Revenue Solves What Door Count Doesn’t
ProfitCoach’s 2026 benchmark report shows that the most profitable PM companies are not chasing growth for its own sake. They are optimizing revenue, labor efficiency, churn, occupancy, and UAC.
ProfitCoach recently put out their updated “2026 State of Financial Performance in Property Management” report, and there is some great info in there that I think we should cover.
Yes, I’ve stated before that I think some of ProfitCoach’s numbers are a bit “optimistic” because of things like self-selection bias, but that really only plays into industry averages, not benchmarks. When it comes to the benchmarks (where we want to be), I think this data is spot-on, because it’s showing us the best of the best in the industry. This is what we should be aiming for.
As the report points out, all too often property managers are comparing their numbers to their own internal historical data. Yes, a DOM of 45 is certainly an improvement if last month it was 55, but is it really “good?” This is why we need actual benchmark data of real PM companies who are performing strongly so that we can judge ourselves not just against our own past performance, but against other similar companies. This was the entire point of the NARPM Accounting Standards back in the day when they were developed. Before ProfitCoach and NARPM, we were living in the dark, just feeling around blindly hoping we were finding our way. Now we have real data, and we need to use it. After all, it doesn’t really mean much if you’re more profitable than last year but still only half as profitable as your competitors.
Profit Isn’t Dumb Luck
The report’s ultimate conclusion is that profit isn’t an accident, it’s an inevitable result of tracking the right things and making decisions based on those KPIs. And the companies who perform best are those who are optimizing across multiple key areas, not just focusing on one. If you have the best ARPU (average revenue per unit) in the industry, it doesn’t mean much if your DLER (direct labor efficiency ratio) is awful because you’ve overstaffed the company to the extreme (believe me, I’ve lived that).
ProfitCoach identifies six major KPIs that are basically the predictors of whether a company is going to be among the top performers in the industry, and I agree with their list:
Profitability
Direct Labor Efficiency Ratio (DLER)
Revenue Per Unit (RPU)
Labor Expenses as a Percentage of Revenue
Churn
Unit Acquisition Cost (UAC)
The bottom five are really what drive #1 in the end. So what we’re going to do in today’s edition is look through all of those five factors with the data that ProfitCoach has provided and see how they all lead to a top-performing, uber-profitable PM company.
Labor Efficiency Rules Over All Else
If I had to pick a single number (other than profitability itself) to be able to predict whether a property management company is highly profitable or not, this is the metric I would choose. Direct Labor Efficiency Ratio (DLER) is just a fancy term for taking your total annual revenue and dividing it by the total amount of money spent on direct labor. Direct labor is defined as all of the employees or contractors at the company who spend more than 50% of their time dealing with clients or customers. So it basically just excludes senior management, sales & marketing, and other odd roles like Human Resources and software developers. But all of your key roles fit into this bucket. Leasing agents, property managers, maintenance coordinators, client success managers, etc.
More than any other number, DLER correlates with profit. If someone is beating the DLER average, they’re almost certainly beating the average profit in the industry. And if you’re beating the DLER benchmark, then you’re practically printing money. This is because DLER really touches on everything else. Because of how it’s calculated, factoring in both your biggest expense line item (labor) and your total revenue, it isn’t really ignoring any part of your operation. ProfitCoach calls this the “3 Ps of Improving DLER.” The 3 Ps are Pay, Productivity, and Pricing. Pay is obvious. How much you pay your employees is obviously going to factor heavily into your profitability, as labor tends to be about 40% of your total expenses. But productivity is also a big part of this. If you pay your employees above industry average wages, but you need only half the employees that your competitors do, you’re almost twice as productive as your competitors for the dollar spent. Productivity comes in many forms, but I would say the biggest components here are “right people in the right seats” and how you design your systems. If you are doing a good job of hiring the right people and putting them into roles well-suited for their strengths, and you’re developing excellent processes and systems for those top notch people to use, it’s going to be pretty hard for you not to turn a solid profit unless you just aren’t charging enough. And that brings us to the final P: pricing. Since DLER starts with top live revenue before being divided by labor costs, how much you’re charging is an enormous part of this. So let’s talk about that.
