$1,000 per Lot Howard’s Way

Gorbachev had just been elected as president of what would soon cease to be the USSR. The Ethiopian famine raged, and the world's pop stars recorded ‘We are the World’. On the Gold Coast, the late Howard Stewart, head of BCS - Qld, announced that body corporate management fees would rise from $100 per lot to $120 per lot. It was 1985, and I was Howard's protégé.

Like most things Howard did, there was not a lot of science involved. ‘Teasy’ as he called me, ‘It doesn’t really matter. We cut the cloth to fit, and every time I sign a building for five grand, I add $15k to the valuation. That’s got to be good business.’ On this at least he was right. Businesses then sold at a multiple of three times the base management fee. Many still do.

The only science Howard applied in setting this fee was that the ‘punters had to cop it when buying off the plan’. He meant that buyers of off-the-plan apartments, who were many then, had to accept the forecast body corporate levies as fair. His new fee matched that expectation.

Despite his crude methods, as an unintentional exercise in value pricing, Howard’s fee wasn’t a bad guess. In those days base management fees ran at about 50% of total revenue. They still do. Apply CPI for the last 40 years to $240, twice Howards proclaimed base management fee of $120, and today’s equivalent value is $851.63. I don’t know a strata manager that wouldn’t mind revenue of that fee per lot. The last Macquarie Bank benchmark had average revenue per lot in 2022 at $453. If you assume CPI remains constant for the next five years, $240 in 1985 becomes $1,000 in 2031. Wouldn’t that be nice.

This jaunt down memory lane begs the question, why didn’t we stay on Howard’s course? Instead, we split into two and went different ways. The first group we can call the ‘passive aggressives’. They chose the easy path and accepted less than they deserved. They relied on higher insurance premiums for any small gains. Then, they expressed anger about clients not recognising their worth.

The other group we will call the ‘aggressive passives’. They took a different path, aggressively pursuing passive income by clipping the ticket of other providers.

Both ways are failing.

So, what does it take to get back to Howard’s way, value pricing? Here are three suggestions to get the conversation started.

1. Some of Howard’s selling techniques would be a good start. He was the best I’ve ever seen. He sold outcomes, not tasks. The hole, not the drill. 
2. He was a salesman, not a manager and he played to his strengths. We shouldn’t expect managers to be something they are not. Managers should manage, and salespeople should sell.
3. Develop some bravado. Howard had the front of a Myers store. He was confident, sometimes too confident (oh well), but he brought home the bacon. Fortune favours the brave.

It took us 40 years to get to this sorry state. Educating owners, more laws, artificial intelligence, these are nothing if we can’t sell. Let's call this the bottom, and see if we can get back to $1,000 by 2030. Howard’s way.