Growth Metrics For Property Management Entrepreneurs
Episode #16 is out today:
Today, we’re wrapping up season one, which has been all about marketing.
We’ve had a ton of great guests that have dissected property management marketing from pretty much every angle and on this episode we bring it full circle by going deep on the growth metrics that will make or break your marketing efforts.
Our two guests for this episode:
- Brad Larsen – Rentwerx is growing a door a day in San Antonio, TX.
- Daniel Craig – Profit coach & lead analyst on the Property Management Benchmarking Study
As an industry, we don’t spend enough time talking about the growth metrics that really matter. I’m not talking about website visits or how many leads you got last month (although I hope you’re tracking that).
This episode is all about digging into the core growth levers that will help or hurt you regardless of what marketing strategy you put in place.
In addition to what we covered in the interview, here are three things worth checking out:
- Property Management Industry Financial Benchmarking Study (Sponsored by LeadSimple)
- KPI Dashboard Template (Reporting framework Brad uses to run Rentwerx)
- Brad’s podcast Property Management Mastermind
- Why the industry needs clarity into what matters
- In the absence of clarity, we tend to default to the lowest common denominator type of thinking
- “I just need more leads”
- Unless you’ve solved all the other challenges, more leads is not the answer
- Need to remove the other bottlenecks
- Running your business off your gut paralyzes decisive action and growth
- Need to know what metrics to focus on if you want clarity
- Need to get everybody on the same page when it comes to terminology
- Without uniformity across the industry, it’s hard to compare in a meaningful way
- Unit economics
- Understand the micro so you understand the macro
- The direct revenues and costs associated with a particular business model expressed on a per unit basis
- Answers the basic question, “Can I take in more income from my clients than it costs me to acquire and service them?
- How can you look at your business through this lens?
- Get your financial data organized in a helpful way
- Know your operational data
- Need to be able to quickly identify all of your monthly costs on your PnL
- Lay the data over your unit information using 3 dimensions
- What your beginning unites under management are each month
- How many units you added over the month
- How many units you lost over the month (churn)
- Average churn should be 15% annually
- How do you act on this data?
- Need to get into the weeds to understand what the numbers are saying
- Identify the service issues that you can plug and fix
- Industry standards for key metrics
- Client Acquisition Costs
- Owners are clients not customers (there is a legal distinction)
- Need to look at all costs, not just your marketing costs
- Sales labor
- Client Lifetime Value
- Need to know your churn rate
- Divide your end of contract value by your annual churn rate
- All of this is in the study
- LeadSimple is releasing a dashboard to calculate all of this
- Accidental vs. intentional investors
- Multiple property owners (MPO)
- Labor Efficiency
- The single most important indicator of profitability
- Direct labor and management labor are separate
- Profitable property management businesses earn $3-4 for every $1 they spend on direct labor
- Other important metrics
- Management fee revenue
- Management fee revenue per door managed
- Percentage of staffing costs compared to revenue
- Brad’s is around 50%
- Profit margin
- Client Acquisition Costs
- Why clarity matters
- Can’t evaluate your business compared to others if you’re looking at it completely differently
- Have to normalize the data
- Provides accountability for owners
- Can’t evaluate your business compared to others if you’re looking at it completely differently
- Listener questions:
- How can I learn more about unit economics?
- PM Benchmarking Study
- Is the 15% churn rate after adding in gains?
- No, it’s losses on an annual basis
- Where can I learn the specific difference between direct and indirect labor?
- Direct labor: anybody who spends 50% or more of their time providing client facing value
- Management labor: everything else
- Sales and marketing labor are subsets of this
- How do you factor in owner perks?
- If someone bought the business and you ceased working for the business, what would they have to pay as a market-based wage to replace me?
- Be aware that playing too much with the books will cause problems if you try to sell
- How do you calculate these numbers when you deal with multi-family homes?
- Multi-family home: More than 4 units
- Will be covered in the study
- How can I learn more about unit economics?
- Challenges conducting the study:
- Difficult to boil down the hundreds of financial entries to 5-10 key buckets
- Most software makes it difficult to get much of this data
- The 40 Hour Work YEAR by Scott Fritz
- PM Grow Summit
- Bob Walters: Sunday’s MC at the PM Grow Summit
- Property Management Mastermind
- National Association of Residential Property Managers
Where to learn more:
LeadSimple is looking for 25 additional participants in their property management industry benchmarking study to identify trends and correlations related to profit, efficiency, and growth, as was covered in this interview.
In exchange for being a part of the study participants will receive a one-on-one consultation with lead analyst Daniel Craig to review a comparative analysis of your company’s performance measured against overall study results to uncover key opportunities for unlocking growth and greater profitability in your business. You’ll also receive early access to overall study results and benchmarking data.
If you are interested in participating in the study, go to leadsimple.com/benchmarking to fill out the brief form, and Jordan and his team will be in touch with you shortly.
Jordan Muela: We are now live. Ladies and gentlemen, I want to thank all of you closers for showing out today to this live podcast recording. I’m going to go over some intro and house notes while a couple of stragglers are still tuning in.
We’ve got some great content for you today. I’m super excited about this topic. It really kind of ties things together. This is a live podcast recording, so unlike your traditional [inaudible 00:00:34], this audio we’re going to be using for posting up all the profitable property management podcasts. And anytime that we’re talking, if you have questions, you can enter them at the bottom of the page. You can also talk to us via chat, but if you have an actual formal question you want an answer to, enter it at the bottom of the page.
At the end of this event, we’re going to be talking about the property management industry benchmarking study LeadSimple is sponsoring. That’s a big deal, and some of you guys have never heard of it, and if you haven’t, wait until then, and we’ll go over it. We’re also going to do some Q and A for those of you who have questions about it.
We’re going to go ahead and jump in now. Daniel, Brad, you ready?
Brad Larsen: Ready to go.
Jordan Muela: Welcome to another episode of the profitable property management podcast. Today we are recording the final episode in season one, which has been all about marketing. We’ve had a ton of big guests that have dissected property management marketing from pretty much every angle, but we haven’t yet talked about probably the most conversation, and that’s the one about metrics, growth metrics specifically. That’s what we’re going to be talking about today, and we have two special guests to do it.
The first is Brad Larsen from San Antonio, Texas. He was a guest earlier in the season, and we’re welcoming him back because not only is he a smart operator, he’s actually growing in large part because he knows numbers.