RPU Is a Profit Multiplier
“We don’t like to nickel and dime our owners and tenants” is probably the dumbest comment I regularly hear from property managers. It’s not dumb because it’s a bad concept, it’s dumb because it’s so wildly unrealistic. Yes, it would be a rainbows and lollipops world if every business just charged a flat all-inclusive fee that covered everything, but the real world isn’t an episode of Care Bears. Here in the real world, businesses have to be competitive, and consumers behave according to the principles of consumer psychology. Your business is only going to be successful if you are willing to deal with the world as it is rather than how you wish it was.
In the real world, consumers balk at big all-inclusive prices. That’s simply not what they want, and you trying to force them to want it is just going to result in your own frustration and lack of profits. So in order to get maximum revenue for your business, you need to use ancillary fees. Ancillary fees are the totality of the explanation for why benchmark RPU has gone from $282 in 2019 to $335 today (because management fees certainly haven’t been going up). And more importantly, it’s the entire reason that the benchmark RPU is almost double what I routinely see from property managers who haven’t revenue maxed their companies.
As an aside, ProfitCoach CEO Brad Johnson and I recently had a conversation about this because he was frustrated that I downplayed their numbers on industry average RPU and profitability. If you look in the report, ProfitCoach reports industry average RPU at $291. This data comes from their clients, and it is almost double what I think the true average RPU is across the industry. Don’t get me wrong, I love ProfitCoach and the data they put out, but this is where I think the biggest weakness is. When I do consultations with PMs, I never see a company with an RPU this high. Typically $225 is at the absolute high end of a company that hasn’t systematically gone through and fee-maxed their business. Most companies are sub-$150. ProfitCoach is using their clients as their dataset for the numbers in the report, and it just stands to reason that companies who have gone out of their way to hire a company that literally has the word “Profit” in its name to consult for them are going to have much better than average revenue and profitability. Just having the introspection to realize that you need help to boost profits is a solid indicator that the company is already ahead of the game and thinking about these things far more than the average business.
So, all of that just brings us to this realization: most companies aren’t charging nearly enough, and because revenue is the numerator by which the labor costs are divided to give you your DLER, this means that your employees are having to work much, much harder to produce the same productivity as a company with higher revenue. In other words, the absolute easiest way to improve your DLER and therefore your profit is to start charging more ancillary fees. As the report points out, a 10% increase in RPU (going from $200 to $220 for example) is usually enough to DOUBLE the profit margin of most companies. And the overwhelming majority of you can double your RPU, let along just add 10% to it.
Interestingly enough, while I think ProfitCoach’s numbers for industry average RPU are too optimistic, I think their benchmark RPU is actually way too low. Right now it sits at $335. They arrive at this number by taking the top 25% of companies in their dataset. But again, we run into self-selection bias here. A company that is producing $500/mo per door is a lot less likely to be hiring a consulting company to help them with profits. So while I don’t disagree with their methodology (the top 25% is a reasonably good standard for determining a benchmark), I do think we just have a data problem that is difficult to correct for. My own PM company usually sits at around $500/mo RPU, and Tal & Aaron Kramer’s company, Avalon Property Management, is even beating me at $600/mo. I know a good number of companies far exceeding the $335 listed in the report as the benchmark. So my advice is to not think of the benchmark number as the target. You should be thinking of it as the minimum.
Aside from that, my biggest challenge to you is stop thinking of growth purely, or even primarily, in terms of doors. I usually refuse to answer the question “how many doors do you manage?” I know everyone asks this when meeting new people at a conference, but it’s a pointless question. I bring in more revenue than most property managers who manage three times the doors that we manage. Instead, we should be asking people how much revenue they bring in, or what their RPU is. That’s the real sign of success, not door count. Only AFTER you’ve solved for the revenue problem should you be looking to rapidly boost door count, because that’s when each door added is at its most valuable.
Occupancy Is the Hidden Lever
I thought this was the report’s most insightful section. The multifamily industry talks incessantly about occupancy rate, but for some reason, it’s rarely discussed in SFR PM circles. The report shows us that there is actually a precise occupancy range where profitability seems to peak: 90-95%.
