Peter Lohmann's Mailing List - Issue #57

Customer Churn: An Update

At the beginning of this year I wrote a very raw email describing the loss of several major clients, totaling over 130 units, and my plan to attack the problem.

It’s time to provide an update on our company growth, specifically churn. Did we get our churn problem under control?

Note these are unit churn calculations (we track client churn in a similar way, but separately). I’m undecided on which metric is more useful to track. Which do you prefer?

My conclusion here is that we’re mostly back on track. Since February, our churn has averaged ~1.5% per month, which works out to 17.6% / year if you annualize it. Certainly an improvement over any recent year, and works out to an average client tenure of almost 6 years.

That said, we’re still churning more than I would like, and our overall growth has stalled this year. The central Ohio real estate sales market stubbornly remains red-hot, so that’s not helping.

What Worked?

In that email I wrote in February, I outlined 6 things we planned to do as we tried to fix the churn problem:

1. Making adjustments to our P&L to stay healthy while we rebuild. Done. This made a big difference.

2. We’re leaning heavily into technology partners that un-silo information and build resilient processes. That means going all-out with Property Meld, LeadSimple Process & Inbox, and Airtable. Done. This has been a game-changer for our team.

3. Restructuring our “Property Management” department into 3 functional groups: Tenant Ops, Client Ops and Customers Service. Done. Too early to say for sure, but this seems to be a better arrangement for us and our clients.

4. Documenting & chasing down the source of errors aggressively. Done. Our error rate has dropped tremendously. Shoutout to APM Help who helped us clean up our trust accounting and does daily bank recs & monthly triple ties for us. Client complaints about accounting have almost disappeared.

5. Getting extremely focused on metrics that have an outsized effect on our clients, such as “Time-to-Turn” and “Days-on-Market”. Done - HUGE - see below.

6. Considering a free “Signature Program” for 10+ unit clients: Not done but under active discussion.

Vacancy Discussion

I want to talk about vacancy for a moment (number 5 above).

You can think of your vacancy as having 2 parts: Time-to-Turn, or TTT (from when you receive possession, to when the unit is listed for rent) and Days-on-Market, or DOM (from the day the unit is listed, until the day the lease is signed). There’s a bit of extra vacancy on end of that (waiting for move-in) but I won’t discuss that today.

Not only does vacancy affect your owner’s bottom line (and sanity), but extended vacancies also drag down your management company. The longer your average total vacancy, the more vacant units you have at any given time, all else being equal. Vacant units are MUCH more management-intensive than occupied units, so you end up having to staff up more than you otherwise would. Bad!

Our company had a big problem with TTT and DOM and for years, we didn’t even know it because we didn’t track these metrics anywhere! Our property management software does not report them (a criminal oversight). So we started manually tracking this data after realizing the issue.

The old saying “what gets measured gets managed” is true, it turns out. Reporting on these metrics at our weekly L10 (and assigning someone to be responsible for them) was almost all it took to start things moving in the right direction:

The chart is a bit small, but it’s showing that year-to-date, our median TTT dropped from a high of 46 to 21 days, and our median DOM dropped from a high of 42 to as low as 15 days. Interestingly, you can almost see our leasing team struggle to keep up as DOM keeps dropping and dropping!

Segment Analysis

As we dug into our churn numbers, I started wishing we had more granular data about our churn so that could answer questions such as:

• Do multifamily owners churn more often than single-family owners?

• Do investors churn more often than accidental landlords?

• Where are the churn breakpoints… eg, if we can get an owner to 90 days, do the odds of them churning go down?

• Is churn seasonal?

• Are there any correlations with property age or location?

• Is it possible to predict churn by looking at expenses or patterns in the frequency of owner communication?

Right now, we don’t have the ability to answer those questions. But I’m working on setting up our systems to be able to look at this in the future. Brandon Scholten has a nice “exit form” that he makes the property manager fill out any time a client churns. I’ll probably be copying this to start (shared with permission).

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Media Roundup

• I was a guest on the Barstool Investor podcast and we got into a LOT of great topics. If you want to hear someone turn the mic on me (instead of hearing me interview others), check this one out. Watch it on Youtube or listen in Apple Podcasts or Spotify.

• Catch the new issues of my property management podcast, Owner Occupied, every Wednesday for the next couple months as we continue season 3 on Operations. This week’s episode was Brad Larsen, who manages over 1,000 doors with just an hour or two a week of his own time.

Industry News & Events

• Applications for Crane are now closed, but you can add your name to the waiting list here. We received over 90 applications! If you applied, check your email later today.

• Trust Accounting: Get It Right or You’re Done. I’ll be discussing the ins and outs of trust accounting on this PayProp webinar, including my “iron law of trust accounting.” Thursday 9/14 at 1pm ET.

• Next month! Re-Convene real estate “Un-Conference”: $500 Off (enter your email to access purchase page, then promo code “PETER23” for the discount). (I’m on stage.)

• Property Meld user summit: Buy-1-get-1 Free (enter code BOGOMX23)

• LeadSimple University user summit: $250 Off (I’m a keynote speaker).

Closing Thought

Go check out this fascinating thread by Gabe on hiring property managers, trying to become a property manager, and his conclusions.

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That’s all for this week! -Peter

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