Our second guest is Daniel Craig, a long-time friend and now chief property coach at Lead Simple. [inaudible 00:02:08]with property management entrepreneurs to help bring clarity to their numbers and identify growth opportunities and uncover hidden profits.
Welcome to the show, guys.
Brad Larsen: Thanks for having us.
Jordan Muela: Continue.
Brad Larsen: Thanks for having us, Jordan. Appreciate it.
Daniel Craig: Good to be here.
Jordan Muela: We’re going to start off by talking about the why, about why do the metrics even matter? I love the quote, “Can’t measure it, can’t improve it,” [inaudible 00:03:03]. There’s three problems that we’re trying to tackle. We’re going to cover each of these point by point. Each of these problems is something that we, individually, have felt a lot of frustration about.
I’ll start with the first problem that I see over and over again, and this problem has been happening since I’ve been in the industry in 2008, and that is confusion about what really matters. I talk to a lot of folks that in the absence of clarity, of really knowing what they need to do to grow, default towards the lowest common denominator type thinking. And that mindset, it says one and only one thing, “I just need more leads.” Come hell or high water, the one solution is just, “Give me more leads, and everything will be okay.”
It’s a nice idea, and more leads would be great, but I promise you, more leads 99.9% of the time will not solve the key problems or key growth strategies in your business. Unless you’ve already solved all the other challenges, you have dialed in, and you genuinely just need a straight flow of glistening leads, it’s more likely than not that there are other bottlenecks in your process. But, if we don’t have any metrics to facilitate that conversation and that clarity, we go right back to, you know, “Fire our baby up. Whip out the credit card, and everything’s going to be okay.” It’s not true. It’s not the case.
Danny, what’s the recurring problem you see that you want to bring to the table?
Daniel Craig: Yeah, we’re being tied to the idea, “I just need more leads.” I think we go there because we don’t have a lot of clarity on really how to grow, how to go about the growth process, and the property management entrepreneurs that I’ve talked to, so far one of the recurring themes that’s come out is that we tend, and this isn’t just in property management, but we tend to run the business based off of gut feelings, alright? Because we don’t have anything better. We have a hunch that maybe we could improve our profitability this way or that way, or maybe if we spent a little bit more on marketing, we might be able to capture more market share, but it’s that kind of hunch and gut feeling. And the problem with that is that it paralyzes decisive action and growth. When you’re only half-sure about something, you’re kind of half-hearted about how you move forward with the action in most cases.
Tied to that, when there’s a lack of clarity, you don’t know what your greatest opportunities are. I think this has a lot to do with maybe how we look at our finances. I’ve seen a lot of different profit and loss statements from property management entrepreneurs, and typically they have anywhere from 100 to 200, 250 maybe even 300 line items on their profit loss statement. And at some point it’s like, “This is so much information. I don’t know where to focus.” And at the end of the day what happens is you get lost in the trees. And what’s really needed is an understanding of the key metrics that will help you do a few things.
First of all, help you evaluate acquisitions. If you’re wanting to grow, how do you evaluate acquisition through your [inaudible 00:06:16] or by acquiring another property management company. You need a metric to help you understand how much you can afford to spend on your marketing. You need a metric to help you understand and evaluate your marketing return on investment, and then once you have more customers on board, you need to have a metric to evaluate if your labor is being used efficiently, such that you can actually service those customers in a profitable way. So, I think, to tie it all together, there’s confusion because we lack good metrics on the key points of business in terms of the [inaudible 00:06:52] that will actually drive profitable growth.
Jordan Muela: Hopefully some of that resonated with you guys. When I think about how we got started on this path, particularly with the benchmarking study, Brad, you were one of the first guys that we talked to about the benchmarking study, and you had your own pent-up frustrations, a lot of which centered around using the same words to mean different things and how problematic that is in trying to have a productive conversation. Walk me through some of those challenges that you’ve seen in the industry.
Brad Larsen: Well, one of the reasons that you and I have been talking about this for a long time is I want to get everybody on the same page. And this has been said before, it goes back to the root of a NARPM event about three, four years ago where [Tony Dross 00:07:36] did a presentation in NARPM, the [Broke Runner 00:07:37] conference, and attempted to get 15 to 20 different companies to give them their company metrics and compile them and actually make sense of them. And what came out of it was a pretty neat drill, but it was just a teaser. It wasn’t the whole thing. And what came out of it, again, was stuff that would give us a metric to compare left and right. How do we know what our staffing ratio is compared to somebody in another market, or even in the same market? And, yeah, there’s going to be some asterisks there, if you’re comparing a market in California to a market in Texas or Florida or wherever else.
Jordan Muela: Sure.
Brad Larsen: But it can be gauged a little bit, and that really kind of set me on the tone of, “Let’s get on the same page,” because everybody is starting to do acquisitions now, which is the flavor of the month for property management companies, either you’re getting ready to sell or getting ready to buy somebody, or something falls in your lap. Well, how do you know if they’re healthy unless you get into the books and dig in line by line by line? And then you have to convert them. There’s so many little things that we could narrow it down to, and Daniel and me had touched on this. When you get a GL account, who really knows what a GL account should be or a [chartive 00:08:48] account should be for a property management company? You kind of have to create your own. Am I right, Daniel?
Daniel Craig: Yeah. I mean, exactly, because I’ve seen, like I said, so many different ways of naming the same thing. And until there’s some uniformity, we’re really at a loss as to be able to compare my financials with your financials in any meaningful way.
Brad Larsen: That’s really the big part of it as well. I’d love to be able to compare financials with another company, one, to see if we’re healthy. That’s one of the biggest parts. If we’re healthy by comparison, we know we’re on the right track. If we know our ratios are off, then we know we need to correct some things, and this is where this project is going to get us to that point of putting us all on the same term and then letting us all know if we’re healthy or not healthy to a reasonable amount. If your numbers are way off versus mine, it doesn’t mean anything bad, it just means you might be doing something different, so we just look at another number. There’s always going to be numbers that can relate across industry.
Daniel Craig: I think one of the cool things about this, too, Brad, is the idea that we can help each other in the industry is a lot improved if we can actually talk in the same language, you know? So there can be a lot of synergy between property management entrepreneurs, but if they don’t have common lingo, common terms, and common ways of understanding things, that whole helpfulness dynamic is limited quite a bit.
