The ROI on renter retention
What’s it worth to keep your tenant for one more month?
This was a question I got asked and it forced me to sit down with a piece of paper to think it through. It’s often said that loyalty matters, but does it make your business more profitable?
Here’s how I calculated the costs and profits of tenant loyalty and retention.
Firstly for any one tenancy write down all your fixed costs which occur once in each tenancy. These are things you have to pay regardless of the length of tenancy. So the agent commission, the legal lease costs, advertising the rental, end of tenancy cleaning and so on.
Now write down the variable costs which occur every month. These can include the bank fees you get charged each month for receiving payments, the agency fees, any service charges or body corp fees, or ground rents.
The last set of costs are variable and relate to property maintenance - these could include servicing a boiler, or gardening charges. Some of these recur and others you cannot predict such as when an emergency happens.
So you have got all your costs. Now add them up and compare them to the rental income you receive each week or month.
The way to find the value of one more month of a tenancy is to focus on the fixed costs - if these are spread over a 6 month lease, divide the total by six. If they are spread over a 12 month lease, divide by 12. Just do a little experiment and see how much they reduce if you divide them by 13 months, or 15 months. You will find out how much more income the landlord will get per month and that’s the increased return on investment per month.