An industry friend recently wrote to ask why I hate revenue management so much.
He knew about my personal experience—a public REIT raised my rent 50% last year, which killed any possibility of retention. But he took the debate a step further and questioned how MFE could dare report on rent growth trends while the other side of my mouth trash-talks revman.
It’s a hell of a question, a good debate to have—especially now, as rents rapidly and unsustainably outpace wage and income growth—and I appreciate that he returned my provocation in kind.
So here goes: some operators treat people like cattle, and the software not only justifies that behavior, it can promote it. Here’s my argument served three ways, leading with a bleeding heart.
The Emotional
Revman was first developed for the hotel, airline and rental car industries—but housing isn’t analogous to those commodities, not even hotels. Housing is a basic human need, and deeply intertwined with one’s quality of life.
The price somebody pays for a hotel room in Hawaii is trivial compared to a family being uprooted because a software program suggests somebody else is willing to pay a little more. As an industry, we pay so much lip service to customer service, but revman says the customer serves us, serves at our disposal, not the other way around.
When we hit them with ostentatious rent increases, we’re hitting them where it hurts. Their hearts are where their home is, and vice versa. But revman was invented in part to take emotion out of the process, so …
The Philosophical
We call this product “an apartment home,” because “home” sounds better than “unit,” makes people think we care. But, what exactly are we pricing? Is it the space that people live in, four walls and a roof? Or is it the people themselves?
Is it the house or the household that’s really the commodity?
An argument could be made that what revman really measures is a head-of-household’s worth, their (theoretical) capacity to absorb unlimited rent increases.
I think at a certain level, you have to abstract the fact that these are human beings. You have to forget that your community is where their babies took a first step, or the threshold a new bride was carried across, or where grandma said her last words …
You have to commoditize renters—suspend the Golden Rule—if you really want to optimize revenue. But when should that optimization occur in the space/time continuum?
The Logical
If you trade renters like day-traders flip stocks, then all you’re ever going to get is short-term peaks and valleys. But housing is a long-term relationship.
Couldn’t we make as much money by keeping a household in place, by taking a longer-term view, rather than forcing turnover for a few more short-term bucks? Because when the next recession comes, revman will drop prices to get occupancy, just as quickly as it raised them. And the net effect could be a neutralization of the previous gains.
Couldn’t a slow, smart and steady increase basically amount to the same or possibly more revenue over a longer period of time? Renters don’t stay forever, sure, but we should try to create customers for life, not customers du jour.
Another risk: by taking emotion out of the process, we’re only inspiring more negative emotions, more anger on a rating and review site. But an angry rant is just one voice. If enough people make enough noise then all of the sudden, those dirty words—rent control—are uttered by legislators.
And I’d never argue for that. And I’m not arguing against the technology itself—it’s a great product, an effective tool.
What I’d argue is that big money isn’t always smart money, that conventional wisdom isn’t always wise, that there’s a distance between good money and good business that can’t be measured by software, but that could redound to a higher bottom line.