Jordan Muela: So you talk about some of that on your own podcast, and for those of you who don’t know or haven’t seen it, you should definitely check out propertymanagementmastermind.com. Great podcasts. Brad’s had a ton of guests on, and I’ve listened to most of the episodes. Last few episodes, one with [inaudible 00:10:36], one with [inaudible 00:10:37] talking about HOA. Really good, actionable stuff there, so if you haven’t checked out Brad’s podcasts, definitely jump on that. He’s talking about the same themes there.
Let’s move on to talking a little bit … Let’s move on to talking about the how, and when we’re talking about the how with metrics, for me it really starts with talking about unit economics. A basic definition, what is unit economics? So, it’s the direct revenues and costs associated with a particular business model expressed on a per unit basis. And a really basic question to ask when evaluating any business model opportunity is, “Can I make more profit for my clients than it costs me to acquire and service them?” Unit economics helps you answer that question, and if you understand the micro, you can understand the macro. If you don’t understand the micro, you don’t understand the macro. And that, Brad, [inaudible 00:11:40], do you agree with that statement, that if you understand the micro, you can understand the macro?
Brad Larsen: Absolutely, because they all translate into each other and fit hand in glove because you can’t get down to the micro without understanding the macro.
Daniel Craig: Yeah, Jordan, just wanted to comment on that. We had the Property Management Mastermind in Puerto Vallarta in July, and we spent the first day going through the macro of everybody’s books. That was enlightening. That was helpful, looking at the big picture in terms of my annual profit and loss statement and, “What are the key players and how does profitability come out?” But on the second day, when we took it down to the level of unit economics, and we said, “Okay, now let’s break down your big picture financials into a per unit basis,” I don’t know if you remember this, but it’s like the lights went on like, “Okay, now I understand this.” Because it’s like it brings it down home on a per door basis.
Jordan Muela: Yeah, it definitely is a different perspective [inaudible 00:12:41] people don’t always get, and that perspective is lost in the conversation about doors, “How many doors you got?”
Daniel Craig: Yeah.
Jordan Muela: 500, 600, 700? And it matters. It’s relevant in the conversation, but it’s probably a lot less useful than some of the other lenses you can look at. But if somebody wants to start looking at their business through the lens of unit economics, what are they actually going to require to do that maybe?
Daniel Craig: Yeah, so I think a couple of things, two main things. You have to have your financial data organized in a helpful way. Secondly, you have to know what your operational data is, particularly as it relates to your unit numbers, and I’ll talk about each of those specifically, personal financial data. It’s not just a matter of, “Hey, can I call up my CPA or my bookkeeper and have them send me a profit or loss statement?” But rather, organizing your finances in a way that actually tracks and gives clarity to the key drivers in your business.
So, for example, here are some questions. As you think about your own profit and loss statement, could you look at your profit and loss statement and in three seconds identify exactly what your total marketing spend is on a monthly basis? All your monthly costs, your internet marketing, your website development, maybe your marketing consulting, your BDM, and your BDM commissions, could you identify all of that really quickly? If you can, great, but what about your client-facing labor? Do you know exactly what it’s costing you on a per month basis to provide all your client-facing labor value? If you know that, great, but, I’ve seen lots of profit loss statements, and typically client-facing labor, direct labor is what we call that, is not broken down.
So it’s about organizing your profit and loss statement in such a way that you have a financial dashboard that’s giving enough specific information to be helpful. If you have a dashboard on your car, and there’s only one warning light, that’s not going to be very helpful. Typically, that’s how we often look at a profit and loss statement. Everything from top to bottom doesn’t really make a lot of sense to us in many cases until we get to the bottom line, and if profitability is [inaudible 00:15:00] then we get concerned, like one light on your dashboard. But what we need is a well-designed financial report that gives clarity on certain aspects, “Is it that my tires are low? Do I need to check my transmission fluid or my oil? What specific dimension of my business is out of whack.” And that’s what a good financial statement will give you.
So, once you have a good financial statement, then what you can do is lay over that your unit information, and particularly three dimensions of your unit count. You need to know on a month by month basis what your beginning units of your management are. Secondly, you need to know how many you added over the month. Thirdly, you need to know how many you lost that month. Now one of the big no-nos to tracking your unit information is just tracking net growth and loss. So, hey, if I lost three, and I gained five, then my net growth was two, but it’s really crucial to track both the units added and the units lost, and we’ll talk about how that plays into some of the metrics in a moment.
But, big picture is once you have that unit count, you are going to lay that information over your financial statement and grade your financial statement. Everything from revenue to marketing to direct labor to management labor to other aspects of your income and expenses down into a per unit basis, and that’s how you get unit economics that really drive down to the bottom line, which is, “On a per door basis, how’s my business functioning, and what’s my per door profit?” That per door profit number is the big number that you need to know in order to understand if you’re running a good business.
Brad Larsen: And to parlay on that a little bit, if I may, Daniel, you’re talking about the unit add, unit lost. So, part of this study that we’re wanting to do is to figure out, “What is normal in the industry for what Jordan may call ‘churn.'” I call it “lost accounts.” You can call it many different things. Part of the study is to figure out what we’ll call it, right?
Daniel Craig: Exactly.
Brad Larsen: So, let’s call it “churn” for now, units added, units lost. The average should be around 15%. It could be as high as 20, it could be as low as 10. These are also international metrics. We lost 15, actually we lost 20% in 2016 with the big sell-off. This year, we’re probably going to be 12 to 14% for losses, but management companies could or should expect around that 10 to 15% of loss every year. And that’s 40 years of experience from Bob Walters, who is Emceeing the PM Grow Summit, right Jordan?
Jordan Muela: Yep. Yep, on Sunday.
Brad Larsen: He’ll tell you exactly the same thing. It’s the exact same thing he’ll tell you, that 10% churn is about where you should stay, 10 to 15%. That’s part of what we’re doing with this study is to actually give somebody that metric of, “Okay, it’s great you’re tracking it. What does it mean? How do I compare?” Now we know, so that’s a metric we want to all get on the same page to, one, define it, and then actually put some parameters around it.
Jordan Muela: Oh, Brad [inaudible 00:18:05]. When you start looking at the micro, and you actually start tracking things, how does this actually impact behavior? Because, we’ve all had this point of, “Here I am. Oh, I’ve got to track this stuff and get these reports.” Whether it’s Google Analytics, whatever, it’s really easy to get overloaded with reports. If it works, and you do it right, when you have insight into this sort of stuff on a more granular level, how do you envision it actually impacting day-to-day operations for a property management entrepreneur?
