Structuring Commission in Business Development Lisa Pentland

Our Ambitions We want the business development manager role to be a strategic growth

Our ambitions We want the business development manager role to be a strategic growth We want good agencies to dominate a market

Our ambitions We want the business development manager role to be a strategic growth We want good agencies to dominate a market We want BDMs to aspire to earn $150k each year, and principals to be happy with that

But…

But… this requires new thinking

Requires new thinking New thinking about the role of a business development manager New thinking about how packages are developed New thinking about your ambitions

There are so many myths about rent roll growth

4 foundations for new thinking

You must understand your market and its potential

You must be honest about your ambitions

You need to understand what a Business Development Manager is

You need to measure your projects

1. Each market is different: Different Potential: Market Size Landlord Rates Use of Property Managers Different Characteristics: Competition Landlord types

Are you prepared to do the things you need to do to hit your targets? 2. Be honest with your ambitions

Are you prepared to do the things you need to do to hit your targets Are you prepared to invest in growth? 2. Be honest with your ambitions

Are you prepared to do the things you need to do to hit your targets? Are you prepared to invest in growth? Are you prepared to trade off profit for growth? 2. Be honest with your ambitions

Are you prepared to do the things you need to do to hit your targets Are you prepared to invest in growth? Are you prepared to trade off profit for growth? Do you have the capabilities for hyper-growth? 2. Be honest with your ambitions

3. The role of BDM It is a strategic role

3. The role of BDM It is a strategic role Must extend the agency’s client base

3. The role of BDM It is a strategic role Must extend the agency’s client base Is a sales function

3. The role of BDM It is a strategic role Must extend the agency’s client base Is a sales function Is an investment

Clear view of the sales function: o Engagement o Conversion rates 4. Measure everything

Performance: o Days on market o Vacancy rates o New managements 4. Measure everything

Financial: o Average recurring management fees o Average letting, re-letting fees and other fees 4. Measure Everything

So… How can you structure a BDM’s package?

Some Design Principles...

1.Package must be a low-base, high-commission

2. Everyone has to win

3. Don’t go broke in the process

vv A Typical Market

A Typical Market… 12,500 homes 3,750 rental properties 2,500 professionally managed properties $1,400 – average total management fees per property 3 x average multiple $10 million value of all the rent rolls in the market.

The economics of a new management UPFRONT $1,400 40% $500

The economics of a new management UPFRONT $1,400 40% REVENUE $500

The economics of a new management UPFRONT YEAR 1 $1,400 40% REVENUE $500

The economics of a new management UPFRONT YEAR 1YEAR 2YEAR 2 $1,400 40% REVENUE $500

The economics of a new management UPFRONT YEAR 1YEAR 2YEAR 2 YEAR 3YEAR 3 $1,400 40% REVENUE $500

The economics of a new management UPFRONT YEAR 1YEAR 2YEAR 2 YEAR 3YEAR 3 YEAR 4 YEAR 4 $1,400 40% REVENUE $500

The economics of a new management UPFRONT YEAR 1YEAR 2YEAR 2 YEAR 3YEAR 3 YEAR 4 YEAR 4 YEAR 5YEAR 5 $1,400 40% REVENUE $500

The economics of a new management UPFRONT YEAR 1YEAR 2YEAR 2 YEAR 3YEAR 3 YEAR 4 YEAR 4 YEAR 5YEAR 5 $1,400 40% YEAR 6YEAR 6 REVENUE $500

The economics of a new management UPFRONT YEAR 1YEAR 2YEAR 2 YEAR 3YEAR 3 YEAR 4 YEAR 4 YEAR 5YEAR 5 $1,400 40% YEAR 6YEAR 6 $500

The economics of a new management UPFRONT YEAR 1YEAR 2YEAR 2 YEAR 3YEAR 3 YEAR 4 YEAR 4 YEAR 5YEAR 5 $1,400 40% YEAR 6YEAR 6 PROFIT $500

The economics of a new management UPFRONT YEAR 1YEAR 2YEAR 2 YEAR 3YEAR 3 YEAR 4 YEAR 4 YEAR 5YEAR 5 $1,400 40% YEAR 6YEAR 6 PROFIT $500 COSTS

Consider: o A property at $500 p.w property at 7% o = approximately $2,000 in annual income o And is worth around $5000–6000 The economies of a new management

What would you pay for that? o Part of the leasing fee? o Borrow money and buy it from a competitor? o Employ someone? The economies of a new management

We believe in growth

A team dedicated to growth Run as a sales team Compensated as a sales team We believe in growth

Why can’t my PM grow the rent roll?

A “high” base Commission of 0.5 or 1 week of rent A “hurdle rate” to qualify Commission less than ¼ of package A traditional model

Traditional Model Many ideas for commission options  Upfront Commission

Traditional Model Many ideas for commission options  Upfront Commission Trail Model  A small up-front payment and then a recurring payment each month

Traditional Model Many ideas for commission options  Upfront Commission Trail Model  A small up-front payment and then a recurring payment each month Instalment Model  A large sum payment, paid in instalments over 2 years

Some Scenarios

Creative packages can be profitable

We have found models that do not send the agency broke

The scenarios are cheaper than buying rent rolls

Note: These models also show you can get it very wrong

In summary Growth prospects are real: enormous valve potential

In summary Growth prospects are real: enormous value potential The BDM is a sales role, and should have a package that reflects that

In summary Growth prospects are real: enormous valve potential The BDM is a sales role, and should have a package that reflects that There are creative ways to structure an aggressive commission package

Realising the value of growth to your business Being creative about growth Accepting passive growth