Real estate brokers, team leads and agents: Start 2019 strong and gain a competitive edge by stopping the guesswork and adopting well-established metrics and goals.
Everyone has their own idea of success. Maybe it’s a nice house with a pool, a long holiday to a tropical destination or providing for your family. It’s important to have this kind of long-term vision.
But real estate agents and brokers also need to measure success in a way that breaks down current and future business with easy to understand, concrete, straightforward, insightful and actionable goals.
A 1979 study done by Harvard Business School revealed something interesting. When a small portion of its MBA program graduates wrote down specific and measurable goals and made plans on how to achieve those goals, they earned 10 times more money after 10 years compared to the other graduates, who didn’t write down goals or make plans.
The takeaway is particularly true for real estate pros whose brokerage or team success is determined by multiple factors, from cyclical economic trends to agent performance. By recording specific, measurable goals with a clear action plan attached to each, brokers, team leads, agents and marketers will gain more accurate insight into those individual business success drivers.
Of course, most real estate brokers do have a reasonable idea of the money flowing in or out of their business. As long as they regularly see commissions reaching their bank accounts, everything must be going OK, right?
Not necessarily. Real estate businesses are a bit like a black box. Brokers see activity going in with number of agents hired, calls made and follow-ups and the commission checks going out, but they often have no idea what happens in the middle. Which agents are actually hitting their goals? Which leads are culminating in closed business? This is where KPIs come into play.
KPIs are like a torch that lights up the road and helps brokers, agents and team leads navigate.
Here, we collected the top KPIs to help real estate brokerages and teams shed a little light on that black box and make 2019 the most strategic growth year ever.
It’s almost impossible to single out one KPI that’s most important for brokers. In fact, brokers should look at many KPIs every day. But, if we have to choose one, it would be net income.
Simply put, net income gives brokers an in-depth view into the business in one single figure. Once a brokerage monitors its net income closely, any unexpected variations can signal changes affecting the bottom line, such as commission, average sale price and units sold. Once the problem has been identified, brokers can set specific goals to address it.
Because net income is connected to so many variables, brokers should set the target as a range instead of an absolute number. A study published in the Journal of Consumer Research found that a target range makes it more likely to attain that goal. For instance, instead of increasing a brokerage’s net income by 10%, the goal might be to increase it by 5% to 15%.
Generally speaking, brokers’ targets should aim for two main goals:
1) Increasing revenue
2) Decreasing costs
A few of the KPIs discussed below can help drive revenue, depending on whether the problem lies with the team, individual agents, marketing or some other area.
Cost reduction, however, requires making the business more efficient. Is the return on the investment in each area high enough? For instance, a broker investing dollars in Google ads should track how much business the investment actually generates. If the return on investment isn’t performing to expectations, other types of marketing may be a better fit.
Average sales price offers a great indicator for real estate teams to gauge their collective gains. Teams yielding higher than average sales prices typically indicates that the agents are negotiating better prices, targeting higher value properties and actually closing deals.
On the other hand, when average sales price stagnates or drops, but the market is going up, the team may need to shift their strategy.
Average sales price also lets team leads compare one team to another. The team who achieves a higher average sales price is likely to bring in commission more efficiently, working less per every earned dollar. This team’s performance can help set the benchmark for the rest.
To increase average sales price, team leads may try engaging their teams in a little friendly rivalry. According to a study carried out by Rutgers University, there’s a correlation between competition and attention — those who can clearly see the competition ahead of them are more alert and able to quickly identify opportunities in which to advance.
For individual agents, the number of contracts offers a straightforward, easy-to-understand metric in assessing performance. Generally speaking, better agents close more deals.
Brokers and team leads looking to have performance-related conversations with agents should start here. The agent can then indicate where they’re struggling, which will help open the conversation on how to change their approach.
Set benchmarks for number of contracts based on:
• The agent’s level of experience
• The type of property they’re selling
• The neighborhood they’re covering
Brokerages and teams who know how their customers became clients will be more enabled to make strategic marketing decisions, including where to market the brand, what messaging performs best and any areas of specialty in which to position the brand.
The source of business will play a key role in the marketing strategy. Did last year’s best leads come from social media, a website or referrals? In fact, marketers with a documented strategy are 500%+ more likely to report success than those who don’t, according to a survey of nearly 1,600 marketers on predictors of success by the marketing firm CoSchedule.
• Identify how many deals resulted from each source of business
• Decrease those sources of business that resulted in few deals
• Increase those sources of business that generated more deals
Brokers usually know about a transaction once it’s closed and the money is flowing in, but there are often many pending transactions that brokers simply aren’t aware of because they have limited visibility into those transactions.
Why is this important? Real estate is a long-term game, and every effort put in today only results in more cash tomorrow. If production dips dramatically today but a broker doesn’t find out about it until three months later, it’s too late. That’s why brokers and team leads need real-time tools, like dotloop Business+ and dotloop for Teams.
Dotloop’s integration partners can also help provide visibility into the pipeline. Zipi, for instance, offers at-a-glance views of all pending as well as closed deals. This business insight automation and back-office data management solution provides customized reports, like average price, income pending and commission validation, and it integrates with dotloop to streamline business tracking and commission verification data.
Brokers and team leads who can forecast their production will always be in a better position to respond to unforeseen fluctuations. For example, an increase in expected production over the next six months might signal it’s time to expand the business or hire more agents.
• Increase production in pipeline by 20% over the next 6 months
• Start exploring new areas once production in pipeline hits $X
Real estate pros who track even just one of the above KPIs are more likely to see positive outcomes in their businesses because they have identified and fine-tuned the individual key elements that result in a better bottom line.
Indeed, brokerages and teams who are serious about tracking KPIs should automate their business metrics on a weekly or even daily basis to stay up to date and in control.
While tracking KPIs are not a priority for many real estate businesses, those brokerages and teams who start monitoring their KPIs and setting goals for each one will soon gain a huge competitive advantage.
Jesse Garcia, CEO of Sacramento, CA-based business intelligence automation and back office data management solution Zipi contributed to this article. Learn about Zipi’s integration with dotloop here.