Brad Larsen: Absolutely, I’ll tell you exactly how. Thanks for asking that because Daniel’s exact example of, “What’s that churn rate? 15%,” this is where you get down into the weeds. What, of those homes, when you lost them were good losses, neutral losses, or bad losses. And that’s where you determine you need to change policy.
For example, if you had 40% of your losses were bad losses, meaning your owners fired you, you’ve got to figure out why. Why are they firing you? Are you not calling somebody back? Are you not emailing? Are you doing a poor job? And then if a lot of those other losses … Let’s say you had 20, 30% are good losses, why are they good? You sold the home, or your referral partner sold the home. That’s actually a good loss. Does it actually count against your losses? It does, but that’s a good loss, because you should be making money from that if you’re capturing that sale.
So, if you dig down into that one category of losses, there’s granular ways to go with it, using your term “granular,” you can break it up in three, four, 10 different ways, and that’s going to identify service issues that you can plug and fix.
Jordan Muela: Completely agree. You brought it up, so I’m just going to reiterate the point. Bob is emceeing the PM grow summit. Brad and Danny and myself are all speaking. Guys, if you haven’t gotten tickets yet, go to pmgrowsummit.com, check out the agenda. It’s going to be a great event. And what we’re talking about right now is going to have an even bigger focus than it did last year.
We’re going to graduate from that conversation of starting off just talking about operations, no focus on sales and marketing, and then we start talking about sales and marketing, but we’re doing it outside of the context. We’re not linking it to profit. We’re going to graduate the conversation even further and talk about sales and marketing in the context of overall profit. That’s what’s going to happen at pmgrowsummit.com. Go get your tickets if you don’t have them already.
Moving on. Now, what everybody came for. Time to talk about the actual specific numbers to make sure that we’re not just blowing hot air. We were talking before the call, and we were kind of trying to distill things down to some buckets. Because all of these granular sub-metrics are useful, but if you’re starting something from scratch, having this conversation, it’s great to have a small number of potent buckets to grab onto. There are three that we’ve identified that we’re going to be looking at and then talking about the sub metrics that are related to each of them.
The first of these is client, not customer, client acquisition costs. Brad, walk me through client acquisition costs, why it matters and how you think about that number in your business.
Brad Larsen: Yeah, let’s start with a definition. So, to give the listeners and watchers some background, we’ve been debating on what to call it for a while. It came across as customer acquisition, right? But, according to the state of Texas-
Jordan Muela: Yeah, we both got our hands slapped [inaudible 00:21:39].
Brad Larsen: Yeah. This illustrates a great point of why we’re doing this, because now we can get on the same page. We want to call it “client acquisition cost,” because our owners, according to all legal definitions, are clients. They’re not customers, so they’re clients. So, “client acquisition costs” is going to be the term that we’re going to use, and then we’re going to work to define what actually goes into it.
And I came up with all these five, six different metrics that we probably don’t need. What we really need are just two or three as the definition of client acquisition cost. We’re going to pick that as a group, and then define it. So, when I asked a property management company owner in the east coast and Florida, “Hey, man. What’s your client acquisition cost?” according to these definitions that we’re going to put out, we’re speaking the same language. It’s exactly apples to apples versus if it’s left to willy nilly, then I’m including my intrinsic costs, I’m including my car, I’m including my gas, I’m including all this silly stuff that you could include, printers, paper, toner, pens. Do you see where I’m going? I mean, everything goes into-
Jordan Muela: Air? Oxygen?
Brad Larsen: Oxygen, exactly. Everything goes underneath there, but we don’t need to know all that are some key, two or three definitions, divided by the number of clients you have. Boom, there’s your client acquisition cost.
Jordan Muela: Sure. This is [inaudible 00:22:58] one, though [inaudible 00:22:59] where it gets confused, because this one is really clean. People confuse customer acquisition cost with cost per lead, meaning most folks only tend to look at their marketing dollars spent, and they ignore either formal sales labor, and they forget about BDM or their time spent. I think that that’s the most frequent way that people screw this number up. Yeah.
Daniel Craig: Yeah, and I think it has to do with other things that could factor in. You know, if you’re using [inaudible 00:23:30]? Are you factoring them into your client acquisition cost? Well, you should. Yeah, or, and this a sort of [inaudible 00:23:37] just to kind of talk a little bit about the benchmarking study. What we’re doing is everybody that’s participating in the study, we’re going through every single line item in the chart of their accounts, whether it’s, you know some people break it down to, “Manage my property spend,” or [inaudible 00:23:52] for that website.” We’re rolling all that stuff up into the exact ingredients and making really clean apples to apples comparisons for different participants so we can actually give you an accurate metric for what standard [inaudible 00:24:05] is.
Jordan Muela: Super useful stuff. It’s a big undertaking, not something we take lightly. We talked about three buckets, three high-level buckets that if you get these right, your business is going to be a well-oiled machine. The first was client acquisition cost, the second, client lifetime value. Danny, CLTV. We’ve all talked about it. Why does it actually matter?
Daniel Craig: Yeah, so, customer lifetime value is just a powerful number because it really takes a look at and says, “Okay, so instead of just looking at A, this client, generated X revenue this year for B,” it really looks at and gives … It’s a metric to give the full picture of what that client is going to give back to you for all that you’ve put into them in terms of your marketing spent and in terms of the ongoing service that you’re providing. So, lifetime value basically just says, “What is, over the lifetime that this customer … this client,” glad I caught myself, “That this client is on board with me, how much revenue are they going to generate?” Very simple in concept.
Now, let me break that down a little bit more. Here’s a couple of scenarios to help clarify why this is an important metric, especially as it relates to marketing. Let’s say one guy, Joe, has an average lifetime value of about $10,000 for every door that he manages, and let’s say that his client acquisition cost is $500 a door. So, when he spends $500 on marketing, he’s going to get a new client that’s going to give him $10,000, is going to generate $10,000 over the lifetime that that client is with him. Those are pretty standard numbers.
Now, let’s say there’s another guy who’s just absolutely set on growth, so he decides that what he’s going to do is he’s going to gobble up market share by spending $1,000 for each new client. So, he’s going to bump his client acquisition cost up to $1,000 per client. Let’s say that, because he’s so focused on growth, though, he hasn’t really taken the time to think through how he’s going to be providing top-notch service to his clients, so they end up leaving him a little too early, and the result is that his client lifetime value, instead of being 10K, is actually only 5K. And I have seen this happen. Here’s the net result. Even if he gets twice as many clients as the guy spending $500 per new customer, which probably isn’t likely, but even if he gets twice as many clients, he is not generating a dollar more in revenue even though he’s spending four times as much in marketing.
