The Executive Corner: A Different Kind of Conversation

This article is a little different from ones I have written in the past for this publication. I’m not coming with new ideas and solutions, but instead bringing up a growing issue I am seeing across the country in our industry. This isn’t just a passing concern—it’s a fundamental challenge that could shape the future of management companies. I’m looking to you, the readers, for your thoughts, input and potential solutions to this challenge.

The Role of Ancillary Revenue

At CLI, we are huge proponents of investing in additional revenue streams outside of base management fees (ancillary revenue) to grow a management company’s profitability. I’ve seen many companies successfully generate only 50 to 60% of their total revenue from base management fees and do it ethically. This approach has allowed many to remain competitive while still delivering high-quality service. However, as this model grows, it raises important questions about the future of our industry and the sustainability of our core business model.

The Bigger Conversation Around Ethics

The ancillary revenue trend is growing all over the country, and it’s starting to drive a bigger conversation around ethics and disclosures to boards. I have started to wonder if companies are beginning to lose sight of their core purpose as a management company. Have we lost our way in making our core management services profitable on their own? If we continue down this path, will we reach a point where our primary value isn’t our management expertise but rather the additional services we offer?

Why Fees Are Getting Pushed Down

A key part of profitability is being able to charge a fee that actually covers the cost to deliver the service, with a margin built in. But there are real market pressures that are continuing to drive down what we can charge:

Private Equity Firms Entering the Market

It feels like every day, a new Private Equity (PE) firm is buying up management companies. When we talk to them, many say they are buying in to get access to the board’s spending power and, ultimately, the homeowner’s spending power. As they find ways to monetize this, I fear we will see management fees continue to drop and become a loss leader for those companies. The concern here isn’t just about fees—it’s about the shift in priorities. Are these firms invested in the long-term success of communities, or are they looking for quick returns?

Rising Costs and Budget Shortfalls

Rising insurance and infrastructure costs are causing communities to have major budget shortfalls, and it’s only getting worse. Boards cannot continuously raise homeowner assessments at the same rate as cost increases. Homeowners are already feeling the squeeze, and many are starting to get priced out of their homes. With so much financial pressure, boards are looking for ways to cut costs wherever they can—and unfortunately, management fees are often one of the first things on the chopping block.

Boards Pushing Back on Fees

Boards are rejecting management company fee increases and negotiating lower management fees to try to make up for these budget shortfalls. In their eyes, a management company is just another vendor they can negotiate with. But we aren’t just another vendor—we are a critical part of ensuring the community operates effectively. The value we bring should not be underestimated.

More Responsibilities, Same Pay

At the same time, more and more is being asked of managers. More complex skills are needed for large insurance claims, infrastructure projects and keeping up with continual state legislative changes. The job has evolved, but the fees haven’t kept up. The gap between expectations and compensation is growing, and it’s not sustainable in the long run.

And yet, management companies are still coming in and underbidding management services! This race to the bottom isn’t just hurting individual companies— it’s hurting the entire industry.

So, What Do We Do?

With all this in play… how do we raise or even just maintain our fees?

My hope is that we can structure our management fees and our team’s pay in a way that allows us to be profitable without relying on additional revenue streams. Then, if you do figure out some additional revenue, it’s the cherry on top! If we can confidently position our services as valuable, indispensable and worth every dollar, then we can shift the conversation from cost-cutting to investment in quality management.

The Bigger Picture: Ethical and Practical Challenges

If we don’t figure this out, we are going to see a need for generating revenue outside of management fees. Does this then start to create conflicts of interest? Does this pull us away from being able to serve our clients well? Does this cause challenges with our boards and disclosure? If ancillary revenue becomes the only way to sustain a management company, are we still truly management companies, or have we become something else entirely?

Where Do We Go from Here?

From talking with management company owners across the country, it feels like our industry is at a tipping point.

Do we give in, cut our prices, and go allin on ancillary revenue? Can we raise the professionalism of our industry and increase our fees amid so much downward pressure? Or is it something in the middle?

I believe we can figure this out together, and I’m confident that by working together, we can find a way forward that strengthens our industry rather than weakens it. I look forward to hearing your thoughts and solutions.

Adam@camleadership.com

About The Executive Corner

This is a new column for Vision Magazine that will be included in every issue. It is written by staff at CAM Leadership Institute, an organization that focuses on community management company owner and executive leadership development. CAM Leadership Institute hosts mastermind groups attended by almost 100 management companies from across the country every month, which gives them unique insight into the industry. In each edition, the staff at CAM Leadership Institute will provide a column specific to management company owners and executive leadership teams.

Adam Balkcom is the lead facilitator for CAM Leadership Institute.