Magazine article Journal of Property Management

How to Justify Your Advertising Expense

Magazine article Journal of Property Management

How to Justify Your Advertising Expense

Article excerpt

When an owner sits down to decide whether to give approval for your advertising budget, that owner looks at every category of expense: capital expenditures, salary line items, utilities, and taxes.

You must be able to make your case to keep your advertising line item healthy - but not inflated or unreasonable. To know what to ask for and how to support your request with solid information, you have to understand what it takes to make the property do well, and what it costs to make it happen.

The financial statement

First, get your hands on the financial statement for your property. You should have access to the entire statement, not just your budget. The reason being, you need to see the big picture and to be more than just conversant, in order to show justification for your budget. The financial statement becomes your point of reference relative to other expenses.

How important is this first step? An owner in Denver recently called me. He had 24 vacancies and was worried. "The market is great," he said. "This shouldn't be happening."

I asked him to fax me his financial statement so that I could study it, comparing the budgeted amounts to the actual money spent. When I reached the maintenance line item for repairs, I found the problem: they were underspending by 60 percent.

Given that owners do not allow maintenance repairs to be over-budgeted, this told me that there were not enough apartments being turned over. I called the owner back and said, "You don't have market-ready apartments." He thought I was wrong, so I asked him to check on it, and to send me the property's traffic reports in the meantime.

Total monthly traffic

The first calculation I did using the traffic reports was to see if they had a 20 percent ratio of traffic to units. For example: 200 units x .20 traffic/units= 40 pieces of traffic, qualified and unqualified. Twenty percent should be walking through the door in a month. You should have that provided you are still advertising, marketing, and keeping up with curb appeal. If you are not getting 20 percent, what you are doing with marketing needs to be changed.

The owner in Denver had 20 percent, and his ads clearly targeted his market by including prices. Therefore, he did not have a marketing problem, he had a sales problem. The sales professionals were paralyzed by their inability to show product that met the consumers' expectations. Logically, that meant that they closed fewer sales.

Analyze traffic by unit requested

Let's say that you are in charge of advertising for a community of one- and two-bedroom apartment homes. You have the 20 percent traffic-to-units ratio from the previous example. That gives you 40 people walking through the door, which is what you should have. But you have 10 available one-bedrooms, market-ready, that simply are not moving.

It is now time to break down your traffic report by the kind of apartment your prospective residents are requesting. The following is what you discover:

Type of apt.   No. available   No. requested

One bedroom         10               2
Two bedroom          4              15
Three bedroom        0              20

Behold, the problem: There are no three-bedrooms available. You are getting traffic that wants what you don't have. This tells you that the advertising is not targeting a one-bedroom client, and it is time to rework your ads.

Vacancy loss into seed money

Let's assume that the community has lost $30,000 in a 12-month period. As a marketer, I look to see how I could break the loss in half. In this case, half is $15,000. Of this, I "give" the owner half (25 percent of the total) to put toward the bottom line. That leaves $7,500 that I can be proactive with, and the owner will still be ahead $7,500. (Remember, if I do nothing, he or she will still be down by $30,000.)

You will always have some loss, but the key is to reduce it to 3 percent overall for the year. …

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