When a cart driver wanted to get his mule to move, he could choose between two methods to get the animal to go forward—a carrot to entice or a stick to hit.  Today, the idiom of the carrot and the stick has come to mean a policy of motivating people into action by offering a carrot (a reward) or a stick (a penalty or punishment).
It’s human nature to seek out rewards and avoid pain. Everyone from employers and teachers to parents and landlords tap into this instinct using some combination to motivate others to action. Many studies show that rewarding people is more effective than punishing them because it creates conditions where they want to put forth maximum effort rather than do just enough to escape penalty.
As a landlord, finding your tenant’s carrot means offering rewards for paying rent that motivate him or her to do so on time, every time.

Implement a Strategic Reward System

Just like some businesses set up an employee reward system for good performances, you can implement a strategic reward system with tenants to get on-time rent payments. Make sure the conditions for the reward are clear and uncomplicated so tenants know exactly what they have to do to qualify and what the subsequent reward is.
Avoid setting up a system that is all or nothing. You don’t want to make the mistake of implementing a reward system that makes tenants feel like there’s no point in paying rent on time if they mess up once. The idea is to create a long-term system of incentives so tenants will strive each month to pay on time.
If the reward system requires a perfect “score,” tenants may give up and stop trying. Finally, make sure the rewards fit within your budget yet are enticing enough to motivate on-time rent payments.  If the incentive is too small, tenants won’t make the effort to obtain it. If it’s too big, you could be cutting into your profits unnecessarily when a more modest incentive would do the same thing.

5 Tips on Finding Your Tenant’s Carrot

Tip #1. Early Bird Discount

Let tenants know that if rent is paid on or before the first of the month, they can deduct a certain discounted amount. If rent is paid after the first of the month, the standard rent is due. Depending on how you collect your rent, make sure that the deadline is clearly defined—is it when they hand you a check or when that check clears their bank, for example.

Tip #2.  Discounts for Auto Debit and Credit

Give tenants a discount on rent when they sign up for either automatic debits or credit card payments. This way, rent is deducted automatically from their bank account or credit card and put into your account. It saves you the hassle of making deposits and tracking down tenants, and it’s more convenient for tenants who may be a little forgetful when it comes to paying bills.

Tip #3. Refund It

Set up a refund program where you put a portion of each month’s on-time rent payments into an account. At the end of the year, you provide a refund of sorts. For example, you deposit $15 from the rent amount each time the tenant pays on time. Assuming the tenant paid on time for 10 months out of the year, he or she would receive $150.

Tip #4. Gift List

Provide tenants with a gift list that corresponds to the number of on-time payments for the year. For example, with 6 months of on-time rent, the tenant can choose between a few of your top-of-the-line selections. Prizes for fewer on-time payments within the 6-month period decrease in value accordingly, but should still be nice enough to provide incentive for tenants to work toward.

Tip #5. Community Drawing

For landlords who manage a multi-unit property, consider a drawing every 3 months where tenants are entered based on paying rent on time. For example, a tenant who pays rent on time for 3 months will be entered in 3 times, boosting the odds of winning over someone who has only paid on time once during that time.
The prizes need to be big enough to motivate tenants to participate and when the winner is chosen, make sure to advertise that in your community newsletter to entice others to try again next time.

Tenant Carrots Will Differ

Part of finding your tenant’s carrot when it comes to on-time rent payment means understanding what the best incentive will be. Making the right match between your tenant and the reward will propel your incentive program toward success. For example, a young college student may not be interested or capable of doing an auto debit plan but would really make an effort to get some of the prizes on your gift list.
A hardworking family with regular paychecks may not be able to make an early bird incentive each month, but would appreciate the refund incentive, especially around the holidays. Finding your tenant’s carrot for on-time rent payments will really benefit you when it comes to how much of your time and money you’ll save. An incentive plan can also go a long way toward solidifying a respectful landlord/tenant relationship and ensuring that good tenants renew with you year after year.
Do you offer on-time payments incentive? Does it work? Please share this article and let us know your experiences in the comments section below.

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