It’s time we start thinking about apartment leases in the same terms as software subscriptions.
In the U.S., on average, well over 40% of leases turn over per year. Turnover creates a higher staffing cost for leasing agents and maintenance engineers. Turnover complicates efforts to build a sense of community in properties. Turnover forces lease concessions and sweeteners. In the end, turnover can easily cost the property between $2500 and $5000 per unit, which is higher than the cost to maintain tenants. By a lot.
In the world of subscription software (also known as software-as-a-service, or SAAS), turnover is known as churn, and churn is one of the greatest enemies to a company’s success. Software companies do everything they can to prevent churn. They hire customer success teams to periodically connect with users to review their feedback, deploy advanced analytics to optimize the design of their software, create customer focus groups to better align their product development choices, offer subscription renewal discounts, showcase clients on their websites…the list goes on.
All this work begs the question: if software companies go to such great lengths to maintain industry benchmarks of 5–10% churn, why are real estate developers so comfortable with a whopping 40% churn? Aren’t leases just apartment subscriptions?
The truth is, real estate professionals have historically viewed the transience of their customers as inevitable: they feel tenants come and go, that’s just what they do. These execs spend more on customer acquisition — shiny screening rooms, state-of-the-art fitness centers, and trendy roof decks — than on retention.
Whether or not this mindset once made any economic sense, demographic shifts have changed the game. The Great Recession, a change in lifestyle choices, and many other factors have increased the share of renters across the U.S. rental market. It’s also the case that renting by choice, for a longer period, has increased in popularity. The opportunity to retain tenants in 2020 equals significant dollars.
So, what can multi-family real estate learn from subscription software to improve turnover?
Find out what’s valuable. Most software companies will develop systems to collect regular consumer research to improve their services. I’ve learned from building Livly that conveniences have over-sized positive impacts on resident life. For example, it’s hard to measure just how much tenants value easy, technology-driven move-in experiences–way more than a sauna they will hardly ever use. Survey your tenants, hold informal research conversations, and don’t let assumptions guide your investment decisions. Surveys can feel like email spam, so try and find casual moments to connect with residents.
Check in. In the subscription software business, customer success teams build a calendar of regular touch points to course correct on any negative experiences. Your team has a greater opportunity to affect the sentiment of tenants if you get feedback early on in their leases. You can do this the old-fashioned way through a simple phone call or collect feedback via a more scalable platform like Livly.
Be present. In software, always-on support is a difference maker for renewals. Most technology companies have systems to triage any support request, depending on the relative urgency of the request. In real estate, an easy-to-use communication channel that is in-line with consumer expectations will create a much better “support” experience for your tenants. This communication includes regular one-to-many notices like important building announcements, and modern, one-to-one chat channels for sensitive resident issues. Make sure your chat technology is as easy as a Facebook message or your residents will not use the service.
If you think about your business like any other subscription, you’ll realize that some investments will promote lease signatures (customer acquisition), some will hit hard on turnover, and the best moves will entice residents to join and stay in your properties. If you can effectively figure out what matters most to your tenants, day-in and day-out, find consistent touch points to collect feedback, and a hospitality level of responsiveness to any tenant concern, you will have a healthier apartment subscription business.