Dick McKenna: ‘You must massage your numbers until they throb’

Dick McKenna was my favorite real estate guru.  A degreed Industrial Psychologist who, early in life did Peace Corp type work in Latin America, he gravitated to real estate where he became intellectual conscience of Century 21.  Dick knew more about the business side of our business than anyone I’ve known before or since.  He was the first person I recall being alarmed when traditional brokers began paying higher and higher commission splits.

‘You don’t understand!’ he’d squawk, ‘It is virtually impossible to make a profit if you’re paying more than 68% on average to your agents!’  And he had the numbers to back it up.

Oh, how right he was.

Dick was really big on Marketplace Intelligence.  He wanted us to discover and dissect every morsel of information we could find about a market and then use what we learned to drive our business.  It was all very Help-U-Sell (we’ve always embraced market data as a decision making tool).  That’s where the quote in the headline comes from:  he said it once in a meeting of about 1,000 brokers.

One Help-U-Sell Broker who’s been massaging his numbers recently is Jeff Braun from Union Grove, WI.  Working with his production numbers and those of his MLS for calendar year 2010, Jeff learned the following:

In his local market, he has a 39% MARKET SHARE!

  • When he was the Listing Agent and NOT the Selling Agent, he got 102.30% of list price as sale price
  • When he was the Listing Agent AND the Selling Agent, he got 103.97%
  • When he was the Selling Agent and NOT the Listing Agent, his buyer clients bought property for 94.30% of list price.

Do you think anyone trying to decide who to work with in Union Grove, WI would be interested in these numbers?  Of course.  Obviously, working with Jeff is one sure way to ensure you do okay buying or selling a home.

My message is this:  it’s January, a great time to review stats from last year.  Get your numbers together in the following categories then compare your results with the MLS.  I promise you, you will almost always beat the MLS and sometimes you will beat the MLS by so much, it’s worth crowing about!  Check:

  • % of listings taken that sell
  • Days on market (listing to pending – from that point on time frames are largely out of your control)
  • Sale price as a % of list price for properties where you were the listing broker only, the selling broker only and both the listing and selling broker
  • Fall out rate on pending transactions
  • Anything else you can think of

Then (assuming you are better than the average bear in your area — and you are),  create a one page summary of what you find to use in your Listing Presentation.  Heck, if the results are really good, why not include them in your advertising? It’s information like this that will make your marketing throb.

More

The truth about the real estate business is there are not enough transactions to go around.  If you were to take the total number of closed sides each year and divide them equally between all of the real estate agents and brokers in the business . . . well, everyone would starve.

I remember years ago, when I moved my office from one part of town to another, all the other brokers were friendly.  They acted like they were glad to see me and said things like, ‘there’s plenty of business for everybody.’  Then, of course, they went home to stick pins their voodoo dolls and hope for my demise —  because there’s NOT enough business for everyone.  I knew it;  they knew it.  If I was going to make it I was going to have to get more than my share. . . and that meant I was going to have to take it away from them.

Getting more than your share . . . more listings, more buyers, more sales . . . that’s what Help-U-Sell is all about.  It’s  a strategy for getting more and ultimately for becoming a dominant force in your local marketplace.

More.  It’s basic business.  All businesses, from the corner grocery store to the Fortune 500 multi-national live and die by their ability to get more and do more.  In business school we learn there are two measures of success in business:  Market Share and Profitability.  Market Share is about getting more.  Profitability is about being efficient.

In days gone by, doing more usually meant having more people, more feet on the street, a bigger operation.  But people are expensive, and building market share by hiring more and more people usually results in low profitability.

That’s why businesses over the past 20 years have focused on downsizing and on automation and systems.  Nobody wants a pink slip, but let’s face it:  General Motors builds a much better, safer, more fuel efficient automobile today with far fewer people than it did 20 years ago.

Sadly, the evolution of business has had little impact on the ordinary real estate world, where success is usually defined as having more salespeople than your competitors.  The broker’s job is not to sell more and more real estate but rather to recruit more and more agents (who in theory will take care of all that selling).  With per agent productivity hovering somewhere below five deals a year and commission splits still in the stratosphere, you might recruit the entire population of, say, Washington State to be your salesforce and still not make a profit!

