an overview of what we're trying to accomplish. And, and in order to get there, we are currently, as of the date of this recording, about just over 150 companies applied to join. We need about 250 to apply 'cause we're probably gonna have to pull that back to hit our 200 number in terms of people. Not qualifying for one reason or the other. So we have a little bit more to go in terms of companies signing up. And, you know, we've just gotten the first benchmarking study. You know, people come back to us and say, hey, you know, I participated in the first benchmarking study. You know, it totally gave me an eye-opening experience because what we do is if you participate in the study and you haven't had a one-on-one financial performance review with Profit Coach, we're going to actually help you understand how you stack up individually to the new benchmarks and give you that inside insight, not just to the data that we're going to be producing, but on how your company stacks up to that and have one of our people get on the phone and explain that to you and show you what your opportunities are. So tremendous value for you individually if you do participate. And not only that, you're helping the industry in, in what we think is a significant way.

Yeah, couldn't agree more. We signed up to participate, of course, and this will be fun because we did not participate in the first one. I don't think I was aware of it, or I wasn't plugged into the NARP community the way I am now. So this is going to be great. I'm wondering if we could look at the difference between property management companies that operate fully remote versus partially remote versus fully in office. That might be something interesting to see, maybe the growth rates or the profitability of those different setups because that's, of course, just a really hot topic coming out of COVID still. And then remote team members is a whole other layer to that as well.

Very interesting. That's, that's great. We definitely have a question in the process related to global team members versus US-based team members, and that sort of implies an aspect of the remote piece. But I think, great point. I'm going to make a note of that, asking further about their leveraging office versus just being fully remote, even on the US side. Yeah, good, good, good, good, good concept.

I want to transition and talk a little bit about sort of mindset and identity. I was listening back to your show with Jordan from earlier this and you guys had a great discussion around sort of this idea that when you first start into an industry, and we'll just use property management as an example here, you think of yourself as a property manager. And I remember this because when I started in 2013, I was the only one and I was doing everything. So I was certainly a property manager. And then over time, in order to grow, you really have to start to shift your identity. And instead of thinking of yourself as a property manager, You need to start to think of yourself as a business owner or a leader or a manager or maybe even something completely different. I thought you articulated some really clear thoughts around this topic. This is nothing completely original. The E-Myth talks a lot about this and is a really fantastic book that I recommend all the time. So I guess maybe my question is, how do you identify as the CEO of Profit Coach? I assume you don't identify as an accountant.

[Speaker:RYAN_CASSEL] Not once. That's part of the reason why.

How has that impacted your personal growth and the growth of the business?