The data in this section seems to fit with something we talked about previously also: churn. Unit churn also has a precise range where profits peak, and it’s likely for the exact same reason. When it comes to both churn and occupancy, you run into a problem of diminishing returns. Whether you’re trying to get churn down to 0%, or occupancy up to 100%, the lever you’re likely going to have to pull is labor. In order to satisfy even the most demanding clients, you’re going to have to overstaff on client service. And likewise, to bring vacancies down to nothing, you’re going to have to overstaff on leasing. The takeaway here is simple: perfection is too costly. If you’re already sitting at 90% occupancy (or 10% churn), then focusing efforts on improving it is likely to be an inefficient use of your dollars. You’re better off focusing efforts on another area where your numbers are less impressive.
That said, if your occupancy rate is below 90%, then this is the hidden lever where you can radically improve the rest of your metrics. In ProfitCoach’s data, profitability nearly doubles when going from <80% occupancy to 90%. If you have a bunch of units sitting vacant, then focusing on getting your turn and leasing processes optimized could be your best path to bigger profits.
Labor Expenses & the “Trough of Sorrow”
I’ve written previously in this publication about the sweet spot of property management being somewhere around 400-800 doors. ProfitCoach’s latest data basically confirms this, with only slight deviations. Their report shows that profits first peak at around 300 doors after climbing rapidly, then they plateau for a while and spike up again between 500-750 doors, before they fall rapidly after that up to 1,000 doors or so. ProfitCoach has coined this dead zone as “the trough of sorrow.”
If you’ve been in this business a long time and worked with a bunch of different PM companies of different sizes, this comes as no surprise to you. It’s easy to figure out why the peaks and valleys are where they’re at. As you grow from 0 to 300 doors, it seems that there will be no interruption in the profit growth. Even as you add new employees, they’re usually relatively low cost, either as offshore RTMs or lower salary customer-facing labor. It only takes a few new doors to make up for a $2,000/mo RTM salary, after all.
Then after getting to 300 doors, stuff starts to break. You’re big enough that you can no longer remember everything. When you have 100 doors, it’s probably just you and maybe an assistant, and you know every tenant and owner by memory. If an owner has a special way they want things done with their property, you eagerly agreed in order to sign the door, and it wasn’t a big problem because you could just remember it. But once you get to 300 doors, there are now multiple employees involved and far too many residents and owners to be able to remember everything. But because everything was going so well as you climbed to 300 doors, you never felt the need to put in place well-ordered systems and processes. Now everything is breaking. This is a problem every PM goes through at this level. And I hate to be the bearer of bad news, but after you fix the problem at 300 doors, you have to fix it again at around 500 doors, because the systems that worked for you at 300 no longer work at 500. The complexity of the operation just keeps getting more and more difficult to compensate for, and the systems you put in place have to become more and more robust. So there are usually several rounds of process improvements as you grow through this range. This is why you see a bit of a plateau from 300-500 doors in the data. That plateau is just operators figuring things out as they grow to be a real business and not just a glorified job.
But then things get really ugly at 750 doors or so. It’s no longer a plateau, it’s a steep drop. A quarter or more of your profits disappear. But why is that? It’s all about management labor. Up until that point, you as the owner of the business could manage the team yourself. At 750 doors, you likely have a team of about 12-14 people including yourself. It’s really only a couple of people per department, so it’s not overly management-intensive. But that’s about the limit of what one person can manage. When you get to that point and you keep growing, you realize that you can no longer manage all of these people. You need more managers. And guess what? People with the experience to manage other people are a lot more expensive than rank-and-file employees. A true operations manager is likely to cost you six figures if you hire them onshore, and even an RTM capable of this is likely to cost triple what your average RTM costs. It gets worse, though. As you grow, you don’t just need one expensive manager. You now need expensive department heads. Because just as you couldn’t manage all of these people yourself, neither can the Ops Manager you hired. The Ops Manager needs to manage the department heads, so now you need them, and they’ll manage the individual employees. All of these layers of management labor start to add up to big expenses. Eventually you break through the 1,000 door mark or so and profitability starts to improve again, but it really only gets back up to where you were at 750 doors, and then it takes a dive again because now you have to hire C-Suite labor when you get to the 1,500-2,000 door range.
I know a lot of companies with 25%+ profit margins in the 250-750 door range. I don’t know a single one with that big of a margin over 750 doors. Not one. If you’re the exception, by all means, send me your P&L and I’ll highlight you in another edition of the newsletter. But I don’t think I’ll be hearing from anyone. It’s just too hard to maintain giant margins as you scale. So, my advice remains the same as it’s been for a long time in this publication: unless you’re that rate PM company looking to get truly giant and then exit (like a Pure-HomeRiver or Evernest), then you’re better off stopping the growth around 750 doors. Stay in the sweet spot and put your cash flow into other investments. The juice isn’t going to be worth the squeeze.
