How to Plan and Budget for CRE Software Implementation

Commercial real estate (CRE) software is a must-have for operations large and small. In part one “Why You Only Need Two Platforms to Manage Commercial Real Estate” of our CRE software series, we discussed auditing your existing operations to root out inefficiencies and begin the road to increased profitability.

Today, the CRE software market is projected to reach $4.56 billion by 2030, demonstrating that a viable platform is at the heart of commercial real estate management. However, deciding to implement CRE solutions is merely the first step to success.

In this guide, you will learn about CRE software costs, different pricing models, and how to incorporate the numbers into your decision to upgrade to an industry-leading CRE solution.

Understanding CRE Software Costs

Analyzing the price of CRE software is crucial to making the right decision for your operation. Unfortunately, determining costs and where they originate is easier said than done.

Different software providers may all levy various charges for the features and functions that enable their products to operate. Some examples of standard CRE software costs include:

the-ultimate-guide-to-cre-property-management-software

  • Licenses – These licenses are required for companies to use software legally. Licensing has long been one of the most popular models.
  • Hardware – Additional hardware may be required to run a CRE solution. This is especially pertinent if you are using outdated or legacy hardware.
  • One-Time Fees – Becoming a customer with a software provider for the first time may incur a range of one-time fees. These could be an initial cost to purchase a software license or obligatory onboarding and training costs.
  • Subscriptions – Besides one-time fees, CRE software providers may levy ongoing subscriptions to their customers.
  • Per-User Costs – You may be required to buy more than one license or subscription based on the number of user accounts required. Naturally, business owners must think carefully about how many accounts their commercial real estate management team needs.

Some commercial real estate management platforms are free, requiring nothing more than clicking “Download.” Although the idea of no subscriptions, startup fees, or feature-based costs may be attractive, choose these options carefully.

Typically, they may lack the intuitive features you expect, thus minimizing the benefits. Plus, some may nickel-and-dime you for added features as and when you need them.

Beware the Hidden Costs

Like any software, the sticker price may not tell the whole story. Some platforms may charge additional fees that can turn a good deal into a bad one.

Some of the most common additional fees charged include:

  • Add-ons.
  • Employee training
  • Onboarding sessions
  • Data migration
  • Customization

Further Reading:

Many of the features you require may not come as standard, which may necessitate upgrading to a higher-tier subscription. Moreover, checking whether the price is the actual price or an introductory offer is essential.

As always, this underlines the need to conduct an in-depth audit of your needs and define a budget before selecting a solution for your commercial real estate operation.

Calculating Your Budget

Every commercial property manager understands the challenges striking the industry today. In fact, Deloitte reveals that 50% of managers believe capital costs will worsen throughout 2024.

FYXT-Marketing-quote-1

Preparing a budget ensures organizations avoid capital waste and accurately measure financial performance against their CRE investment.

Answer these three key questions to calculate a budget.

What Do You Need?

Before researching CRE solutions, you must determine the features your company needs. This will depend on how you operate, the size of your portfolio, your team, the number of tenants, and so forth.

What are your priorities? Based on the first part of this series, some of these needs may include:

  • Automating manual tasks
  • Expanded customer service capacity
  • Cost visibility
  • Customization for specialized commercial real estate
  • Streamlined compliance

By identifying your priorities, you can identify your must-have features.

What Will It Cost?

FYXT-Marketing-quote-1

Avoid making decisions based on the advertised price alone. You must consider the added costs of implementing brand-new platforms as part of your investment.

Smart businesses know the value of itemizing to streamline budget allocation and track every dollar. The costs of CRE implementation may include:

  • Initial software costs
  • Ongoing subscription fees
  • Employee onboarding and training
  • Premium customer support
  • Access to additional resources

Charging Models of CRE Software Companies

Property management software requires a firm understanding of the features and how each solution can drive results. On the other hand, the cost is one of the initial points of confusion. Every brand operates using a selection of pricing models, and this is where things get complicated.

Here’s an overview of the most common pricing structures you are likely to encounter:

Unit-Based Pricing – Unit pricing focuses on how many units you own. How much you pay depends on the number of properties you are managing. Typically, each brand will have certain thresholds. Once you cross this threshold, you will be upgraded to a new subscription tier. This kind of software may also include other forms of pricing. Appfolio and Yardi Breeze use unit-based pricing.

Monthly Subscription – The most common pricing model is the monthly subscription. Fyxt operates using this model, whereby you pay a monthly fee for platform access. This is the preferred model because it is also the simplest.

Plan and Budget for CRE Implementation

Feature-Based Pricing – In this model, you pay depending on which features you require access to. Some solutions may offer simple management and reporting, whereas others offer features like online rent collection and tenant screening. Some examples of popular solutions using feature-based pricing include Tenant Cloud and Buildium.

Tiered Pricing – Tiered pricing divides its platform/features into several levels. Thresholds are often divided by the features available or by portfolio size. Propertyware is one company that does this, with three distinct tiers.

Onboarding & Setup – Onboarding & Setup is a pricing model whereby you can expect to pay a fee for the initial platform. But you’ll also receive another bill for training and onboarding. Note that this billing model might be incorporated with the above, too. Appfolio and Buildium use this billing structure.

Freemium – Freemium is something you might be looking at if you’re a new brand with a minimal budget. You’ll have a free trial or feature-light version if using the freemium structure.

Private Quote – Private quotes mean precisely what you think. There’s no standard cost, and you won’t find anything but estimates online because the quote is tailored to the client. MRI software is one vendor that does this.

Negotiating Discounts with Your CRE Software Provider

Volume and seasonal discounts may be available from your software vendor. However, entering a contract with a software vendor means balancing your needs and getting the best possible price.

