Cost/Benefit

Today I wanted to briefly review a tricky subject – the economic payoff of an amenity. Whereas the cost of an amenity, if there is one, is pretty straightforward, the benefit is more intangible and may not immediately materialize.

As I mentioned in the very first blog post, more and more amenities are being implemented at no cost to the property. There are exceptions however, where an installation needs to be paid for by the property, or a service for the residents is subsidized by the property, as just a few examples.

For these types of amenities with an upfront cost, the first question that is usually raised in exploratory meetings is whether there is the budget for it.  If the property hasn’t budgeted the necessary marketing or promotional funds, bringing the amenity in will generate a negative expense variance. Sometimes this outcome will prevent a great amenity from being implemented.

Having been responsible for a number of budgets, I can’t argue with that logic per se, but I would also argue that there are more factors to consider.

Generally speaking, amenities are not revenue generators. Their economic payoff comes in the form of retention and converting residents into net promoters of the property.  Measuring this is not easy.

Amenities providers themselves have become much more skilled in surveying residents and isolating the impact their amenity is having on the residents’ experience.

Surveys at the time of lease renewal or when a resident decides to vacate can be invaluable in determining the reasons for those decisions. Carefully worded questions about what role a particular amenity played in a resident’s decision to renew can shed some light on how the payoff is being translated into retention.  Further questions about how likely a resident is to recommend the property to a friend can illuminate how an amenity is contributing to the community at the property.

From there, the property can determine the saved costs of new resident acquisition, and these saved costs can be a proxy for economic benefit.

It can be a winding process to make these calculations and there is usually not a time when you can stop and say definitively what the economic benefit of an amenity has been.

But there is certainly more to a decision about an amenity than simply looking at the expense budget. If you’re in the process of contemplating new amenities and are concerned about the budgetary impact or about how to measure the payoff, we can help. Please contact us at julian@jdfmc.com.

Vending Machines

Our post today is about an amenity that has experienced dramatic modernization and diversification in the last several years – vending machines. Today’s vending machine options embrace variety, technology, and convenience, and more innovations are constantly being developed.

Vending machines can be installed almost anywhere in a building, with an obvious preference for high traffic and high visibility areas, such as laundry rooms and lounges.  Usually a wireless signal is needed for credit card transactions, which sometimes rules out spaces in basements. It is also very useful if vending machines are easily mobile, with wheels and no need to bolt it to a wall or floor. A few newer vending companies are even working directly with real estate developers during the design and construction phase to work more expensive, modern-looking vending machines into the building’s designs.

The majority of vending machines in service today still resemble the traditional, timeless machines with staples such as candy, chips, and soda.

Healthy, fresh food and healthy beverages have grown into a sizable segment of the vending industry now.  Health food options have been around for years but only recently have vending companies figured out how to make those inventory lineups profitable. Certain vending companies advertise special distributor relationships that allow them to stock inventory that only Whole Foods carries, for example. Such points of differentiation, diverse inventories and creative inventory procurement practices are changing how food is sold in vending machines.

By reimagining and repurposing the basic vending machine technology, new companies are now selling pet supplies, makeup, toiletries, electronics, bike supplies, and clothing in vending machines. These types of concepts can be used to bring in to a property local, unique, and useful products that have never before been sold in the vending format.

All vending companies will provide the machines at no charge. Commissions and revenue shares appear to be disappearing from the deals I have seen, however it all depends on your portfolio’s size and how bad a prospective vending company wants to do business with you.  Some smaller shops with more expensive and unique inventory items request financial support to ensure they are breaking even, which makes sense if you envision vending as an amenity for your property.

But whatever financial arrangement you work out, make sure your contract or license agreement clearly spells out requirements on inventory replenishment and service. On this point, a vendor’s scale is important. A national or regional vending company probably has a better logistics system and is able to replenish inventory and fix broken machines quickly. On the other hand, these bigger players are far less likely to offer you a revenue share, and also tend to offer more traditional vending machines, and fewer of the healthy and unique, creative options.

Most vending companies now have real-time inventory software platforms and will give out user accounts to clients, so you can see real-time sales and inventory levels.

If you’re in the market for vending machines in your portfolio, options abound. For introductions and assistance bringing vending options to your properties, please contact us at julian@jdfmc.com.