Welcome to the Mobile Home Park Mastery Podcast where you will learn how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate mobile home parks! Your host is Frank Rolfe, the 5th largest mobile home park owner in the United State with his partner Dave Reynolds. Together, they also own and operate Mobile Home University, the leading educational website for both new and experienced mobile home park investors!
We use commissions and bonuses to promote certain behaviors by our managers. We do it to foster a spirit of trying to hit goals, to hit targets. It's been working really well. We sell about 1200 homes a year for the last few years, and we could have not hit that amazing threshold if we did not offer very important and insightful bonuses and commissions to push people forward to attain great things. But we've learned over the past 30 years, there's a lot people need to think about. A lot the park owners need to know about setting those commissions and bonuses. This is Frank Rolfe with the Mobile Home Park Mastery Podcast. We're gonna focus on setting good manager compensation levels for doing extremely good work that's worthy of getting that pat on the back. So let's first start off with something that we learned at least 20 years ago, and that is that for a commission to have the wow factor with a manager, it has to be at least $250.
Over the years, we tried different amounts. We tried $100, we tried $150, but we found that there's something in the world of material things that managers seem to really relish that starts at $250. It's really amazing. If you pay someone $200 to do a behavior and $250, your chances of hitting what you wanted to attain. If you offer $250 is much, much greater. So when it comes to commissions and when it comes to bonuses, you gotta be at least at $250. If you think you're gonna get anyone motivated by offering them $50, it's not going to work. Is it because of inflation? The higher price of the all you can eat shrimp meal at Red Lobster? I don't know. But all I know is that $250 is typically the beginning baseline you need to be at. But we've also learned over the year that the wow factor is lost once you exceed a $1000. So if I give someone a commission or a bonus of a $1000, I will get the same end result that I would get if I gave them $2,000 or $3,000 or $5,000. So when it comes to bonuses and commissions, I think it's a pretty safe bet based on our research that the minimum amount you need to hit is $250 and the maximum, the highest you need to go is around a $1000.
You also need to make any commission or bonus based on very simple to understand rules. A lot of park owners screw this one up. It's one thing if you tell the manager, look, if you hit this occupancy level, if you obtain one more home sold this month, then you win, then you get the commission. But unfortunately, people like to put it in these very complicated algorithms. They might say, okay, here's the deal. You gotta hit a collections rate of this. You gotta hit a sale of this. You have to hit a price point of this. That just ruins it. Managers aren't really wired to approach things in that complicated fashion. And the problem is when they don't really fully understand the commission, they lack the firepower. And they're also endlessly disappointed when they don't get it because they thought that they would.
A lot of our sales contests are titled Hit It and Get It. They're very simple. If you sell two homes this month, you win the prize. I like to go to Carnival Midways with my daughter, have been doing it all the way since she was a little kid. It's always fun to play carnival games. See if you could win the big stuffed animal. You ever notice how simple those games are? You throw the dart, you pop the balloon, you win the prize that's inside, you shoot the basketball through the hoop, you make it, you get the big teddy bear. Can you imagine how unfun it would be if you have to pop the balloon in a certain order and you can only get a prize if you hit the balloon of one certain color and even then only if the balloon is of a certain circumference? You wouldn't do that game. They'd say three darts for $5. You'd say, nah, I'll keep the $5. So don't make your commission structures too complicated. It's a turnoff. It will actually hurt you hitting your goals. 'cause The manager will become disillusioned and disgruntled and say, nah, I'm not even gonna try anymore. I thought I won it. I didn't. I just kinda gave up.
Also, you need to figure out your manager's currency. There have been books written by people trying to understand and unlock the mystery of bonuses and commissions. And I talked to a guy once who did factory turnarounds. So not mobile home park turnarounds, but he would turn around factories that were not producing the correct number of widgets. And he told me the key item to turn those factories around was you had to start doing commissions and bonuses, but he found it was more effective if you didn't do it in cash, but you did it at each individual employee's currency. So he told me upon taking it over the factory, he would ask around, what's the foreman really into? What's he like to do? And they might say, oh, well the foreman, he's a huge fan of baseball. He loves going to baseball games.
So then the guy would go to the foreman and say, Hey Foreman, here's the deal. If you attain this number of widgets made by the factory this month, I'm gonna give you two box seats at the baseball game. Now you might say, now the employee could have done that themselves. They could have gone out and bought the box seats, so just give them the cash. But the problem is they wouldn't do it. They feel it was wasteful or their spouse would say, no, we can't spend the money on box seats. We gotta spend that money. We gotta put it in the bank for the kid's education. So by understanding their currency, he unlocked an even bigger driver because sometimes when you pay people in cash, that cash gets diverted away from things that they love. But if you can find things they really love and care about, then they're gonna fight even harder to attain your goal.
Now the final thing you gotta think about with commissions is once you start, you can't stop. That's the way it works. It's kinda like when we buy parks and the manager's horribly overpaid and you ask mom and pop during diligence, how in the world did this manager and this not that large community come to be making $75,000 a year? And they say, well, it's a sad tale. You see, I started back when we're making about 25 grand a year, and I gave him a bonus and then I had to do it again the next year because I gave them that same amount of increase in their pay. And then every year I had to give 'em another raise, 5%, 10%, and just kinda snowballed into about $75,000. And I know it's wrong. I know it's terribly stupid. I know they should be making about 30, but I didn't know what to do.
That's what happens when it comes to commissions and bonuses. Once you start doing it, you really can't stop. If you stop, then you may well even lose the employee 'cause they'd feel like they can't trust you anymore, like you've ripped them off. So make sure before you do it that you're willing to do it for the long haul and make sure that whatever behavior you are trying to attain, that they have to really put in some effort to hit it that isn't just gonna automatically happen. For example, if you buy a mobile home park in turnaround mode and you institute some kind of commission structure where if 90% of the rent is collected by the end of the month, the manager gets $250. You gotta remember that a few months in, even if a manager didn't do anything, the rent would hit that because all those early rent stragglers would've left.
Soon as you institute no pay, no stay, they're gonna leave the building. Manager doesn't have any impact on that. So make sure that whatever it is that you want to reward, the manager really is the major player in that deal and you wanna continue on doing that. That's why giving bonuses and commissions on home sales is so simple because we always want that behavior. We always want those homes to fly out the door. But when it comes to other things, you may wanna give monetary advantage to make sure you approach them wisely because the worst thing you could do even worse than not offering the bonus or commission, is to take it away. This is Frank Rolfe, The Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.