So, one guy with 10 clients, another guy with 20 clients. If this guy has a lifetime value that’s twice as much, they’re generating the same amount of revenue overall, but this guy over here spend four times as much on marketing. So, what client lifetime value does is really gives you a birds-eye view as to whether or not you’re really in a place of, “Hey, are my clients happy with me?” It should be at least 10 to 12K, is what we’re seeing so far in terms of client lifetime value. So you want to be at an acceptable level before you step on the marketing gas.
Brad Larsen: Part of the-
Daniel Craig: Then-
Brad Larsen: Sorry to interrupt.
Daniel Craig: Next year, if you get a spot there, you can measure your client lifetime value compared to your costumer acquisition cost and say, “Hey, I think I can justify spending $1,000 per new client because my client lifetime value is really great. I can justify making that spend.” So that’s a couple of perspectives as to how client lifetime value affects the business.
Brad Larsen: Part of this benchmarking study is going to actually help define what and how to get to a client lifetime value. Because I’m thinking in my head, “Man, I’m only six, seven years old. I can fudge some numbers, but tell me how you want me to define it? Do I take the last three years? Do I take the last five years? Do I just throw a number at a dartboard?” So, part of this benchmarking study, guys and everybody listening, is that the two of us, all three of us, are going to come together on how we actually define that. And if we can’t define it, we’re going to help you at least use a gauge of your last year or two years or three years of data, and you can prorate it. So, we’re going to come up with a formula that will actually be the CLV for you.
Jordan Muela: So, Danny actually … Danny, I know you’re chomping at the bit because you’ve got some specific commentary there. Before you do, just to be clear, the reason Brad is in the room is because Brad is a property management entrepreneur. I do not, Danny does not, run a property management company. We go the E, we’re entrepreneurs, but we are not operators, so we’re going to add value, but we cannot do that outside of the context of working with other smart operators. So, we got Brad, we got a handful of other … basically a board of advisors for the study that’s kind of helping to inform our approach, methodology, etc. That said, Brad, you’ve been a good one. And, Danny, I think we’re really about to crack the nut on calculating CLV on this one.
Daniel Craig: Yeah. One of the reasons there’s been confusion on customer lifetime value is because people are just scratching their heads like, “How do I even know?” And the way to think about it is, “Well, I’ve got to take my average revenue per client, and then I’ve got to multiply that somehow by some average months that the client stays with me.” And so they’re digging into their property management system, like, “Man, how long has this client been with me? Well, that client’s not been with me for long,” maybe try to come up with some average. So, it’s really tricky to get that information.
That’s not the correct way to calculate it. Here’s how you calculate it. You calculate it based off of your churn, and so that’s where really tracking your turnover helps you, and not just net turn, but your actual, “How many units do you lose on a per month basis,” is how you calculate your lifetime value.
So, very simple. If your churn rate on an annual basis on an average is 20%, and let’s say your annual contract value is, let’s say, two grand, what that basically means is you’re going to lose about 20% of the value of that contract every year in churn. So, just using a simple mathematical formula of dividing your end of contract value by your annual churn rate is how you calculate customer lifetime value.
Brad Larsen: See, that’s stuff we’ve got to know, and that’s stuff we’re going to put out. I love it. I love that’s a simple way to calculate it, because we’re all going to scratch our heads and say, “How the heck am I supposed to come up with that? The software’s not going to tell me that.” So, great stuff, Daniel. I’m like loving it. Awesome.
Daniel Craig: Cool. And, by the way, can I sneak this in Jordan? What actually Jordan and I are near the PM Grow Summit that we’re going to be releasing a new software that will calculate all of this stuff for you. So, all these metrics, and within a couple of months we already have five clients on BETA who are loving it. There’s going to be an online dashboard where you can go in, and you can go, “Month to month, what is my churn rate? What is my customer lifetime value?” And all of that.
Jordan Muela: Would you like fries with that? Yes. That’s going to be awesome. At the end of the day, use it, don’t use it, doesn’t matter. We don’t care who you pay or what vendors you use, what your property management software is. All we care about is that we have clarity, and that when we’re at the bar, and we’re having these conversations, that we’re not BSing each other. That we’re actually talking straight. We’re not over blowing our numbers, and that there’s less rather than more confusion.
We talked about client acquisition cost. We talked about client lifetime value. Now, let’s make the very important point is that you still … As great as it would be if everybody tracked those numbers, we still have two segments. Client acquisition cost needs to be segmented by [inaudible 00:32:18]. Your overall goal number is great, but what I want to know is, what is your client acquisition cost for all property management versus that paper clip campaign versus your website versus that realtor referral program that is free, but you’re spending a bunch of time knocking on people’s doors, and you’re not even factoring in the labor that goes into that.
So you’ve got to segment your client acquisition cost. That’s a brutally important thing to point out, that the overall number is of less utility than the segmented number in my opinion, and that, same thing with client lifetime value. Brad, how can you think about the segments within your business? You do not do traditional multi-family, correct?
Brad Larsen: Multi-family? No, we don’t do a lot of those.
Jordan Muela: Alright, so then how do you think about those segments within your business? You’ve got the accidental versus the intentional investors. Are there any other segments that you would look at to want to know the difference in overall client lifetime value for one segment versus another?
Brad Larsen: Absolutely. One of the things we track is multiple property owners. So, if you own two or more properties, we consider you an MPO, and we track you a bit differently because that’s also a person we could potentially get to buy more homes from us. So the MPO’s may have a little bit more, of course, monetary value just because they had more homes to manage, but those are the folks that could be investors for us. And so, one of the things I wanted to touch on, Jordan, and I’m kind of hijacking you a little bit, but I want to get this out there, is that going by the model of Scott Fritz, the 40-hour work year, we track five to six, really five hardcore metrics as a benchmark of our business. And so, we want to implement and work with you guys on how you guys can make that part of what you put into this whole project, is picking out five or six important metrics.
So, for example, if I may, management fee revenue, management fee revenue per door managed, okay? Simple stuff, Daniel mentioned it. Then we go to total management revenue per door managed. Here’s another talking point, fork in the road, do we include maintenance? Do we not include maintenance, right? Think about it. You include the maintenance costs, are you making money on maintenance, or not making money on maintenance? If it’s pass-through money, no. You don’t consider it. If you’re making something from maintenance, either preferred vendor discounts or some sort of overcharges, that should be considered in total management revenue per door.
