Building a commercial real estate business is a gradual process that is supported by regular actions and routines. Over time the right routines bring in more inquiry, quality clients, and better opportunities. Like all businesses, the goal is to generate a profit and to look at the key components of both external and internal data points to allow your business to continue to grow and more importantly allow your company to manage the ebbs and flow of the business through pro-active decision-making versus reactive. That’s a good reason to look at your Key Performance Indicators (KPI’s).
You should be looking at your business from the standpoint of where is it positioned in the market along with how efficiently is your business running. At the end of the day, we are in a ‘performance based industry’, and on that basis, we should understand how our brokers’ results are improving; that should be the ‘strategic’ part of what we do. The competition will always be there as we pitch, so wouldn’t it be good to understand how your efforts are improving so you can boost your business profile and income?
By setting Key Performance Indicators for your business, you are taking an interest and strategic position in how you are improving; that’s a good thing. So, what are these indicators, and how can you use them? Here are some to think about:
Fees – The fees that you earn is just a number based on the value of the transaction. Understand and track the fees you are generating. You can start seeing trends on the type of transactions that will generate the most fees for your business. This can be broken down by property type and size of deals. Also, track seasonality of transactions to see when activity is greatest during the year so you can be better prepared for the ebbs and flows of your pipeline.
Listings – Track days on market for listings based on property type, location, and price. Tracking your sale price vs listing prices provides an indicator that you are valuing assets at the market and not just “buying” listings to have them trade a much lower sale price. Tracking this data allow you to pitch your market knowledge of property values.
Market Share – This metric probably requires the most time and effort as it requires you to track the number of listings in your market versus your competitors, but also tracking the time on the market of those listings and what the final purchase price can be used to your advantage. These numbers are valuable when you are pitching or presenting for a listing with a client.
Desk Costs – This is probably the most common metric used in managing your brokerage company. Each producing agent has a cost associated with their desk and throughout the year tracking this metric allows you to better gauge profitability. But it goes beyond just a desk cost, what you should be tracking is Effective Desk Occupancy (EDO). What this shows is how efficiently your business is operating. The most common phrase is the “80/20” rule which essentially means 80% of your revenue is driven by 20% of your brokers. What this means is your business is essentially operating at a low efficiency. The best performing brokerage operations are running at 55-60% EDO.
Opex Ratio – This is a KPI that very few operators track and one that has a significant impact on your margins. This ratio tracks your operating expenses as a percentage of your revenue. Why is this important? Let’s say your average splits paid to brokers is 65% and your Opex Ratio is 29%, what this tells you is that your operating profits are 6%. The industry average Opex Ratio is between 24-27%.
So, do you know how you are ‘positioned’ and are you running your business efficiently? Data and how your use that data helps you get results. With today’s push on data analytics and the ability to now use technology to assist you in better managing your business, its easier than ever to start tracking this information. With the availability of brokerage management tools in the market and the increasing competition for market share and quality of talent now is the time to start working “on your business” rather “in your business”.