I was recently watching a video about letting agency profit margins and the amount of work letting agents do for ‘free’ or ‘as a favour’, and how this contributes to the notoriously poor profit margins within our industry.

It’s definitely a longstanding problem. Ongoing analysis from Plimsoll shows that currently out of the UK’s Top 500 Estate & Letting Agency reports the average profit margin is just 2.2%, compared with 7.4% among the Top 500 Software Developers and 10.9% for insurance providers.

The video I was watching identified that agencies spend far too much time carrying out work that they are never paid for, and I wholeheartedly concur! It did make me smile a little because I definitely learnt how to charge for all of those ‘little jobs’ back when I was running my lettings agency, but, if I am totally honest, I have completely forgotten it as a consultant!

I probably spend half of every day doing something for nothing! I start a job and spot something that needs sorting, or a graphic that needs updating, and I do it for the client behind the scenes, nothing charged. What a mug!

We Charge for Our Time and Expertise

When I was running Sewell & Gardner Lettings, we charged properly for the work we carried out. We were not embarrassed about it, nor should we have been. The liability that comes with managing a letting agency is pretty extreme and technical, and I have seen so many of my peers caught out ‘doing someone a favour’ that backfires, so I very quickly learned never to put myself in that position.

We spent a ton of money on ensuring our staff had very specialist knowledge, we were all constantly learning, we invested in the best systems and tech, our professional memberships were incredibly important to us, ensuring that we were always ahead of the ever-growing list of legal responsibilities in the industry. All of that cost a load of money.

Charging for our time and expertise was not greedy, it was sensible and necessary. Throughout my decades in the industry it has always been the case that you pay for what you get in lettings, and the consequences of getting it wrong are quite hefty and scary!

Now, I work with a lot of different letting agencies, all over England and I regularly see them completing work that falls outside their agreed service without charging anything for it. I write agency terms of business, and have done a whole load of those recently in prep for the Renters’ Rights Act, so I know what is missing when I compare their old terms with the ones I use.

Initial fees starting low and then being negotiated down with hardly any argument [usually 1% or even 2% at a time – what happened to small increments?]. Including so many add-ons into one fee, rather than charging extra for each item, not just as a special offer, but all the time, for anyone.

And that’s before we come to the ‘small favours’ section.

‘Could you ask the tenant to drop my mail in and then forward it to me?’
‘I’m having the boiler serviced, can you pop and let them in with the key?’

Before long, your agency is providing additional advice, dealing with small jobs and then larger problems that are not its responsibility at all, but now you’re taking on that responsibility by agreeing to do it.

Each individual favour may only take a few minutes. Multiply those minutes across dozens of landlords and hundreds of properties, over years and years, and the impact on your agency’s profitability becomes pretty significant.

How Being Helpful Affects Letting Agency Profit Margins

Letting agents are, by nature, problem solvers, we spend our days trying to help people.

A landlord calls us with a question and if we don’t know the answer we’ll find out for them. A tenant has a problem and the property manager will try to resolve it. A contractor needs information and someone in the office will sort it out. A landlord decides to sell, refinance, change ownership or complete some paperwork, and the agency gets involved, no problem.

Being helpful is part of providing excellent service.

But there is a difference between delivering the service a client has paid for and continually absorbing additional work because nobody feels comfortable discussing fees or a more junior team member probably doesn’t even think about fees.

If you or your team are regularly carrying out work that is not chargeable, that is not listed in your Terms of Business, and there is no process for invoicing for that work, you are not simply providing excellent customer service, you are helping the business to fail. You are giving away the time, knowledge and experience on which your business depends.

Do Your Terms of Business Reflect What You Actually Do?

Improving letting agency profit margins is not simply about increasing management fees. It also means ensuring that every additional service is identified, explained and charged for properly. Many agency Terms of Business that I read [and I read a lot of them, yawn yawn] describe the main service but say very little about the additional work that arises during a tenancy.

What happens when your landlord client asks you to:

Attend a property for something outside the management service?
Arrange major refurbishment work?
Prepare information for an accountant, solicitor or mortgage adviser?
Deal with an insurance claim?
Produce historic statements or duplicate documents?
Manage licensing applications or additional compliance work?
Oversee or even go and check work before a property is marketed?
Advise on possession or prepare evidence for legal proceedings? Heaven forbid, ask you to serve the notice on a prescribed form, without legal supervision…
Continue working after the management agreement has ended?

If there is no provision clearly stated in your Terms of Business then should your agency be doing that work, and not charging for it? Do you or your team even document the time it takes to do these things?

It is so important to ensure that your Terms of Business clearly explain what your main fee covers and what sits outside that service, what it will cost and how it will be charged. And don’t be tempted to put it into deliberately ‘small text’ as we all know that our fees need to be clear, transparent and inclusive of VAT!

Without that clarity, your team are left to make decisions as situations arise, or your landlords will form their own assumptions about what you should be doing for them, and chargeable work quietly becomes part of the everyday workload that just disappears into the ether.