I think that, you know, entrepreneurship is such a deeply personal experience, and I don't think I realized that when I started out. I think I thought that I might be able to treat it a little bit like a job. It's just— you can't do that. Because you can leave your job. And certainly there's a certain sense, obviously, in entrepreneurship when you can leave, where you can leave your desk, but you've built something and that thing that you've built is part of you. And so I think that maybe not all entrepreneurs feel the same way about the things they've built. That's at least my experience. And so in terms of my overall, you know, perception of myself and my purpose in this business, certainly has changed over time. And I think one of the most significant things that's changed is, you know, why am I in business? I think my why has changed a lot. Certainly, you know, my responsibilities have changed over time and the way that I need to think about my job has changed. And I don't, I don't think I'm all the way there in terms of where my thinking needs to be. But I think one of the clearest shifts that's happened for me is my why. And I, I just want to encourage entrepreneurs to think clearly about their why. Because, you know, I've seen in this industry as I've coached people and as I get involved pretty personally in conversations with entrepreneurs, how, you know, you, you have some short-term goals, you achieve those short-term goals, and then you at the end of that experience are still ask— left asking some big questions. I, I think it's really important for people think about the bigger why. For me coming into business, I think the why had a lot to do with building a passive residual income. And I'm a Christian, so there's certainly spiritual aspects in terms of my work serving and glorifying God. But I wanted to do some other things in life and have the freedom of time and flexibility to do those things. And so I think there was a lot of, hey, I'm going to start this business, hire some great people, and it's going to start kicking off thousands of cool cash and I can go do other things with my life. And that's fine. And that's, that's not a bad why, but it is sort of disconnected from the business itself. And I think in some ways I sort of saw the business as a means to an end, not as an end in itself. And so got into business and I just have to be really candid with you. Entrepreneurship has been probably the hardest and most humbling thing that I have done. And that is What that has caused is me to step back and say, all right, when I didn't, you know, things didn't pan out according to plan, what am I getting out of this business? And I realized that in the process of all of this, I was changing and I was growing. And that became, I think, a significant part of my why is this is an opportunity, this is a laboratory, a playground of sorts in which I can grow and change as a leader and as a person, develop new skills. And I think that one of the things that I see holding entrepreneurs back in this space is a lack of willingness to embrace areas and explore areas of weakness. I see this particularly in sales and marketing. It's like, I'm just not a marketing— and probably perhaps mostly in marketing. I'm just not a marketing person. That's just not what I do. And so I think as a result of that, people and entrepreneurs can tend to sort of stunt their growth And I would just ask you, if you're an entrepreneur and you don't understand sales and marketing, you're not an entrepreneur. Sorry. Entrepreneurs run sales and marketing organizations that happen to do property management or whatever they do. And so I'm pretty passionate about not that you have to understand all the tactics, but you certainly have to own and master the strategy of growth, at least at a certain level. This ties back to my experience of growing as an individual and as a human being. And then as we, you know, thought about growth and thought about what we wanted out of the business in general, we started to realize that while, you know, we were making, you know, sales targets and generating revenue, not always in the way that we wanted, there was something else that was happening. And that is that we were impacting lives and people were changing. And our team members were changing and our clients were changing. We started to hear stories about how lives were changing and people were achieving new things in their personal lives, overcoming work barriers or psychological barriers or economic barriers. And that just lit a passion in me to realize, you know what? Business is one of the best ways to impact the lives of human beings. And this is something I'm really passionate about, but didn't realize that there was that connection in the same way coming into business. I said it's more like a means to an end. So for me, business has become a way that we can help people become and achieve more than they thought possible. And that has now become our purpose statement at Profit Coach. And the result of that is that we have changed our, our sort of or BHAG if you're a Jim Collins person, from a revenue target to something that's non-financial. And that is that we are in pursuit of creating 333 success stories. And what we have realized that we can become the best in the world at in the PM space is empowering property management success stories. And so that is, I think, just the best way that I can articulate the shift in my why. And that's impacted me personally in terms of what's important. You know, it's practical. You know, when you have people issues in business, you know, you move your mindset from thinking, you know, people are the bane of business to thinking people are the opportunity of business. And that's been really helpful. You know, when I get distracted from my day, my game plan, like, here's what I'm going to achieve because I have to deal with the people issue, I realize, no, this is, this is what's most important today. And I'm actually fulfilling my identity, my purpose as an entrepreneur by helping this person or this client right now. And that's very meaningful. So I don't know if that answers your question.

