structuring commission in business development lisa pentland

Structuring Commission in Business DevelopmentLisa 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?


• Are you prepared to do the things you need to do to hit your targets?


• Are you prepared to trade off profit for growth?


• Are you prepared to do the things you need to do to hit your targets


• Are you prepared to trade off profit for growth?

• Do you have the capabilities for hyper-growth?


3. The role of BDM

• It is a strategic role

3. The role of BDM


• Must extend the agency’s client base

3. The role of BDM



• Is a sales function

3. The role of BDM



• Is a sales function

• Is an investment

• Clear view of the sales function:o Engagemento Conversion rates

4. Measure everything

• Performance:o Days on marketo Vacancy rateso New managements

4. Measure everything

• Financial:o Average recurring management feeso 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

vvA Typical Market

A Typical Market…

• 12,500 homes• 3,750 rental properties (@30%)• 2,500 professionally managed properties (@70%)• $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


UPFRONT

$1,400

40%

REVENUE

$500


UPFRONT YEAR 1

$1,400

40%

REVENUE

$500


UPFRONT YEAR 1 YEAR 2

$1,400

40%

REVENUE

$500



YEAR 3

$1,400

40%

REVENUE

$500



YEAR 3

YEAR 4

$1,400

40%

REVENUE

$500



YEAR 3

YEAR 4

YEAR 5

$1,400

40%

REVENUE

$500



YEAR 3

YEAR 4

YEAR 5

$1,400

40%

YEAR 6

REVENUE

$500



YEAR 3

YEAR 4

YEAR 5

$1,400

40%

YEAR 6

$500



YEAR 3

YEAR 4

YEAR 5

$1,400

40%

YEAR 6

PROFIT

$500



YEAR 3

YEAR 4

YEAR 5

$1,400

40%

YEAR 6

PROFIT

$500

COSTS

• Consider:o A property at $500 p.w property at 7%o = approximately $2,000 in annual incomeo 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?

Property Manager Salesperson

Great communication and conflict resolution skills

Great communication & negotiation skills

Task oriented People oriented

Time & task management ability Ability to build new relationships

Great attention to detail & accuracy Exude confidence, be convincing & persistent

Computer skills Networking skills

• 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


Upfront Commission

Trail Model A small up-front payment and then a recurring payment each month

Traditional Model


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

Low-growth 5PM (+-1)

Medium-growth 10PM (+-3)

Hyper-growth 20PM (+-5)

Traditional Model $65k $70k $75k

Trail Model $75k $130k $160k

Instalment Model $65k $110k $150k

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

structuring commission in business development lisa pentland

Documents

potential slide

strategic role slide

investment slide

process slide

strategic growth slide

new thinking slide

typical market slide

sales function slide