If you're not increasing, you're already going backwards

Article supplied by SCAQ General Manager Laura Bos

Let's start with the thing nobody wants to say out loud.

Profit is not a dirty word.

I've spent years in the not-for-profit sector, or profit for purpose as I prefer to call it, and I'll say the same thing there as I'll say here. Profiteering is a different beast entirely. But genuine reward for genuine effort should be applauded, not apologised for. We have a bit of a thing about that in this country. Nobody else is allowed to make money, only us.

That cultural discomfort is costing strata management firms real money, and it's costing your people more than that.

The maths doesn't care how you feel about it

Run through what's happened to your cost base in the last few years. CPI. Superannuation guarantee increases. Payroll tax thresholds that haven't moved the way your wage bill has. Professional indemnity premiums. Insurance generally. Add the cost of meeting rising compliance expectations, which is only going one direction.

Now compare that to your fee increases over the same period.

If those two lines aren't at least matching, you're not holding steady. You're going backwards, and you're doing it quietly, year after year, until somebody looks at the numbers and wonders what happened.

Here's the part that catches people out. A CPI-linked increase feels disciplined. It looks fair. It's easy to justify to a committee. But wages, super and insurance have all outrun CPI. Indexing to CPI isn't holding your position. It's a slow loss with a respectable name on it.

The death spiral

I call what comes next the death spiral, and most of you have seen it.

Margins tighten. The firm absorbs the increase rather than have an uncomfortable conversation. So you do more with less. Portfolios get bigger. The experienced manager who was carrying forty schemes is now carrying sixty. Something has to give, so the response times slip, the proactive work stops, and the job becomes pure reaction.

Then that manager leaves, because nobody signed up for that. You replace them with someone more junior, on less money, carrying compliance work they're not ready for. Service drops again. A committee gets upset and goes to market. They find somebody cheaper, because there's always somebody cheaper, and that firm is about to run the exact same experiment.

Nobody in that story is a villain. Every single decision along the way was reasonable in isolation. That's what makes it a spiral rather than a mistake.

Before somebody says technology

They always do. Technology will absorb it. Automation will fix the margin.

Maybe eventually. But systems cost money. Implementation costs money. Training your team properly costs money and it costs time, which is the same thing. Data migration is a nightmare and it's never quoted accurately. Efficiency is a capital investment before it's a saving, and the firms squeezed hardest on margin are exactly the firms that can't fund it.

You can't cut your way to the technology that was going to save you from cutting.

Waiting for renewal is waiting too long

The other thing I hear is that the pricing conversation happens at contract renewal.

By then it's over. If a committee has spent three years with no clear sense of what you do for them, you're not having a value conversation at renewal. You're having a price defence, from behind, against a quote from someone who has promised the same service for less and has no idea what the scheme actually requires.

Value is something you build in the open, every day, in how you and your team show up. It's the phone call before the problem lands. It's the maintenance issue you flagged eighteen months early. It's the insurance claim that got handled properly. In many ways you're acting as a business coach to that body corporate, and most of you are doing it without ever naming it as work.

If it's never named, it's free. And free is very hard to start charging for.

Where this series goes

Over the next three editions we'll get practical about it. How to work out your real cost to serve, because you can't hold a price you can't cost. How to make your value visible during the year instead of recalling it at renewal. And how to talk to a committee about the risk they're actually buying when they buy cheap.

For now, one question worth taking to your next management meeting.

If your fees haven't moved in line with your costs, who's been paying the difference?

It's your people. It's always your people.

Laura Bos, General Manager, SCAQ