Dear Monty: Five tips for companies to reduce relocation costs
Reader Question: I work in finance with a mid-size publicly traded company. We outsource our relocation policy to a third-party relocation company. Our costs to relocate continue to rise yet our relocation company says that short of reducing benefits, there is not much we can do. What is your answer to the question, “Is there anything we can do?” Bill G.
Monty’s Answer: Not having reviewed your company’s relocation policy and relocation demographics, to provide a concrete reply is not possible. The goal of a corporate relocation is to satisfy the company’s business needs. It is also important to provide for the employee, and their family throughout the relocation process. Many companies could improve cost results, but they focus their efforts on service fees instead of the policy. The relocation company reacts by creating internal procedural changes to reduce their costs which unwittingly adds a cost to the client.
Five out-of-the-box corporate cost saving ideas
- Limit the number of files a relocation counselor can administer. One example of relocation companies reducing their costs is to add files to the relocation counselor’s caseload. It is not uncommon for a relocation counselor to be responsible for dozens of files. A counselor feeling overwhelmed is far less apt to negotiate a counter-offer or take the time necessary to evaluate local market dynamics to know whether a counter is a good idea. If your vendor cannot incorporate this concept, consider alternative vendors.
- Fire your purchasing department when hiring a relocation company. There is no question the purchasing department is the expert at driving costs down. That’s how they are trained and paid. As best they do to quantify the service, a relocation service is very different than what purchasing typically buys. Because they do not work in relocation, they do not comprehend, nor value, the service requirements. The buyer of the service should be the department utilizing the service.
- Reduce the referral fee the local brokerage pays. In 1985, the typical referral fees agents paid for access to the relocating employee was twenty-five percent (or less). Today, referral fees are thirty-five percent (or more). When corporations pressured relocation companies to reduce service fees, the relocation company pressured agent referral fees to maintain their margins. This action has caused many well qualified real estate agents who, because they are in demand, to no longer accept relocation referrals.
- Get expert review of your relocation policy. Many relocation policies contain provisions that do nothing to help the company, nor the relocating employee, save money. Identifying these provisions is not easy because some of the provisions are real estate myths rather than fact. An example is a popular provision in many relocation policies that sets a maximum price, based on an appraisal, at which an employee can offer the home for sale. The myth is that appraisals are always accurate, and asking more just extends market time. Research conducted by a relocation company some years ago suggested allowing the seller-employee to exceed the artificial price barrier sometimes puts more equity in the employee’s pocket.
- Hire the position you want to fill locally. While there is a risk the new hire will not succeed, there is also risk the relocation may fail. Depending on the job responsibilities and other dynamics this option may not always be feasible, but there will be many occasions this tactic will work and be a plus for other reasons.
A relocation executive named Jim Simon wrote a white paper titled ” The Erosion of Service In The Relocation Industry ” in 2007. The article described how service in the relocation industry had slipped for a variety of reasons. Corporate relocation executives from employers and third-party service providers alike took notice, but nearing a decade later nothing has changed.
The relocation industry faults the recession for higher costs, during which time volume receded. Corporations added costly benefits to counter the effects of falling home values or suspended or reduced relocations. The recession simply disguised the underlying causes temporarily.
Corporations can improve their cost results and service quality by modifying policies and a new approach with service providers. There is the opportunity for additional cost savings in updating program options. Look for ways to reduce loss-on-sale and holding time instead of pressuring the service fee, which is a fairly small percentage number of the total costs incurred in relocation. The focus on loss-on-sale and holding time is where the opportunity for cost reduction lies in relocation.