Are Your Team Allowed to Charge?

A fee schedule is only useful if the team feels confident using it, so have it clear and printed in the office, on your website and, I would suggest, written in an easy-to-understand and read format, for printing or emailing.

I often come across letting agency owners who introduce additional charges but then allow the team carte blanche to waive or ignore them as they feel they should. That certainly teaches the team member and the client that the fee was never really justified.

It is of huge importance for your team to understand why the business charges for additional work and how to explain it and when they have authority to make a commercial exception.

One situation I recently came across was the cost of organising a rent increase, which can now happen annually under the Renters’ Rights Act legislation. Effectively, this is going to ‘replace’ any old ‘renewal’ fees, which are now lost for those agencies who did claim them previously.

So make it part of your process, add a charge for sourcing the rental figure – so your property manager now needs to obtain comparable evidence from recently let properties that are similar, prepare a legal Section 13 Notice correctly, and negotiate the increase with the tenant. It’s a lot of work.

What happens if the tenant disagrees and this now needs to involve a First-tier Tribunal, time on preparing the paperwork, attending hearing[s] and the liability that you may have got it all wrong [or your junior property manager did]… All for nothing? Think again!

There will always be occasions when waiving a fee is the right decision. But it should be a conscious business decision, not the default response to an uncomfortable conversation, so I would also suggest some good negotiator training from an expert, not just the outgoing employee who no longer really cares now they are leaving.

And Then I Looked at My Own Business

This is the point at which the video made me stop and think.

I advise estate and letting agencies on their services, systems, fees, Terms of Business, compliance and profitability. I run numerous social media accounts, I build and update agency websites, I write blog articles and ensure that they all have the best SEO and that their local Google business is working perfectly. I tell all of my clients to value their knowledge and stop giving away work that should be chargeable, I revise their fee structures and a hundred times I see their profit margins increasing.

Yet I am also the person who answers the quick question that turns into an hour, reviews an email or a document because it will “only take a minute” and continues helping long after the work has moved beyond what was originally agreed. Apparently, I am much better at giving this advice than following it.

I suspect I am not alone in the ‘do as I say, not as I do’ position.

When you know your clients well and genuinely care about their businesses, it is easy to blur the line between being supportive and working for free. But a business cannot be sustained on goodwill alone. It’s time for you and I to pull our socks up!

Charging Properly Is Not Poor Service

Clients do not only pay for the time it takes to complete a task. They pay for the years of experience that allow you to understand the problem and deal with it correctly. Charging for additional work does not mean becoming unhelpful, inflexible or obsessed with billing every five-minute conversation.

It really does mean recognising when a request has moved beyond the service the client purchased. Of course, when you are dealing with hundreds of clients, you need to have a structure and not rely on everyone paying differently, or the team could get very confused.

It means setting expectations before completing any work, so have clear notes on your system or files of anything that has been agreed ‘gratis’ for a client, and if not, then your standard [easy to find] fees apply.

It means valuing the time and expertise of yourself and the people within your business. It also means, more importantly, increasing your letting agency profit margins.

When Did You Last Review What You Give Away?

It may be worth looking at the work your team completes over an ordinary month. I admit it can be a pain to do, and probably will need lots of reminders in place, but get your team or certain key people to monitor what they do hour by hour. Ensure that they ‘don’t make it up or guess’ so perhaps look at a time or project tracking software for a while, and then you ask:

Is this included within our agreed service?
Is this covered by the fee we charge?
Does this landlord client understand that this is chargeable?
How is this charged?
Are we routinely waiving legitimate fees?
Do our Terms of Business reflect how the agency operates today?

The problem is rarely one enormous piece of unpaid work. It is the accumulation of hundreds of small jobs that have gradually become expected as part of your service, or which are just completely flying under the radar. This is exactly how letting agency profit margins are gradually eroded, one seemingly insignificant favour at a time.

A few minutes here, an additional favour there, one more quick question answered. Individually, they appear harmless but collectively, they can be the difference between a busy agency and a smart, profitable one.

Sometimes the advice we give most confidently is the advice we most need to hear ourselves, so rest assured, I will be charging for my little jobs too.

Could Your Agency Be Giving Too Much Away?

If your letting agency is extremely busy but the figures do not seem to reflect the amount of work being completed, it may be time to examine what your team is doing, what you are charging for and what you are quietly giving away. If your Terms of Business no longer reflect the work your team carries out or the fees you should be charging, take a look at our bespoke landlord Terms of Business service.

🩷 Property marketing & consultancy
🩷 For estate & letting agents
🩷 Social media | websites | content | compliance
🩷 35+ years in property

Jane Gardner

I work all over the UK with various business owners, dedicating my creative and expert property knowledge from almost 40 years in the industry. I am a Level 4 ARLA Propertymark examiner, I sit on the board of Agents Giving Charity and I love everything property related! I can be contacted on 01923 627777 or by email to jane@social-angels.co.uk