We measure the success of our businesses in lots of ways and each tells us something different about how we are doing. Some, though important are not quantifiable; personal satisfaction and sense of accomplishment come to mind. You can’t measure them numerically but you know when they are present and when they are not. From a pure business standpoint, however, there are really only three metrics that establish the success of a business: Profitability, Market Share, and Market Value.
Profitability: Tells us how efficiently we are operating the business and whether we are building a business worth having.
(Let me digress with an example! Suppose you are an ordinary real estate broker. You have 20 agents and gross on average $90,000 per month. That’s 20 agents doing half a side a month in a $300,000 neighborhood with you charging, say, 6%. However, month after month you look at your bottom line, and you see $500 or $1,500 or $2,000. It seems very little return for closing ten sides a month! Obviously you are not running very efficiently! So you do a little analysis. You look at your expenses, and right there you see it: 75% on average going for agent commissions. It is the single biggest item in your operating statement. You’re not really operating on $90,000 Gross, you’re giving away $67,500 before you even begin to pay expenses. Fughetaboudit! This is definitely a business not worth owning! Shut it down!)
Market Value: What is your business worth? What could you sell it for? Truth is, most residential real estate businesses are not worth much. That’s because the business is being built by independent contractor agents who can leave at any time for any reason. Therefore the value is really the office location, signage and fixtures plus the listing inventory at the time of purchase. Your Help-U-Sell business is different. It is a business built on marketing and replicatable systems. It is not personality driven (like most ordinary real estate businesses). If you’ve done it right, a new owner should be able to step in, take control of your marketing and office systems and continue to produce just as you have. That’s a business worth having and one that has value.
Market Share: This is where I want to focus because it is a much bigger topic than you might think. Technically, when we talk about market share we’re talking about what portion of the business in your target market you are getting. In real estate, that means closed sides. So, last year, how many closed sides were done in your target market, and how many of them were done by you? Is it 2% or 5%? Is that percentage growing or shrinking? What is a reasonable goal for next year? And what are you going to do differently to achieve that?
Close Sides market share is a wonderful metric, however there are problems with it, too. First, it’s a big number that fluctuates a lot in our business. It wouldn’t make sense to measure closed sides monthly; in our business we have big closing months and not so big ones. It makes more sense to measure it annually or semi-annually, and you should.
What makes more sense to measure your effectiveness month in and month out in your target market is Listing Share. This month, how many listings were taken in the target? How many of them were taken by you? What share is that? 20%? 50%?
Not only does Listing Share give you a metric you can track from month-to-month, hopefully seeing growth throughout the year, it measures your success at getting your key message into your target market. You are in the business of teaching home sellers that they can ‘Sell Fast and Save Thousands’ with your Help-U-Sell office. If your Listing Share is growing, so is your effectiveness in marketing that message. I think you should be measuring Listing Share every month and cumulatively throughout the year.
Going one step further, there are a couple of Key Performance Indicators that don’t really demonstrate the success of your business but rather your ability to deliver on the promises you make your home seller clients. They are Days on Market, Sale to List price ratio, and % of in house or seller generated sales.
To me, Days on Market is from Listing to Pending status. We don’t really control how long it takes to get from contract to closing and that’s why I don’t like to include it. However some MLS’s don’t report the under contract date, so you have to work with the data you can get.
Sale to List price ratio shows how far off list price sellers had to come to make a sale. Did they 95% of list price on sale? Or was it 97%. This does indicate your effectiveness at helping sellers set a realistic price but can also demonstrate the power of your marketing to generate a flow of buyer prospects.
% of In House Sales and/or seller generated sales is important to Help-U-Sell Brokers because these are the situations where sellers save the most.
All three of the KPI can be used as powerful marketing ammunition. Compare your results on the first two against the MLS in your target market. You will almost certainly find that your performance is far better than the MLS, and that’s something to share with potential sellers. The third KPI is valuable in helping a seller decide to participate in the selling process by holding their own open houses. It says, ‘You really can do this and save a lot of money!’
Before we leave this topic I want to hammer home one point. Most of what I’ve talked about here involves your Target Market. That’s probably NOT a Zip Code or Codes (too big) or the entire MLS (WAY too big). It is that town or collection of Carrier Routes you have analyzed and chosen to plant your flag. It’s where you focus your marketing, where you are the expert. Measure your Market Share, Listing Share and KPI there, where your program is aimed.