Macquarie Bank Explains Strata Manager Profitability
or, how strata managers can make more money …
A Quick Read
Macquarie Bank is a big fish in the strata title pond, providing a range of services to strata buildings and strata managers and it is heavily involved with strata industry groups. Plus, it’s a very successful business in its own right. So, when it collects, analyses, and comments on data about strata management business operations and profitability, it’s basically a profitability lesson for anyone who’s listening. In this GoStrata Article, I look at the key learnings for strata businesses [not just managers] from the Macquarie Bank 2023 Strata Benchmarking Report.
[a 5:00 minute read, with 1010 words]
The Full Article
INTRODUCTION
Macquarie Bank is a very successful business and a big fish in the strata title pond.
It provides a range of services to strata buildings and strata managers and is active in the strata sector doing things like.
Providing trust account banking to strata buildings.
Lending money to strata buildings.
Operating the DEFT system for strata levy payment processing for its customers.
Operating a strata building invoice capture, approval and payment system for its customers.
Lending money to buyers and owners of strata management businesses.
Sponsoring most Strata Community Association industry groups around Australia.
Runs the strata management benchmarking programme.
Owns [partially] a strata management software company, Property IQ.
You can find out more about Macquarie Bank’s strata operations here.
So, when Macquarie Bank collects, analyses and comments on data about strata management business operations and profitability, it’s a free profitability lesson.
Well, it did that in 2023 with the Macquarie Bank 2023 Strata Benchmarking Report and in this article, I look at the key learnings for strata management [and other] businesses in that report as crib notes for anyone in strata management looking to make more money and for strata citizens wanting to understand what’s going on inside strata management businesses.
THE 2023 STRATA BENCHMARKING REPORT KEY LEARNINGS
The Macquarie Bank 2023 Strata Benchmarking Report is a valuable source of information about strata management businesses around Australia and you can read it here.
Their overall summary of the data is as follows.
Despite continued steady growth in market size and share, average strata management business profits have declined since FY2019 as cost increases are being absorbed and have become unsustainable unless revenue per lot increases. So, strata management businesses are at an inflection point.
And, the key learnings about how strata management businesses are operating from the report include the following things.
Data Sources: The data is from the 2022 financial year covering 2270 strata management business contributors from 5 states [New South Wales, Victoria, Queensland, South Australia & Western Australia].
High Performance Businesses: Macquarie Bank classifies High Performance strata management businesses as businesses that increased revenues from FY2021 to FY2022, having a 20% plus profit margin, and, managing more than 1000 strata lots.
22% of the strata management businesses in the 2023 report were High Performance strata management businesses.
The key characteristics of High Performance strata management businesses are:
Investment in technology [especially for remote work].
Paying better wages to senior and junior staff.
Offering performance based financial incentives to staff.
Acquiring other strata management businesses or customer portfolios.
Managing with lower lot per plan ratios [23 lots/plan or less] and managing fewer complex strata schemes.
Revenues: Average strata management business revenue per lot is $240 per year, which is an increase of just 1.0% [$2.37] from FY2021.
Profits: Average strata management business profit margins are 23.0%, which is a decrease of 3.0% from 27.0% in FY2018.
The 5 key contributors to higher profits in strata management businesses are [in order]:
Revenue growth from new strata customers.
Process and efficiency improvements.
Improved customer service levels.
Better staff recruitment and retention.
Overall costs cutting measures.
The 5 key contributors to lower profits in strata management businesses are [in order]:
Staff wage increases.
Operating cost increases.
Losing strata customers.
Losing key staff and staff replacement costs.
Capital costs on new technologies and processes.
Staffing & Wages: Staffing has emerged as a key business issue for all strata management businesses with the following key factors affecting it.
It takes [on average] 1 FTE [full time equivalent] staff member for every 365 managed strata lots that are managed.
Wages represent a significant and increasing part of strata management businesses operating costs at 49.0% of revenues in FY2022 [up from 45.0% in FY2018].
Business growth needs more staff and the costs of acquiring, retaining and paying staff is increasing as market demand for staff increases.
Staff turnover in strata management businesses is high and increasing with:
2.70 of 3.30 FTE strata management staff leaving strata management businessesin 2023, and
5.50 of 6.60 FTE of all staff leaving strata management businesses in 2023.
Average yearly wages of junior strata managers range from $57,700 to $74,300.
Average yearly wages of senior strata managers range from $113,800 to $121,800.
Many strata management business provide non salary benefits including discretionary bonuses, performance based incentives, business equity, or a combination of these to staff.
Outsourcing: Outsourcing some business operations [including offshoring them] is increasing with 39.0% of the participating strata management businesses already doing that and a further 13/0% of strata management businesses considering doing so.
Technology: Technology improvements are an important business improvement strategy: both internally [for staff and productivity] and, externally [for customer services].
The main technologies implemented by strata management businesses include [in order]:
Online customer portals.
Online platforms for external work [beyond Zoom or Teams].
Communication tools [like Zoom or Teams].
Workflow management tools.
Collaboration tools.
API’s and software platform integrations.
Instant quoting tools.
Macquarie Bank also believes that technology implementation in strata management businesses can also avoid the traditional 3 way trade off between Speed, Quality and Cost to achieve better value.
Succession: For smaller strata management businesses managing less than 1000 strata lots, business succession is a key concern as they are often owner operators. Many of them are also looking to step back from day to day activities and involvement in their businesses.
CONCLUSIONS
The data about strata management businesses from the 2023 Macquarie Bank report and their insights suggest that despite strong growth in the strata sector, it’s not all good news for those business and, as a result, the other strata stakeholders who rely on and work with them [like strata buildings, strata owners and service providers to those strata buildings].
And, if strata management businesses make less profits as they grow, that will inevitably lead to lower investment in those businesses, reduced quality and service levels, more sector fragmentation, and challenges with increasing per lot revenues.
So, is it time for strata managers to stop, listen, think, and do some things differently in the way they work, provide services and operate strata management businesses?
Otherwise, the mythical ‘race to the bottom’ might actually become the reality.
May 09, 2024
Francesco ...
It is not clear whether the profit figures in the Macquarie survey (ie ave revenue per lot) include insurance commissions or not. Can someone please confirm.