An article by Hamish Turner (NZ).

Discounting within the industry is unfortunately very common. The most common form of discounting has property management agencies discounting, or indeed removing altogether, fees including routine and administration fees, or advertising fees. The most common fee discounted is of course, the management fee with the average fee take within New Zealand hovering around the 7.6% (plus GST) mark after the average discounting of 1% - 1.5% management fee. This equates to a 10 - 15% discount.

So, what are the real costs associated with discounting fees? Profit margins throughout the management phase. Cash flow gets minimised. Capital value of the rent roll decreases as a result of discounting fees.

In essence, a business that discounts its management fee revenue simply has to manage higher volumes of clients in order to get the return that they would if fees were not discounted. In a lot of cases this means service levels get compromised.

For the most part discounting occurs due to trying to compete with other agencies. With profit margins running at an average of 20 - 25%, there is very little room to discount. So, what are some techniques to get around discounting fees?

Providing standard introductory free or discounted periods is one option, and one that works reasonably well. Another form of overcoming discounting fees maybe to provide free landlord insurance for the first 12 months. Or it may be as simple as gifting the new client with a voucher or gift certificate of sorts for bringing you their business.

In addition to this, there are a number of techniques and systems that can be put into place to train staff on not discounting fees. Instead of dropping your fees to compete in your market place, perhaps a view of being the best and charging a premium for being the best could be adopted opposed to discounting your fees?