There you go. No, that's so great. I really appreciate you sharing that quite personal story. And I am— I think I'm weak in that area of people, and it's a— it's an area of focus for me right now. I feel like I'm on a journey. My natural inclination is to be very systems and process oriented. If you're listening to the show, you probably know that about me already. And so for a long time, I sort of viewed people as a necessary but unfortunate part of running a small business. It's like, if I could get this done without the people, wouldn't that be amazing? Right? But that's not a very realistic or productive way to move forward. And as you very well articulated, it's extremely rewarding to help other people be successful, whether that's employees, whether that's vendors. Or whether that's customers, I mean, as humans, we're just hardwired to get some satisfaction out of helping other people. And so I've tried to really embrace that. I've tried to shift my mindset around what we can achieve through people, not what we can achieve despite people. And that's been big for me. I got a long way to go, but it's really cool to hear you explain that. Let's take a minute to thank this week's sponsor, AppFolio. Some of you may not know this, but AppFolio has a podcast. It's called The Top Floor, and season 3 of The Top Floor launches in June, which means if you're listening to this episode, the first episode from their new show is out now. So search for The Top Floor in your favorite podcast player, go ahead and subscribe, and while you're at it, you can check out their back catalog. Seasons 1 and 2 include many episodes on very relevant topics such as employee hiring and retention, maintenance best practices, single-family rental management, and many other topics. I want to take a minute and also highlight the extremely high production quality for The Top Floor, as well as the quality and the level of the guests that they're able to bring on the show. You're able to hear from folks that you don't hear on the other property management podcasts and topics that are highly relevant but not often discussed. So if you go to appfolio.com/the-top-floor, that's appfolio.com/the-top-floor, you can easily search and access all of the old episodes. You can discover bonus content like research reports, articles featuring their guests, and you can subscribe there as well. So thank you again to AppFolio for sponsoring the show. Go check out their podcast The Top 4 Season 3 launching now. Thank you again to AppFolio. So maybe I've got one more question for you and then we're going to close with, with the classic question I'm doing all season around marketing. Before we get to that, you know, we've seen some really successful vendors in the world of property management. If you go to an NARPM event and you walk the trade show floor, there's some folks behind those desks that are extremely sharp and shrewd and are delivering exceptional value to the property management industry and are enjoying success in their own lives. We've seen in the last few years a number of property management company owners move into that vendor space because they identify a need and they build out a solution and then they offer it up, which has been really cool to see. If somebody was looking at that and they're looking at the other side of that vendor trade show floor and maybe getting a little green with envy because they're tired of dealing What's that thing about property management? It's like tenants, toilets, and trouble or something like that. What would be your suggestion there, or how have you found that side of the desk to be? I made this observation the other day that I haven't ever seen someone go the other way. I've never seen a vendor take a look at what we're doing and say, "I really need to get a piece of that. I need to get in on that owning a property management company action." I've only ever seen it go the other way. So I'm curious your thoughts on that.

Here's my honest feedback on that. Two thoughts. I think that, well, I spend, you know, so much of every day analyzing the property management business model, and if it wasn't an amazing business model, I wouldn't be in this industry. Property management is an incredibly unique business model. It's low capital, it's recurring revenue. And opportunities to leverage technology at an affordable rate. And the profit margins are just phenomenal. You talk to financial experts like Gray Craftree who operate in a variety of different industries and they'll tell you that 5% is break-even, 10% is sort of good, decent profit in service business, and 15% is better start looking for the competition. Not in this space. You don't start looking for the competition until you're at 25, 30, 35%. 40% is possible. And so, you know, I always, to be honest, have some incredulity when I see people crossing the aisle. And I will tell you that I've known a lot of people who have crossed the aisle and they weren't running particularly successful property management businesses in some cases. And so I think my advice to you, if you're considering crossing you know, the ILM being a vendor, you know, have you succeeded in property management first? Because if you haven't succeeded in property management first, it's probably a problem with you as the entrepreneur, not a problem with the opportunity. And so I would just say property management is fantastic. You should have a really good reason for bifurcating your focus and doing something different because, you know, I love the business we're in. Obviously you can tell it's something I'm passionate about, but I also love a lot of things about the property management business model. And I do think there are vendors that have crossed the space and I won't mention their names on the show, but I do think it goes both ways. And I think some of the consolidation that we see in this industry is software companies. Trying to get into the property management space kind of fundamentally. So that would be maybe one key example of how software vendors are getting into property management. So all that to say, thought number 1, this, this business model of property management is hard to beat. Business is hard no matter which way you cut it. So if you don't like Tennis, Toilets, and Trouble, you know, you're going to have another acronym for that in whatever space you, you, you get into. It's just business is hard. There's always the thorns in the ground. I think that's biblical. And so number 1, it's a great opportunity. Number 2, be faithful in small things. That's kind of a principle that I, that I try to live by. If you haven't been faithful in what you have today, you're not going to be faithful with the next opportunity. Succeed where you're at and then, then look at being successful. And the third thing would be focus. Focus is so critical to success. And I just see a lot of property— I think that, I think the bane One of the biggest mistakes property management entrepreneurs make is bifurcating focus. And it's sort of this, you know, we have ADD as entrepreneurs, so I get it. It's the new thing that's exciting. But I want to ask you, have you fully refined and optimized the opportunities that you have in your own business, not only to optimize profitability and revenue, but to cultivate yourself as an entrepreneur? If you haven't mastered sales and marketing in property management, don't go and try to do that in another industry. Maximize your learning opportunities in the space you're at. One of the key concepts that a mentor shared with me, it's also something that's shared in a book that I love, which is called So Good They Gotta Ignore You by Cal Newport. There's a chapter in that book called Turn Down a Promotion. And I would sort of pit that to the entrepreneur mindset and say, turn down an opportunity. And here's what I mean by that. Early on in my career, in my first sales job, this is before I went into entrepreneurship. I was just hitting a wall. I was frustrated with the marketing of this company as I wasn't getting my leads. I was hating being on the phone all day long. And I was, I was 3 years into it and I was about ready to quit. And I called my mentor and he's like, you know what, you can quit. 3 years is a decent time on a resume. But let me ask you a question. Have you learned everything that there is to learn in the opportunity that you have right now? And at that moment in that sales job, I was faced with an opportunity to learn marketing because I wasn't getting the leads that I was needing, which is part of why I was frustrated and wanted to quit. And that conversation caused me to embrace the world of marketing for the first time in a way that I never had. And that's been tremendously impactful for my career after that. So I guess I would ask you as an entrepreneur the same question. If you're looking at switching opportunities or expanding opportunities, have you learned everything in the opportunity that you have? Been faithful in small things. If you have, it might be time to move on to the next thing. If not, stay where you are.