So, the other line we look at is total growth percentage, year over year. That’s a very important metric from Scott Fritz. He wants to know if you’re growing, and if you track those year over year, like, “What are we doing November this year compared to November of last year?” I could say my number, but I don’t want to brag.
The big one I think we’re getting to, and I’m going to steal your thunder a little bit on the churn one … Not the churn, excuse me, the employee one, is percentage of total company staff expense to revenue. Like we were talking about that earlier. That’s one I want you guys to kind of touch on, because I think as far as management companies, we want to know where we are. And let me give you the full talking point, and you guys can take it from there.
So, we want to turn this into some sort of metric for everybody, and ours is right around 49 to 50% of our revenue minus our staffing cost is about 50%. So that’s what it costs us to run the business. Historically, in NARPM that’s around the average, because that drill Tony Droz did in 2014, he was getting everything from 45% to 65%. So, at the end of the day, this is the metric that’s actually going to mean something to the people that are listening that run management companies. What should I be? So, if my metrics say, let’s say I’m tracking 35% of staff expense, I’m doing awesome. What if I’m tracking 75%? I’m doing lousy. So now they know. Without this study, without this metric, they wouldn’t know potentially.
Jordan Muela: Yeah. So, on that point, let’s take it a step further. Let’s talk about the logic of why somebody says that. Surely you’ve heard somebody say, “Yeah, my [inaudible 00:36:38] is really high, but I’m in growth mode. I’m preparing and selling for growth.” That’s great if it happens, but if that number has been static for the last eighteen months, then you’re just overstaffed, plain and simple.
Brad Larsen: It’s always going to have an asterisks by it. I mean, if you’re spending … Because Bob Walters, another one, Bob Walters, to steal his thunder, is you can’t have profits and growth at the same time. You’ve either got to be growing, or you’ve got to be profitable. You can’t have both, and he’ll tell you that exact thing.
Jordan Muela: And you can’t have neither.
Brad Larsen: Correct. You’ve got to be one or the other.
Jordan Muela: Unless you run a charity.
Daniel Craig: Yeah. Yeah, okay. So let’s talk about this labor thing, because I think that was actually the third bucket, right Jordan? You’ve got client acquisition costs. That’s, you know, “The top of the funnel isn’t working.” Then you’ve got lifetime value, “Are you taking care of your clients over the lifetime of their time with you.”
Then, you’ve got labor efficiency, and that’s really a third bucket that you just touched on, Brad, that we want to get to. Here’s why labor efficiency is important. Well, just because your clients are with you for 17 years of their lives doesn’t mean you’re making money off of them. Part of your value proposition is that you had to deliver pina colada mixes to their doorstop every day. They might love you, but that’s probably going to kill your direct labor costs and kill your profits. So, labor for that activity is, I would say, the single most important indicator of profitability in any business, and certainly that’s going to include property management businesses as well. Like you said, Brad, labor expenses probably represent somewhere between half to two thirds of company expenses. So …
Brad Larsen: Let me stop you right there, that you guys probably won’t forget, in the labor efficiency, the big questions are probably going to be, “Do I include my salary? Do I include my wife’s salary?” So, by this study, we’re now going to define that. We’re going to define, throw out your owner value proposition that you had for yourself. So, discount your owner salaries, or put in a manageable, IRS-allowed figure, like pay yourself 50 grand a year, for example, and that’s a figure you can use. So this is long before owner draws. You get to that point, it’s just salaries, and so the point of this is, “We’re going to define that.” Am I correct?
Jordan Muela: Yeah, well, and so we are going to define it. Basically, the approach we’re taking is a little bit more granular that what you mentioned, Brad. Although, it’s the same basic idea. Basically, and this touches to one of the questions that we got a few minutes ago. We’re going to define direct labor and management labor, and it’s a really crucial breakdown to break those two things down because direct labor really tells you how efficiently you’re serving the clients. And that’s really important to know. Management labor tells you essentially how efficiently you’re managing your direct labor, or getting the clients on board.
So, direct labor, we define as anybody that spends 50% or more of their time providing client facing value. So, that’s going to be your property managers. That’s going to be [inaudible 00:40:01] coordinators. That’s going to be either your accountants, if they’re spending 50% of their time reconciling accounts for their orders, then they would fall into that direct labor bucket as well.
We’re also going to be, and this is again where the clarity of definitions is going to help. We’re including outsourced direct labor, night tenders, call center services, that’s also going to be considered direct labor as well. So, we’re all talking … These outsourced providers aren’t going to be put down in some expense bucket, they’re going to be considered outsourced labor as well.
So, the way we look at it is we basically say, “Okay, for every dollar that I spend in direct labor, how many dollars should my direct labor force be able to generate in revenue?” It’s kind of a motivating way of looking at it, and this is a metric you can actually use with your direct laborers, to say, “Okay, for every dollar that we’re paying you guys, how much can you generate in revenue?”
And what we’re seeing so far is that profitable property management businesses run in somewhere of the three to four range. So, for every dollar that you spend on direct labor, you should probably be generating three to four dollars in top-line revenue, or in gross profit, is a little more accurate. So that breaks out direct labor.
We’re going to get into more of this at PM grow, but the other bucket, just to touch on one last thing, Jordan, would be management labor, and Brad, you brought up a great point, management labor is where we can have a lot of things get skewed because of the way sometimes we like to play with our own salaries to avoid taxes. So, what we’re doing in this benchmarking study … If you’re playing with your owner’s salary, and you’re only paying yourself 30 grand, what we’re actually going to do is keep a balance sheet and say, “Well he’s actually paying himself another 70 grand in distributions.” Now you combine the 30 and the 70, we’re actually keeping more accurate salary for an owner of around 100K, and that’s what we’re going to count to be your management revenue. So, we’re actually getting down to that level with the benchmarking study to curate some real good comparisons as to what your efficiency should be on the management labor side of things as well.
Brad Larsen: Love it.
