Understanding Purchasing Efficiency through PEPP Ratings

The drop in the nation’s effective asking rental rates is putting pressure on multifamily housing operators to look more closely at how they are spending money. When rents fall, such as they have amid the COVID-19 pandemic, saving on necessary expenses becomes more important.

Rent prices dropped an average of 1% in the second quarter, the first such decline for the first time in nearly a decade. Now south of the line for the same period as last year, asking rents are being cut in Class A and B apartments with only marginal growth in Class C units. The reductions, combined with a dip in rent payments starting in the third quarter, signal that less money is coming in.

The trends are favoring strategies to reduce money going out of portfolios, but operators don’t necessarily have to make wholesale cuts. Applying proven spend management practices that utilize buying networks and accounting efficiencies can help companies improve their bottom lines.

“A tendency for apartment operators may be to go without certain things or take risks to save on operational expenses,” said Sara Jones, SVP of Spend Management and Accounting. “Realistically, just improving spend management processes can save thousands of dollars without having to give up much.”

A powerful spend management ecosystem reduces operating expenses and drives purchasing power through pre-negotiated catalog purchasing and efficiencies gleaned from linking accounting functions.

To save money, says Jones, a property or portfolio must first understand the efficiencies or inefficiencies within its spending processes. Benchmarking expenses is helping operators understand the purchasing efficiency of the property.

How to measure spend

Purchasing efficiency is determined by the amount of time and money an organization saves by automating as many processes as possible through spend management solutions. A property is measured against the portfolio performance of properties nationwide over millions of units.

Engaging the industry’s largest vendor network and leveraging online catalogs can give operators more purchasing power with opportunities to strengthen negotiations.

For the past five or six years, RealPage’s Performance Insights (PEPP) has enabled RealPage clients to monitor their spending through a scoring system within the company’s spend management solution. Scores help them understand catalog spending and invoicing, which can lead to big savings. Achieving a minimum 90% compliance can save a 200-unit apartment community about $10,000 annually.

Properties are benchmarked against RealPage’s massive database that compiles transaction data from millions of multifamily units and receives a rating from 1-5 based on a numerical score. Achieving the highest value requires mastering processes within RealPage Spend Management.

Streamlining purchasing, invoicing processes

Companies are relying on operational efficiencies to build processes to drive profitability and consistently achieve resident-centric results across the company.

One is doing so by shedding outdated purchasing processes for order placing and invoice processing through automation and ensuring consistent vendor pricing for their communities. Together with the eCommerce shopping experience available using catalogs within RealPage Spend Management, the practices are resulting in direct bottom-line impact. 

Another company relied on the PEPP rating system to understand its utility spend and generate more than $78,000 in savings over the course of a year. The rating system offered greater insight into online ordering and purchasing efficiency, resulting in improved ROI or more than $5 per unit.

The solution is helping more multifamily properties become efficient in spending by streamlining purchasing, invoicing, and vendor activities, Jones said.

“Invoice processing becomes infinitely easier, more accurate and timelier,” she said. “And working with vendors is simpler through compliance management, which gives operators the power to reduce risk, manage payments, and negotiate discounts.”

Learn more about how properties can save by understanding how they rate on spending.