Are you in a position to create your own bonus and incentive plan that strategically builds your business, not just your property manager’s pocket? Successful bonus and incentive plans are all about understanding your team at an individual level, your agency’s business plan, and your market area.
So, this week, let’s take a look at how understanding these critical factors converts to a bonus and incentive plan where all parties – the team member, property owner and you, the business owner- win now and win in the long-term.
What happens if, for instance, the average weekly rent in your market area is $300 and the property manager has a target of five new managements per month? The property manager could in fact reach the target of five new managements, but the five properties average only $200 per week. The problem – the property manager’s focus is on numbers and not quality.
What happens if the agency then increases its weekly rent on leased properties to $1000? On management fees of eight percent, this would equate to $80 per week extra income for the agency. If the incentive is a bonus equivalent to one week’s rent for each new management (which seems to be the norm bonus in most businesses), the business owner will pay $1000 as a bonus to the property manager or business development manager.
Rewarding the property manager for every management, regardless of the target, only encourages the property manager to secure whatever business they can secure, at whatever cost to the agency. Therefore, quality and the owner’s need for discount are overlooked. The result – the property manager, while having a target of five new managements, still receives a bonus equivalent to one week’s rent on every new management regardless of whether they achieve their target or not. What’s more, they also receive the bonus regardless of whether they sign up the new management with standard full fees and charges. Therefore, the business owner’s focus is solely on new business numbers and not income achieved from the new business. In other words, it’s quantity over quality, a formula not strong enough to sustain growth and profitability, as it fails to provide the property manager an incentive to build the business. So, words of advice – if the agency does prefer to incentivize the team in this way, the property manager should only be rewarded on properties achieved beyond what the target for the month is.
Quantity over quality also does not provide incentive for retention of managements or income on managements. It’s all about the numbers and hence a fundamental reason why we have so many problems and therefore a negative perception within the industry and from our clients.
The solution – shift the focus to income rather than numbers and the quality of managements will improve. For example, if the average weekly rent for the area is $300 and the achievable target is five new managements per month, then the month’s target is to increase the weekly rental income by $1500 (5 x $300 per week). The property manager’s focus is now shifted from management numbers to income, so the focus instinctively switches to weekly rental returns on potential new managements.
Quality over quantity means the property manager is incentivized to achieve the best possible rental for the property owner and work to achieve the target amount in the simplest way possible. To illustrate this point, if the property manager signs up and leases two new managements at $750 per week each, then the target total has been achieved and any new management signed and leased after the target total can now be paid as a bonus incentive to the property manager. However, the bonus is not paid as a rental fee, rather a percentage of the increased weekly rental they have attained. The focus is on quality of rental and income generated, not management numbers.
Another vital component to successful bonus and incentive plans is to understand the individual. Some people are not motivated by money. So, incentivizing them with the potential to earn a certain income per year if they achieve their target is not really helping the business or individual. For example, say an individual sees money as the “root of all evil.” No matter how hard this individual may try, somehow they subconsciously (or consciously) sabotage their own efforts to achieve targets due to this deep-seated belief. A simple way to overcome this is to understand the individual and gain a clear indication of what motivates him or her so a personal incentive scheme can be designed.
The individual can have a list of goals as long as their arm, but if they have a negative image of money, they are unlikely to achieve their goals. However, what a lot of individuals don’t realize is that in order to achieve these goals they need money! So, take time to understand each individual’s goals for the year, both professional and personal. If, for instance, they are saving for a weekend away at the coast every three months, work out how much it costs for that weekend away. Then work out how much the income needs to be increased in their portfolio if, for instance, they are a property manager with a portfolio. This particular individual could then be incentivized to achieve an increase of the nominated amount of income to be rewarded with their desired weekend away once that income level is achieved. It’s a win-win-win for the individual, the business, and the clients, as this style of incentive-by-design motivates the individual to build while ensuring retention at the same time.
Successful bonus and incentive plans are all about understanding the individual, the agency’s business plan, and the market area. They must be designed around these three factors to ensure continual growth, retention, strong profit margins, market dominance and long-term team and client loyalty.
The keys to building your business are what I refer to as the “Four R’s”. Repeat. Referral. Recommendation. And the one that is usually forgotten – Retention. I look forward to blogging more about the Four R’s in future blogs, but for now my focus is on assisting you with creating successful, stimulating and results-driven bonus and incentive plans.
It’s time to put on the thinking caps and get creative in designing your bonus and incentive plans. Don’t forget to add some fun incentives in there too. After all, a happy team is a productive team! Does your bonus and incentive plan strike a happy accord?Read more on Scaling