Daniel Craig: So, I love that example that you just brought up. There are two things that I think about, and this isn’t about some … This isn’t a sermon. This isn’t about moralizing right and wrong. Some people, in other words, will do that, and then [inaudible 00:42:32] beat you over the head with this crazy high profit percentage, when in reality, his numbers are being distorted by the fact that he’s taking out giant owner draws. The other thing is the utility of this, because one of the actionable points of utility is when you think about evaluating your business, you can’t get any clarity if the way you’re looking at it is completely different than somebody else that’s going to come into your business, because you know they’re going to normalize that data. At the end of the day, they’re going to figure out what you’re actually taking, and evaluations are … Yeah, [inaudible 00:43:04] a shocking experience getting your company evaluated if you’re making that mistake.
Jordan Muela: Yeah. And honestly, it provides good accountability for owners as well, whether it’s me and my business or you and your business, we need to get an accurate look at what our actual profit numbers are by not skewing things like owner salary, because it [inaudible 00:43:30] at first to be like, “Oh, shoot. I thought I was making 20% profitability, now I’m at like 10 or five,” but that’s the sort of accountability and clarity that will drive change and growth and make you a more profitable business.
Brad Larsen: That could lead into the one metric that we’ve all kind of wanted. And we’re talking about sitting at the bar, and somebody walks up to you and says, “How many doors do you manage, man?” And you say, “I manage X.” And they’re like, “Oh, man. I manage 10 times more than that. I’m way better than you.” If it all could be boiled down to, “What’s your profit margin in a percentage?”
That could be an actual metric that you guys can help define with this study. How do we get to that bottom of the funnel, using Jordan’s term, of actually giving you a profit margin percentage? Because then you know if you’re healthy or not. If you’re running a 5% profit margin, and you’re defining it correctly, you’re doing something wrong. You need to go back VMAX or you need to sell, right? You’re doing something wrong. If you’re running a 40% profit margin, which is probably pretty high, you’re doing double thumbs up, and maybe you need to sell, too, because you can take it and run, start another one.
But the point is, I think that bottom of the funnel profit margin percentage is one that we track, but I’m also starting to think, listening to you, “Man, are we tracking that correctly with my stuff and my owner salaries and my offshore salaries and all this other stuff. Are we tracking it correctly?” But if we can get on the same page there, and we go through this whole drill, the bottom of the funnel should be that profit margin percentage, and then I can honestly put that out to somebody in conversation and feel good about it and know I defined ti correctly.
Jordan Muela: Yeah, and let me take that one step further and say, “Profit margin percentage, but what about profit margin per door?” So, on every door that I manage, is it 20 bucks? Is it 30 bucks? Is it 50 bucks? And that really starts to provide a lot of clarity about, “Okay, I’m going to spend all this money on acquiring new business or acquiring a new client, but if I’m making five bucks a month per door, I need to take a look at my business.
Brad Larsen: And that’s something that we have to define, because we have to throw out or include whatever we decide as a panel with all the property managers that have joined. It has yet to throw out the ancillary businesses. Or do you include them? Do you include the leasing? Do you include the sales? Do you include the maintenance? Do you include the late fees? Do you see where I’m going? All this has got to be defined.
Jordan Muela: So, as you say that, both Danny and I are looking for the aspirin and the Tylenol, because it’s a non-trivial headache to actually clean up the books and to just get a pure property management focus. We’re wading through some of that work right now, but we’re going to do a Q and A specifically on the benchmarking study in a minute, and we’re going to focus on that. For now, we have got some questions from those of you who are listening to this live, and I want to answer those one by one.
The first is, “How can I learn more about unit economics?” Well, you could go google “unit economics,” but I wouldn’t. What I would actually suggest, though, is to click on the link on the bottom of this event that says, “PM Benchmarking Study” and go sign up for the property management industry benchmarking study, because those of you that sign up are not only going to have the ability to contribute, but you’re also going to get a sit-down with Danny and myself to look at how your data compares to the overall global set of data. So that’s firsthand. That’s personalized. That’s the best way to learn more about unit economics.
Daniel Craig: Yeah.
Jordan Muela: Next question is, “The 15% churn rate is after adding in gains, is that correct?” And, Danny, I believe that’s directed at you.
Daniel Craig: No. So, no. Hopefully, maybe I don’t understand your question, but hopefully once you add in gains, you’re not [inaudible 00:47:22]. Hopefully, you’re growing, but the 15% churn rate that Brad and I, and I agree with that number, is just losses on an annual basis. So you take your beginning units at the beginning of the year, say you started with 500. You lost 100 through the course of the year. You’re at a 20% churn rate.
Brad Larsen: Yep.
Jordan Muela: Okay, that makes sense. It almost seems like naively simple, but it’s accurate. It makes sense to me. Next question is, “Where can I learn the specific difference between direct and indirect labor.” Do you have any more [inaudible 00:48:09] commentary, Danny?
Daniel Craig: Yeah, I think she asked that before we just went through the specifics, but essentially, direct labor, again the definition is anyone that spends 50% or more of their time providing client facing value. And it’s the whole body in the bucket, so not “Half my time is this, half my time is that.” It’s 50% or more, but the whole body goes in that bucket. Management labor is essentially everything else, and we break out sales and marketing labor as a subset of management labor.
Jordan Muela: Well, Danny, what about half bodies? What if I’m getting hung up on the fact that a quarter of this person’s time goes towards this, that … Do we just not worry about that, and if so, why?
Daniel Craig: Because, this is coming from a finance guy, but at some point we have to keep this achievable, and so, we are aware of the fact that our sophistication gets so complicated that no one can actually do the stuff, then it’s useless. So, we’re trying. It’s really out of simplicity, Jordan. And that’s where we draw the line.
Jordan Muela: Makes sense to me. Another question from Michael. You may have just answered this, but the question is, “What if your management labor and your direct labor are the same in the case of an [inaudible 00:49:26] manager who is also the PM? How do you suggest to allocate costs in this case?” And I guess you just answered that, is you take where the majority of your time falls?
Daniel Craig: Yeah.
Jordan Muela: There we go. Alright, next question from Matthew Tringali, “In addition to the owner’s salary and distributions, are you also going to factor in owner perks. For example, a company car, travel, and other ways small business owners offset their taxable income?” That’s a really good question, Danny. What are your thoughts on that?
Daniel Craig: Well, I’m not quite sure what’s being asked. I mean, if your owner perks come in the form of a gift or something like that, like if you’re …
Brad Larsen: Let me help you out on that, Danny. Let me help you out on that. So, for example, my truck, my F250, goes straight out of the company account. It’s actually [inaudible 00:50:23] LLC, my actual LLC, so it clearly is a line. It’d be real easy to discount. But, part of this project is to define that, so we’re going to work with you guys on listing. You include this, this, this, and this, but you throw out this, this, this, and this.