Optimal Churn
It sounds like a contradiction in terms, but yes, “optimal churn” really is a thing. I’ve discussed this before in this newsletter, and the report from ProfitCoach reiterates it. The highest profit margins fall in the 10-15% churn range.
The reason for this is simple: as you drive towards 0% churn, the amount of resources necessary to make it happen start to drag on the profits of the business. To get from 10% to 5%, you are going to need to make outsized investments in top-notch labor, new technology, less efficient systems, and possibly even negotiating lower fees. And to go from 5% to 0% is almost certainly going to require massive compromises on your part to satisfy the most demanding of clients. Compromises mean less efficiency, higher expenses, and lower revenue.
Again, just like with growth beyond 750 doors, the juice just isn’t worth the squeeze here. Once you achieve 10% churn, you are better off sitting back and relaxing in the sweet spot than trying to optimize below that. Of course, if you can see some easy changes to still make in your business that aren’t going to take big investments in money or people, then implement those, but the point is that you don’t want to become so obsessed with low churn that you spend a bunch of money to produce diminishing returns.
UAC: Growth Only Matters If It’s Profitable
As mentioned earlier, we all spend way too much time thinking and talking about door count. It doesn’t make sense to dump dollars and time into growth if that growth isn’t putting more cash into your pocket.
Let’s say it costs you $1,500 to acquire a new door (that’s your BDM’s salary and commissions, marketing costs, pay-per-lead costs, etc.). To find that number, just total up all of your sales and marketing costs for the year and divide by the number of new doors you signed up that year. That will give you your UAC. So at $1,500 per door, if you have the same churn rate as most of the industry and hold on to a door for about five years, you need a profit per door of about $25/mo just to break even (back out your UAC from your expenses in order to figure out your profit per door for this calculation). A lot of PM companies out there aren’t even reaching this break even point. They’re literally spending money on new doors just to tread water or even lose money. The money being spent on BizDev and marketing is literally more than the lifetime value of the new doors they’re signing up. That business would actually be better off to just cut all of their sales and marketing spend and put their cash flow into bonds.
This is why it’s so important to know your UAC and your PPU. You can’t make rational decisions about your sales and marketing spend if you don’t know your numbers. For example, it doesn’t make sense to start spending more money on paid Google ads if it’s costing you $2,000 to close a single door from that lead source. Cut that expense and focus on Realtor referral outreach instead, or spend it on direct mail marketing, etc. These decisions can only be made if you have the data at hand to make them wisely.
Final Thoughts
The companies that will perform best are the companies that are paying attention to their core metrics and making wise decisions based on those metrics. If you’re running your business by the seat of your pants, you’re almost certainly making some very unwise decisions. A lot of PM companies are run by former real estate sales agents who aren’t exactly fantastic at operations. They tend to focus primarily on sales and marketing, and they hate digging into the books. If this is you, you need to recognize that weakness in yourself and push yourself beyond your strengths, or find a team member who is good at this stuff and can keep you on the right path using data as the guide.
Focus primarily on DLER and revenue. If you can hone in there and reach benchmark numbers on those KPIs, profitability will almost certainly follow. You’ll get 90% of your advantages there, and then you can fine-tune from that point on things like UAC, churn, etc. And if I had to give you just one thing to focus on first, it would be revenue. Revenue solves a lot of problems. You know what doesn’t? Door count. Remember that.
Florida State Conference on a CRUISE!
The NARPM Florida State Conference is coming up on September 7-11, and it’s happening on a cruise ship! And no, not some cheap Margaritaville cruise, it’s on top-of-the-line megaship Utopia of the Seas from Royal Caribbean, sailing out of Port Canaveral and hitting the Bahamas and their private island. This event has some great speakers like Brian Birdy, John Bradford, Monica Gilroy, and myself! Registration is dirt cheap for members at only $299, and I think you’ll find the cruise cabin prices to be very reasonable and in line with traditional conference hotel prices. Discounted pricing ends later this month, so don’t delay in booking your cabin and attendance! I hope to see you onboard.
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