Improving profitability in strata: 3 practical tips

The strata industry has seen steady growth over the last two decades, without a need to evolve business models. However, the pressure to find talent is intensifying – and it’s impacting profit.

“From speaking with our strata clients, we hear that the average profitability in the industry is down, yet higher performing firms are able to achieve higher margins,” Macquarie Business Banking’s National Head of Strata, Tim MacKenzie explains. “The key difference is how staff costs are managed, as increases in staff costs are outpacing revenue growth.”

Here are three ways you can strengthen your business – and improve its profitability.

Taking stock

To lift revenue, start by tracking the drivers of profitability of buildings within your portfolio – your pricing, services and levels of demand on staff.

“Managing some buildings may cost you more than what you’re charging, so letting go of the parts of your portfolio that will continue to lose you money down the track could lift your profitability,” Tim suggests.

Strata businesses were managing a growing number of lots in 2019 – 4,906 on average, up from 3,275 in 2015.¹ Is your staff structure set up in a way that helps manage all that work efficiently? Calculate your efficiency level by dividing the number of full-time staff you employ, across all roles, by the number of lots in your portfolio.

“This is a really good metric for capacity. And it helps you work out how to best structure your teams,” says Tim.

The average industry efficiency benchmark in 2019 was 365 lots per full-time staff, while high performing firms were managing 415.¹ If you’re under the average, you should have excess capacity and can confidently seek new business.

If you’re at optimum efficiency, check whether you have the right talent doing the right roles. Are your premium salaries targeting the most important tasks, such as engagement, communication, and relationships? Or are they spending time on routine back-office and admin?

“This will help you plan for the year ahead and focus on how to get the most out of your biggest expense – people,” Tim explains.

Diversifying revenue

On average, strata management firms have access to a client base of over 3,000 landlords, according to Tim. They may have problems and needs beyond the scope of your traditional offering.

“By finding a simple way to make life easier for clients, you can build additional profit streams, improve engagement and add real value,” Tim says. Diversification can also differentiate your business from others and help you build brand awareness.

Brisbane-based strata management business, The Community Co, identified a gap for smaller blocks of 30 or fewer apartments. Larger apartment blocks have access to energy discounts through their own embedded network.

“We reached out to the energy market and offered to open up our portfolio so they can group everyone together, no matter what building they’re in,” George Salloum, Executive Director, The Community Co explains. “By creating one energy procurement network, clients from small blocks have access to up to a 40% discount on their energy bill.”

For Salloum, listening to and solving a customer problem resulted in an additional revenue line that will help boost his firm’s profits.

Looking at opportunities like these is business as usual for Perth-based strata firm, Pro-Active Strata Management. Three years ago, it launched an insurance brokerage service to clients, and is also working on two new business lines to help meet client needs.

“We can service our clients as good strata managers, but we also need to find other areas to add value,” says Director James Donnelly of Pro-Active Strata Management. “With pressure on fees within the core business, you’ve got to make sure you have a few other bases covered.”

Optimising costs and retention

Tim said that from speaking with our strata clients, we know that staff retention is still a major issue in the industry, and recruitment costs are on the rise. To avoid competing on salaries in a scarce talent market, it’s important to think creatively about staff rewards and employee experience. In high performing strata businesses, remuneration structures tend to be aligned to business profitability, for example.

Flexibility is also high on the list of strata employee demands, and COVID-19 has proven this can be done without impacting productivity.

“Building staff welfare into the appraisal process, so you can help staff maintain their physical, mental and financial wellbeing,” Tim suggests. “Include personal goals in the process, so managers keep these conversations going.”

Using technology can also improve efficiency within your teams. The Community Co has developed its own technology to support its processes, helping keep costs low and freeing up employees to build relationships.

“A good relationship for us means understanding a client’s problem and solving it quickly. Technology enables us to do that. The digital knowledge bank we have built over the years, for instance, helps us address any question within minutes,” Salloum explains.

And moving internal communications into their project management system has also reduced staff emails by around 87% for The Community Co.

“Typically for an organisation of our size in the industry, we should have 20% more staff. Technology has allowed us to reduce costs and stay efficient,” says Salloum.

Practical employee initiatives and innovative use of technology can also help you attract future talent.

“Prospective employees will ask questions like, ‘do you provide workplace flexibility? What’s this firm really about, what’s their purpose?’. So putting these measures in place is important,” says Tim.

Ultimately, business growth can only come by taking care of your biggest asset, your people. These simple ideas can also help you make sure those people are efficient, engaged and set up for success. And that will help you build a more profitable and sustainable strata business.

If you would like support with understanding your business profitability levers, speak to your Relationship Manager or call 1800 620 673.

1 Macquarie Bank, Strata Management Benchmarking Report, 2019
This information is issued by Macquarie Business Banking, a division of Macquarie Bank Limited AFSL and Australian Credit Licence 237502. It doesn’t take into account your objectives, financial situation or needs, nor is it intended as a substitute for any accounting, tax or other professional advice, consultation or service – please consider whether it’s right for you.