How can letting agents review their fee structure?

Our recent roundtable on the government’s proposed ban on tenant fees generated a range of tips for growing your business.
 
We recently discussed how you can review you cost base and this week, we’re examining how to review the fees you charge.

Here's five tips to get you started...

Review alignment with your business values
 
A great place to start your review is by ensuring that your fee structure is aligned to your business values, as this will help you to build client trust.
 
For example, there’s no point in claiming to offer the most competitive fees in your area if you charge way beyond those of your closest rival.
 
Equally, if transparency is at the heart of your business ethos, you must take care to create a simple and clear fee structure that reflects this value.
 
Remember, your starting point should always be an assessment of your business values and never simply an aim to undercut your competitors, particularly if they operate in a completely different market place.
 
Consider your market position
 
There is a very good reason why you should avoid becoming preoccupied with undercutting your rivals’ fees: it’s rarely sustainable.
 
You must first assess whether your fees suit the market place in which you operate.
 
Yes, an 18.5% property management fee sounds great, but if you’re operating in a market in which rents average, say, £300 per calendar month, they’re unlikely to win you any business. Even if they do, you’re unlikely to be able to retain these clients for long.
 
This may sound obvious to many of you, but it’s surprising just how many agents set unsustainable fees as a result of becoming blindsided by an obsession to undercut their rivals.
 
Review your business expenses
 
Your business expenses will fluctuate over time, which is why you should regularly review your fee structure. 
 
You need to ensure that you build into your fees any increase in your expenses.

You should by now have a clear idea of your major business expenses, from the cost of your office space to your staffing, after reviewing your cost base.
 
You should also consider ongoing costs relating to staff training, professional development and professional body membership and build these into your fee structure, too.
 
Communicate your fees
 
How do you communicate your fee structure to clients? 
 
Can you clearly explain the structure? 
 
Is your communication clear and transparent? 
 
A sure-fire way to ensure that your structure makes sense is to get an independent (i.e. non-industry) point of view, to help you identify any gaps in understanding. 
 
Call on an acquaintance in your business network; that’s what they’re there for!
 
Leave some wriggle room 
 
Most clients will try their luck and attempt to negotiate a lower fee for the service they’re after, which is why you need to leave some wriggle room in your fee structure. 
 
This means calculating a fee that appropriately and accurately reflects the points above (your market position and business expenses), but one that also builds in client haggling and the possibility of you having to agree a lower fee to win business. 
 
But before doing this, you should calculate your bottom line figure, i.e. the lowest fee you can charge without doing yourself out of pocket.
 
This all said, you must ensure that your fee structure is legally compliant, which means ensuring that, for example, it complies with the government’s tenant fee ban, assuming it comes into force in the future.

*Nigel Poole is Founder and Managing Director at Eurolink Veco™