Typically, it’s best to focus on different commercial terms within your contract when paying for your license/subscription. Some areas to focus on include:

  • Business Terms – Business terms may include upgrading your license at a lower cost or paying a more significant upfront fee in exchange for lifetime access instead of regular subscriptions.
  • Termination for Cause/Convenience – Some software providers may require minimum contracts, with charges levied for leaving early. Negotiating these terms can add more flexibility to your solution and increase your ROI.
  • Renewal Caps – If you’re a larger company, you might be able to lock your prices at their current levels or put a cap on annual increases.

But what’s the key to successful negotiation?

It’s not about asking for a discount. It’s about explaining why the vendor should consider giving you a discount. For example, if you’re a national operation generating millions of dollars a year, showing a vendor why your business is worth having is easy.

In short, you’ve got to show the vendor why offering better terms and prices makes sense for them in the same way it makes sense for you.

Long-Term Contracts vs. Pay-As-You-Go: Pros and Cons

Software-as-a-Service (SaaS) is the go-to option for CRE companies in this day and age. Approximately 94% of organizations were using them. But should you lock yourself into a long-term contract or opt for the pay-as-you-go model?

Each option has its advantages and disadvantages.

How to Plan and Budget for CRE Implementation

Pros and Cons of Long-Term Contracts

Pros

  • Easy to predict costs.
  • Loyalty benefits, such as priority customer support.
  • Added stability.
  • Simple to plan for the future.
  • Better prices.

Cons

  • No flexibility in your contract.
  • Getting tied in for a minimum period.
  • Being stuck with a specific vendor.
  • Cancellation challenges.

Pros and Cons of Pay-As-You-Go

Pros

  • Added flexibility.
  • Cost efficiency.
  • Ease of entry and exit.
  • Strong adaptability.

Cons

  • Unpredictability of costs.
  • Potentially higher prices.
  • No loyalty perks.
  • Internal administrative overheads (managing payments, invoices, and so forth).

Calculating ROI on CRE Software Implementation

Digging into the numbers is pivotal to determining whether a particular CRE solution makes financial sense as an investment. According to the figures, the cost of poor software quality has risen to $2.41 trillion, up from $1.31 trillion two years ago.

In other words, you need to ensure that you have the budget to translate into a positive ROI for your commercial real estate operation.

Regarding ROI, quantifying it in real estate requires examining the benefits, such as time saved, customer experience improvements, or costs saved (such as in the case of automation). Ideally, you will prepare multiple estimates to map out potential outcomes, including a pessimistic, realistic, and optimistic estimate.

Plan and Budget for CRE Implementation

All types of CRE software must deliver a direct or indirect ROI to make sense for your business. But what does it take to calculate your CRE software implementation ROI?

Key Performance Indicators (KPIs) to think about in your ROI calculations include:

  • Time Savings – How much time does your software solution save?
  • Efficiency – Is your team more efficient? Are they able to focus on more strategic tasks like growing the portfolio?
  • Tenant Experience – Do your customers benefit? For example, perhaps the time you take to address maintenance requests drops.
  • Net Operating Income (NOI) – Calculating NOI is also essential. If you notice an immediate bump in business following implementation, this is a positive sign that your software has made a difference. However, this must be divided from any other changes you may have made or market fluctuations.
  • Operating Expenses (Op-Ex) – This includes costs related to manual processes, existing software subscriptions, maintenance, and administrative tasks.

Long-Term Value vs. Upfront Costs: A Balanced View

Determining upfront and ongoing costs is relatively simple, but deciding whether the long-term value surpasses these costs requires taking an honest, sober look at your operations, financial projections, and tangible results.

Plan and Budget for CRE Implementation

This is why it’s strongly recommended that you prepare ROI projections based on optimistic, realistic, and pessimistic outcomes. Likewise, you should also differentiate between initial ROIs during those first few months and annual ROI.

Again, this is not an exact science, but your upfront costs will gradually dissolve over the years. Instead, you will examine ROI against ongoing costs, such as paying a subscription fee or onboarding new team members.

Making Smart Choices With Your Budget

With a rough budget, you can begin to drill into exact dollar figures for your CRE investment. But an accurate budget doesn’t guarantee positive returns. Making wise choices with the money will enable you to write your next success story.

It begins by choosing the software that actively grows your business. Again, this goes back to the results of your internal audit and the KPIs you outlined during the planning stage.

In other words, how can a particular software platform grow your business? For example, Fyxt focuses on integrating automation within your property management workflows. Simultaneously, it includes unmatched property management analytics to enable property managers to make decisions based on never-before-captured data.

In essence, budgeting is a matter of increasing performance through technology while mitigating risk.

Following on from auditing and budgeting, the next guide in our series will focus on selecting the solution that makes sense for your company.

In the meantime, learn more about our revolutionary commercial real estate management platform by requesting your free demo today.

Ryan Botwinick

Building on a wealth of knowledge and expertise in both real estate and technology, Ryan set out on a mission to redefine the commercial property experience through technology and for the past 5 years has successfully built a team, product, and company to do just that. Ryan is also a member of the Forbes Real Estate Council.

The Latest

74 Commercial Real Estate Terms Every Property Manager Should Know

Investing in commercial real estate opens up an entirely new world of tenancy, property and portfolio management, and financial considerations.

Why You Only Need Two Platforms to Manage Commercial Real Estate

Welcome to the first piece in our series tailored for commercial real estate professionals: Audit / Budget / Select / Implement. This article, focusing on ‘Audit’.

Doom-Loop-banner

CRE Doom Loop: A Perspective for Commercial Property Managers

The commercial real estate sector experienced a jolt earlier this month when an article from The Wall Street Journal illuminated the challenges and risks looming over regional banks.