Jordan Muela: I mean just to answer the question, thanks for the clarification. Now, we’re talking compensation, either in a form of W2 wages or [inaudible 00:50:49]. And really what we’re getting at is, this is when we think about owner salary. If someone bought the business, and I ceased working for the business, what would they have to pay as a market-based wage to replace me? And that’s really where you need to be in terms of how you think about the actual cost of your labor. You need to be in the range of a market-based wage.
And one other thing I’ll say on that, you might say “Well, I still want to play with the books to decrease taxes.” Okay, you can do that, especially if you’re an escort. However, just be aware that any sort of those kinds of goofy things that are going on with your business, if you ever want to sell, that’s going to cause problems for you. You’re going to get discounted for financial distortions. So, I would really recommend not goofing off with your owner salary if you want to sell, because what you want to prove to the people is that, “All the costs and all the income to my business is exactly true no matter who’s filling these roles. If you buy my business, you’re going to be able to maintain the same profitability.”
Brad Larsen: And here’s good reason why we want to do this, to put everyone on the same page in a defined, orderly manner is to prepare to sell, but also to prepare your business to borrow money to buy another business. If your books are squeaky clean, and your competitor comes to you and says, “Hey, man. I’m out. I’m moving. I want to sell,” and you need to go get a half million bucks, you can go take those clean books, go to the bank, and borrow money to get that deal done.
Jordan Muela: Yep. [inaudible 00:52:25] And anybody who’s ever done an SBA loan to try and acquire another management company will tell you that it’s a nightmare, so anything you can do to make your financing less of a nightmare in the process of an acquisition is going to be huge.
Let’s turn this around, guys, to talking about sort of the specific challenges associated with the benchmarking study. We talked about the fact that we’re doing it. If you want to read more, if you want to read the full description, click on that green button at the bottom or what you’re looking at right now where it says, “PM benchmarking study,” or you can go to the URL, leadsimple.com/benchmarking, and you’ll be able to get more information.
But there’s really two big goals. The first is common, standardized definitions. The other is the actual benchmarking data. We’re planning on using this app [inaudible 00:53:19]. We’re actively looking for participants. The participants are going to get a one-on-one consultation to look at how their data compares with the rest of the industry, intensely valuable. In the process of doing this, it is a work in progress. There are a lot of challenges with normalizing this data, and so I just wanted to kind of open up the perimeter, and give you guys a little bit of a view into that. Danny, what would you say are some of the key challenges you’ve run into thus far in trying to get this study off the ground?
Daniel Craig: Yeah. I mean, it has to do with the two key sorts of data. First there’s the financial side of things. Most people are tracking their company books separately from the property management software using something like QuickBooks or something like that. And so the first barrier to what we’ve been talking about, there’s probably 300 different [inaudible 00:54:16] that will be looking at across state … Probably 400 or 500 different income items across all the different [inaudible 00:54:24] and boiling those down into maybe five to 10 key buckets, and basically creating an apples to apples comparison on the income side of things and the expense side of things. So that’s one thing.
Then the other source of data would be the property management system. Interestingly, some of the key pieces of information that we are talking about, for example, churn, the units you lost in a particular period. There are no good reports in either [inaudible 00:54:54] or Propertyware to determine that, so we’ve been actively talking with the teams at both of those companies on coming up with the reports so that we can actually historically generate that information over the last three years for all the participants in the study so that we can actually know what an industry churn rate is. So, and that will affect customer lifetime value.
So, those are the sorts of challenges, but we’re working through them, and we also have a good handful of advisors on board, like Brad, that are helping us look at certain complications like, okay, lease-only revenue. Now, how does that factor in? I might be getting lease-only income, but do I have units, and are those lease-only units in my property management software? Well, lease-only units really shouldn’t be considered towards your total unit count of units under management, because you’re not getting full lifetime value out of this, okay? So then how do we extract that information and come up with a true unit count that is really [inaudible 00:55:58], and how do we correlate that to the open side of things and pull out the lease-only revenue.
So, those are the sort of things that we’re working through because we really want to be accurate and careful with the study.
Jordan Muela: Alright, so we forgot probably my favorite thrown-in question, and that is the multifamily equivalency and handling that whole thing.
Daniel Craig: Alright, so obviously the focus of the study is single-family homes, but a lot of people that are participating in the study probably have a mix.
Brad Larsen: So, the first thing we’re going to do is to define multifamily and single family for your homes. As we talked about before, and according to FHA guidelines, on a loan, or VA guidelines, anything one to four units is considered “single family,” so if you take anything five units or more as multifamily, that could be something we can define in the study.
Jordan Muela: Yeah. Yeah, and we already went with that definition, so probably the next step is, “Okay, what’s my … if half my units are multifamily, what’s really my cost for acquisition cost because I can’t afford to spend the same amount of money that Joe can afford to spend on a single family home with a customer lifetime value of two to three grand. If I’m in a multifamily that maybe my customer lifetime value is a grand or something. So, we’re going to be defining what a true unit is, and how to actually … coming up with unit counts to account for the fact that the value of a multifamily unit isn’t the same as the value of a single family home. So they’re actually in the process of pulling the numbers and doing the comparison to come up with [inaudible 00:57:40]. But that’s how we’d be handing that issue is actually going [inaudible 00:57:45] and come up with a ration in terms of the revenue, the profit, the management of the revenue generated off of a single family home versus a multifamily unit, [inaudible 00:57:56] correlation [inaudible 00:57:58].
Makes me tired even just talking about it, but it’s a worthy project, and we’re excited to be undertaking it. Hopefully as you guys are listening, you gotten some benefit out of what we’re talking about today, and hopefully you can join us for the benchmarking study and be at the PM Grow Summit in San Diego, but if none of the above apply to you, we hope this stimulated some thoughts when you think about how you are looking into numbers inside of your business, and how you get clarity to be making the best use of your time and dollars as you pursue growth in your business.
Danny, Brad, really appreciate you guys taking the time for jumping on with me today. It has been an absolute pleasure working with you guys on this.
Daniel Craig: It was fun. Thank you, Jordan.
Brad Larsen: Thanks, Jordan.
Jordan Muela: Alright, guys. We’ll be in touch. Have a good one. Thanks for tuning in guys. We’ll see you soon.
Brad Larsen: Take care, y’all.