Love that answer. Oh my gosh, so good. That, that's a powerful lesson. I think that we can all take something away from. I'm gonna bring it home here, Danny. This has been awesome. I want to close with a question around marketing. Property management company owners who are smaller, say 200, 300, 400 units, and they're looking to grow, What would be kind of your low-hanging fruit, or where would you go first if, you know, an entrepreneur you respected and was looking to grow said, hey, I just, you know, I've kind of hit like a creativity brick wall here and I'm looking to grow my business. What would you— where would you turn to there?

Yeah, good question. And I don't want to position myself as a marketing expert in this industry. I've had observations, but it's also— I mean, I can share what I can. I would answer this sort of in 3 aspects. The first aspect is just sort of concentric circles of opportunity. Okay, the first, as I would see this, the first opportunity would be just pounding the pavement on your current relationship base. Okay, if you haven't gotten proactive with your current base of relationships, if you haven't nurtured your current customer base for referrals, if you haven't maximized your network, You need to go pound the pavement on your current existing relationships and squeeze all the juice that you can out of those existing relationships. That's going to be the fastest payoff, the quickest return on marketing. So that would be number 1. From there, you need to start thinking about referrals. Again, one of my key mentors in sales and marketing, his mantra is, you know, if you can create the world's best customer experience, people are going to do your marketing for you. And so make sure, back to what we were talking about earlier, that you have that customer experience definition defined in such a way that the proof that you are doing good work is that people will talk about you organically.

Okay?

