March 23, 2021
6 Signs Your Utility Billing System Isn’t Working
Utility billing can be an existential challenge for multifamily properties. Many property owners still struggle to get it right. In this post, we review the six signs your cost recovery efforts need fixing – and what to do about it.
Your Cost Recovery Is Low
The purpose of a utility billing system is to recover utility expenses by charging tenants fairly for their consumption. Because of this, the most important indicator of your systems effectiveness is your cost recovery rate.
Unfortunately, too many properties settle for recovering a low percentage of their utility costs. This becomes a silent drain on your NOI (net operating income).
If your recovery rate is low – less than 85% – you could be losing thousands of dollars every month. And if your cost recovery rate is 0% – meaning you’re not doing anything at all – then your financials could be in trouble.
The good news is that a 95-100% recovery rate is possible. To achieve it, many properties turn to a utility billing company for help. But there are only a handful in the industry that will put in the effort to account for every penny in utility expenses.
Your Cost Recovery Is Inconsistent
A high cost recovery rate will transform the profitability of your property. But it won’t mean much if it falls off a cliff the next month.
Swings in cost recovery rates drain your profitability just as much as a low cost recovery. A 100% recovery rate followed by a 20% recovery rate means you’re only recovering 60% of your utility costs.
On top of hurting your bottom line, inconsistent cost recovery makes it next to impossible to budget for your expenses.
There are a number of potential reasons of inconsistent cost recovery. Two frequent issues are mismanaging invoicing and neglecting delinquency monitoring.
The Numbers Don’t Add Up
Utility billing is a lot like accounting or bookkeeping: Money going in should match the money going out. If the utility bills aren’t adding up, you probably have a problem.
In a given month, the expenses you bill back to tenants for one utility should add up to the bill from the utility provider. If your property is submetered, you can compare the consumption data from the devices to the master meter for more insight.
If this math doesn’t check out, you likely have one of two problems:
- Inaccurate bill calculations
- Utility leaks between the master meter and your property
If the issue is with your calculations, you’ll need to take a closer look at the system for errors. If there’s a leak, you’ll need to find and repair the issue to improve your cost recovery.
Residents Complaining About High Bills
When implemented properly, utility billing is an amenity that attracts tenants looking to save money. But creating inaccurate bills has the opposite effect.
The reason for this is simple. Just like credit card invoices and restaurant checks, most tenants ask questions and dispute bills when the charges are excessive or unfounded.
So, if you see a spike in complaints from tenants, you’re probably either overcharging or not communicating how the bill was calculated.
The solution is to take a closer look at your bill calculations. Common issues include malfunctioning meters, billing at incorrect rates and using the wrong RUBS factor.
High Tenant Turnover
If the situation gets bad enough, tenants with unresolved complaints may leave your property. This is because excessive or unfair utility billing has made the total cost of living on your property less competitive with the market.
What’s important to note, though, is that tenants won’t always tell you that the reason they’re leaving is due to utilities. But if you see a massive spike in turnover and vacancies, there’s a chance mismanaged utility bills are to blame.
Poor Communication From Your RBC
Working with a utility billing company can cut costs, save time and transform your bottom line. But occasionally, things don’t go as expected.
Stories about property owners losing tens of thousands of dollars to an unreliable RBC (read, bill, collect) are all too common.
Sometimes the RBC company isn’t forthcoming with the reimbursement checks. Maybe a lack of transparency or service is causing headaches for management and ownership.
Whatever the cause, a rocky relationship between RBC and property ownership can crush cost recovery and impact the property’s bottom line. To get control of the situation, you’ll need to switch utility billing companies quickly and start recovering costs as soon as possible.
For most multifamily properties, properly managing utility cost recovery is an essential yet difficult task. Reviewing your situation and processes is the first step towards improving your NOI.