As strata professionals are being pilloried for their charging models, ironically, there’s one element of the conventional cocktail of strata management fees that is becoming fashionable in the wider world of professional services: base management fees.
At roughly 50% of the total revenue typically charged for strata management services, base management fees have been a constant in strata management since the early 1970’s.
Base management fees are an early incarnation of what the world’s leading management consultants now call ‘value-based pricing’. The primary appeal of them is the certainty they deliver to clients. For a well-defined bundle of services that are relatively predictable, this method produces a fair price.
Hourly rates, on the other hand, are less transparent and reward slow work. This method too features in strata management. A plethora of hourly rates are listed in most strata management agreements, but how well they are used varies. Some managers are poor at recording their time. Often, staff feel confused about which tasks are included in the base management fee. They are unsure which tasks are out of scope and should incur additional time-based charges. It’s a bit of a mishmash really. Without clarity, and managing client expectations, time costing can lead to dissatisfaction, and distrust.
AI is pushing clients and providers from hourly/time-based costs to fixed or value based fees. AI breaks the old link between “time spent” and “value delivered”. Now, everyone wants fairness and predictability. As AI speeds up and standardises work, time-based billing looks misaligned with both client expectations and providers’ economics.
Value-based pricing is being promoted by KPMG and the like as a better alternative to hourly rates for professional services. Attitudes are changing fast, even among seasoned lawyers who have been hardwired to record their entire life in 6-minute chargeable units. A recent study of the attitudes of lawyers in private practice makes the point. In the 9 months from January 2024 to September 2024, the pendulum swung from 18% to 34% of lawyers intending to move away from hourly rates to fixed fees (Fast Law: Why speed is a priority for lawyers using AI, LexisNexis, 2023).
So, at a time of severe (and justified) criticism of commission and related party-based income, it seems strata managers have it at least half right. In a post-AI world, base management fees are in vogue. We, like many other professions, must now learn to carefully scope and price all of what we do. That way, we can be rewarded for outcomes, not just outputs.
Michael Teys advises strata management businesses on improving profitability through professionalisation and streamlined operating systems.
He has more than 30 years’ experience as a strata lawyer and academic and has owned 11 strata management agencies throughout Australia. He has a Master of Philosophy (Built Environment) and Bachelor of Laws. He lectures and writes widely about strata management issues in Australia and internationally.