That's sort of like the net output of a great customer experience is a referral. So number 1, just beat the bush on your current base, relationship base. Number 2, develop your customer experience in a way that will sort of organically boost that referral engine. And then number 3, start working on a proactive referral campaign. And that would be a really strategic approach to cultivating relationships in your owner network, in your tent network, and in your broader community. That then takes us to content marketing. And content marketing would sort of be the social proof, the sort of one step broader, still connected to relationships. And by the way, there's some great synergy between referral relationships and content. One of the greatest ways to develop a relationship in your space is, you know, do content and interview that person that you want to have a relationship with. Okay, so that's sort of the next layer. And then the last layer that I would pursue— and I'm sorry, all the paid advertising agencies are hating right now— is paid advertising. It's hard. It's, it's, it works. And I've seen it work. I've seen it fail more than it works. And I'm the guy that sees the bills. And so that's sort of the concentric circles of how I would pursue this. And if you have those other layers in place, then the paid advertising is more likely to be a lot more successful because in many cases, you know, depending on the form of paid advertising, you're creating brand awareness. That is sort of the juice you get from that or the impact from that brand awareness is sort of gonna be caught by having these other more fundamental pieces in place. So that's my overall sort of thought on progression in terms of marketing. From an analysis point of view, my advice would be, you know your channels, bifurcate your channels from an analytics perspective and segment your leads and your cost accordingly. So that you can look at cost per lead and cost per sale, or what's known as unit acquisition cost, on a per-channel basis. And that's— it's really important to track and understand as well as you can, because gut feelings when you're spending $20,000 on advertising a month just don't cut it. So that would be my advice from an analytical perspective. And then from a strategic planning perspective, I'm going to borrow some advice from Steve Welty, and he said, Every year when we do our marketing planning, we sit down and ask ourselves 3 questions. What worked last year that we want to repeat this year? And by the way, if you're not doing the analysis piece I just talked about, you're not gonna have a good answer to that question. So what worked last year that we wanna repeat this year? Secondly, what are new capabilities that we want to build internally as an organization? Hey, you know, we wanna get really good at content marketing, not because we think that's the latest and greatest thing to do, but because we think that that's a capability that we believe we should have internally as an organization in the spirit of, as to quote a Muelaism, operationalizing sales and marketing. Okay. So number 1, what worked last year? Number 2, what's capability that we want to build this year? Number 3, what do we just freaking want to try for the fun of it and throw stuff at the wall and see what sticks? And I thought that was great advice in terms of 3 prongs for marketing planning. One last thought, and then I'll stop my long-winded answer. I want to go back to what I said earlier in the show. I'm a firm believer in who, not how. I get that. I've been a part of Strategic Coach, but you cannot fundamentally entirely delegate growth. You just can't as an entrepreneur. You're not an entrepreneur if you don't know growth. You have to own the strategy. Where I think you can bring the who's into is the tactics and the how and the implementation. Highly recommend that, but you need to master the strategy. Of growth as an entrepreneur. And you know what, it's an exciting opportunity. It's a great learning experience.

You should totally do it. Yeah, I really agree with that. Because I feel like, you know, when you think about marketing a small business, it's fundamentally a question of who do you want to serve and in what capacity? And where are those people? And then all the tactics kind of flows from that. But that strategy can't be set by anyone except the owner of the business. You're not going to go to a marketing company and they're going to tell you, well, 'You should be managing duplexes in Des Moines.' Like, you're the one who is guiding that direction, and the marketing flows right from that. So yeah, you can hire somebody who's an expert at paid advertising on Bing, and you can hire somebody who's an expert at copywriting, but you're not gonna just find somebody who's like— I think I made the analogy on another show, it was like Asking someone to come in and solve your marketing and sales problems is just like going up to someone and being like, "Hey, I want some more money. Can you help me get more money?" It's so vague that it means nothing. This has been really fun, Danny. If folks want to follow along with you and your work at Profit Coach, where's the best place for them to stay up to date?

Right now, one of the hottest things we're doing right now is the benchmarking study. Let me just throw the plug for that.. If you think that you would get value out of knowing where you stand compared to the latest trends in the industry, go to benchmark.pmprofitcoach.com, benchmark.pmprofitcoach.com, and that would be a great place to get familiar with the study and then enroll. We'd love to have you, or you can reach out to us there. And then in terms of content that's publicly available, probably the best content is the Narbonne Profit Power Hour, the monthly webinar that I produce. In tandem with NARPM. You can go to narpm.org/webinars to get that information, get signed up for that series. And then the last thing would be, uh, feel free to reach out to me, daniel@pmprofitcoach.com. Always happy to talk shop. We love to just get on the phone with entrepreneurs and look at financials. We love it so much we do it for free.

So if you want us to look at your P&L with you, we're happy to do that. Beautiful. Thanks so much, Daniel.

This has been great.

Thanks, Peter. Thank you for listening to Owner Occupied. I hope you have enjoyed this episode. If you like the show and want to get connected to the community, you can follow me on Twitter @PSLOHMANN and subscribe to my email newsletter on my website, peterlohmann.com. I try to share as much valuable property management content as I can on a regular basis. Thanks again for listening and have a great week.