Nowhere is this more evident than in brokerage management and marketing departments. The focus on performance and profitability is shifting from management based on instinct and subjective factors (the experience-based model) to management initiatives based on quantitative analysis.
Operational metrics are showing us what actually works as well as what makes it work.
For the uninitiated the term “metrics” is defined by Wikipedia as “a system of parameters or ways of quantitative and periodic assessment of a process that is to be measured, along with the procedures to carry out such measurement and the procedures for the interpretation of the assessment in the light of previous or comparable assessments.”
Metrics are usually specialized by subject area, making them useful only within that subject area. In the real estate industry metrics refer to the statistics generated by looking at the operational history of any brokerage procedure or process.
For example, one might state:
• How many dollars in classified ads it takes to net one closing
• How many agents will be required to generate a certain amount of real estate sales
• What percentage of gross commission income does a company expend for rent
The good news is that after years of relying on experiential recall, emotion and hunches the industry is now moving to management decision-making based upon the quantitative results of the past operations of both the company and other similar companies.
One of the factors driving this new direction is the greater availability of operational metrics from all areas of the real estate industry. The research of the California Association of Realtors® (CAR) provides an excellent example.
CAR is an organization that, through the years, has become almost synonymous with innovation and creativity. Earlier this year CAR issued a report regarding the industry’s experience with lead generation and conversion. In that report, CAR set forth a complete set of metrics that relate to the experience of companies that utilize lead generation.
More specifically:
• 86% of consumers rate internet response time as critical
• 33% of “X’ers” expected an immediate response
• 20% conversion rate is an attainable target
Another sterling example of metrics in action is the work of Steve Murray and the Real Trends organization. By processing data collected from more than 500 brokerages nationwide, Real Trends provides invaluable data in the form of “benchmarks.” These benchmarks allow real estate firms to compare their financial and operational performance with an industry-wide database.
Examples of these benchmarks for year-end 2006 include:
• Company dollar/gross margin: 27.7%
• Employee Costs: 45.6%
• Rent and occupancy costs: 18.6%
• Advertising: 12.5%
• Pre tax operating margin: 4.7%
An increasing number of industry speakers are expressing their findings in the form of benchmarks and metrics. By way of example, 8 out of 13 speakers at the Real Trends Gathering of the Eagles conference in May used metrics to support the points and positions outlined in their presentations. Dan Elsea, President of the Real Estate One firm in Michigan, shared one classic example. Elsea’s primary mission was to share his company’s experiences in the area of Internet lead generation. Yet his presentation actually created completely new industry metrics and benchmarks relative to a whole range of lead generations techniques and initiatives such as:
• 3,500 unique visitors to one closing
• 70 specific inquires to one closing
• 10 specific referrals to agents to one closing
• Average company dollar on each lead closed $2000
• Company dollar per transaction is 26% higher than agent lead
The easy availability and use of best-practice metrics and benchmarks clearly represents an important step forward for brokerage management.
However, as is the case with all good things, brokers must recognize that great management will always balance a number of components. Focusing on the bottom line and/or whether sales are going up or down will always be critical. In the weeks and months to come, accountability and return on investment will be important. However, the key will be to reach the proper balance with respect to statistical input.
One good guideline for those trying to maintain the proper balance is that metrics and benchmarks are indicators of where things are, not targets of where they should be. Senior managers must use data as a tool while assuring that they do not become simply a “tool of the data.”
The winning management equation in today’s fast changing industry environment will depend upon proper portions of powerful creativity, driving innovation and quantitative analysis. Metrics will certainly tell a company where it is but, in a fast moving world, it will never tell managers where the company should be. That, for good or ill, will remain the product of that old fashion gut instinct and experience.
This same need for balance holds true within the perfect management team. Having strong financial executives who can tell the CEO where they are should never be confused with having creative thinkers and innovative minds coming up with new places to go, new experiences to deliver, new consumers to captivate and new markets to conquer.
Isn’t it about time to set your course with the best navigation data and systems available, depart at the break of day, and depend on your crackerjack crew to explore new frontiers?
