In the world of multifamily housing, where pricing strategies can make or break performance, one quote from our CEO Donald Davidoff cuts through the algorithm, comp data, litigation noise with startling clarity:
"The meat and potatoes is leases and leads. If I knew nothing but the leases and leads, I could design a better revenue management model than if I knew everything perfectly about the comps."
This statement, made on Dom Beveridge’s 20for20 Talk Tech podcast in October 2024, challenges conventional wisdom pushing the industry to rethink how it approaches pricing and revenue management.
Here, we'll explore why focusing on leases and leads, rather than obsessing over competitor data, is the key to smarter, more effective pricing strategies.
The Core of Effective Revenue Management: Leases and Leads
At its essence, revenue management is about understanding and optimizing demand and supply. Leases and leads are the lifeblood of this equation:
- Leases: A direct indicator of demand (and supply). Tracking lease trends tells you which units, price points and floor plans resonate with renters.
- Leads: A real-time gauge of prospective resident interest. Leads provide a window into your pipeline health and the effectiveness of your marketing efforts, and lease-to-lead ratios are critical for translating lead pipelines into accurate lease forecasts
By focusing on these internal metrics, operators can make more informed pricing decisions. For example, a sudden spike in leads for a specific unit type could signal untapped demand, suggesting an opportunity for a price adjustment—or an urgency to address operational bottlenecks.
The Problem with Overemphasizing Competitor Data
The multifamily industry often places too much emphasis on competitor pricing. While it’s tempting to mirror the market, this approach can backfire:
- Risk of Misguided Strategies: Competitor pricing doesn't reflect your property’s unique attributes, location or demand patterns. Blindly following the competition can lead to missed revenue opportunities—or regrettably, tieing your pricing to your worst competitor.
- Comparing Apples to Oranges: There are many non-market related things that affect a competitor's price—different business objectives, staffing issues, maintenance issues, online reputation, poor expiration management, etc. Over-indexing on competitor data risks over-reacting to signals that have nothing to do with underlying supply and demand
- Guardrail, Not Steering Wheel: Competitor data should act as a safety net, ensuring your revenue management system doesn’t don’t deviate too far from the market without human approval. But it shouldn’t dictate your pricing strategy. Your internal metrics, leases and leads are the true compass.
Think of it this way: relying too heavily on competitor data is like driving while staring at the car beside you instead of the road ahead. You’re bound to veer off course.
Lessons from Other Industries
Multifamily housing can take a cue from industries like airlines and hotels, where revenue management has evolved into a fine-tuned science. These sectors prioritize internal metrics like bookings and demand forecasts, over external comparisons. The result? Pricing models that are not only more accurate but also more resilient to market fluctuations.
For instance, airlines focus on seat occupancy and booking curves to adjust pricing dynamically. Similarly, multifamily operators could benefit from placing leases and leads at the center of their revenue management models, treating competitor data as a secondary check rather than a primary driver...or even just as a “sanity check.”
Designing Smarter Revenue Models
What would a revenue management system built around leases and leads look like? Here’s the vision:
- Prioritize Internal Metrics: Algorithms should weigh leases and leads more heavily, using competitor data sparingly and maybe just as a contextual layer.
- Real-Time Adaptability: Systems should update pricing based on live lead activity and leasing velocity, enabling operators to skate to where the puck is going, not where it is.
- Actionable Insights: Dashboards that highlight actionable trends in leases, leads and availability empower teams to make swift, data-driven decisions.
For operators looking to implement this approach today, start by auditing your current data streams. Are you tracking leases and leads effectively? How often are these metrics incorporated into pricing decisions? The answers to these questions will guide your next steps.
Now’s the time to reevaluate your pricing strategies and embrace this fresh approach to revenue management. The future of multifamily success lies not in chasing the competition, but in mastering your own game.
To dive more deeply on the topic of competitor data in multifamily, be sure to tune into the replay of Donald’s podcast interview here.
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