It doesn’t have to be that way.  Just as other businesses have evolved to where doing more is a function of fewer people using systems to manage an ever increasing flow of business, the real estate business can evolve.  With the Help-U-Sell consumer offering and operating system, you can get more and do more with fewer people and lower cost.

Last year, I stopped into Chino Hills, California and saw Patrick Wood.  He’s in an attractive 750 square foot Help-U-Sell office in a strip center.  It’s a small operation:  just him, his assistant, Val and a couple of buyer agents.  But, together, they routinely out produce whole offices of ordinary real estate agents.  While the competition is closing offices and consolidating, Pat and his team are focused on getting more, doing more and building a business worth having.

Help-U-Sell is simple.  It is a handful of carefully constructed systems that work together to produce a predictable result:  a successful business – one that does more than its share of transactions.  The systems are vastly different from what’s common in the ordinary real estate world, and the two simply don’t mix.  Evaluating your Help-U-Sell business on the criteria of your agent-oriented competitors is like trying to tell how tall you are by stepping on the scale.

It’s 2011.  It’s once again time to know who we are, what we’re doing and how we’re doing it.  Simplify.  Focus on systems:  systems for generating leads, systems for capturing, incubating and managing those leads, systems for staffing, for listing and for managing transactions.  And remember:  it’s all about more.

How To Do It: Step 7 – Track Results

(This is an elaboration of ‘How to Rule the (Real Estate) World in 10 Easy Steps‘)

Now that you have listings, consumer awareness, leads and people to handle them, you can begin to track your true Market Share.  Up to now you’ve focused on a different metric:  Listing Market Share.  You wanted to have more than your share of listings and you wanted your inventory to always be expanding.  But true Market Share is about counting the income producing side of the business, closings.  Since each sale has two sides, a listing side and a selling side, and since you may capture 1 or 2 sides in any transaction you close, we count closed sides to determine Market Share.

It’s simple really.  Start by defining your arena:  what is the geographical area in which you want to have the greatest impact?  That’s your target market.  Determine the period you want to measure:  previous 12 months, last full year, last Quarter, Year-to-Date, whatever makes sense.  Now count the closed sides that occurred during that period in your target market.  Now divide the total sides your office  had in your target market over the same period by the first figure.  If you had 10 closed sides in April and the target market produced 100 closed sides, you had .10 or 10% Market Share.

There are nuances in calculating Market Share today.  You really ought to separate out REOs, whether you’re getting those listings or not.  It’s a different market with different parameters and expectations.  I think you might want to figure a closed sides market share based on REO properties only, especially if they account for a sizable portion of your market.  But keep that separate from you more general market share analysis.  You might further segment your market share analysis by sub-diving equity sales and short sales.  You may discover that you have a 10% closed sides market share and that 35% of your closed sides were from short sales while only 20% of the closed sides in the target market were short sales.  This could be a good thing if you’re working to distinguish yourself as the short sale specialist in the area.

Moving forward, check your market share three ways:  monthly, quarterly and Year to Date.  Record your results and keep a running record so that you can discern the trend.  You want to see steady, gradual increases in your share.

All that is very important and frankly, a little boring.  No, not boring . . . a little less exciting.  But tracking your metrics and managing your business by the numbers is exciting. Here are some ideas:

Look for a marketing angle to your Key Performance Indicators.  There are a handful of production stats on which you will almost always outperform your MLS.  These nuggets become very powerful when presented in marketing pieces and listing consultations.  You might discover, for example, that:

Your average sale price is 97% of your average listing price where the MLS is 92%.  That extra 5% is something to crow about.

Your average days on market is 87 where the MLS is 102.  (There are two ways to look at this:  listing date to pending date and listing date to close date.  Pick the one that looks best for you)

Your per person production is 2.58 closed sides a month where the average in the MLS is .3

85% of your listings eventually sell where it’s only 67% in the MLS.

Can you see how these statistical facts could be very impressive?  And really, if you’ll start tracking and comparing, you’ll find you almost always beat the MLS.  By the way, there may be other comparative metrics you might track and use, AND don’t forget to keep a running total of the dollars you’ve saved sellers (over a traditional commission).

Use KPI to identify areas in which you want to set goals and then track your results.  For example:

If you determine your average buyer agent takes six house showings to produce an accepted offer, set a goal to get to 5.5 in six months.  Think about that.  How would you go about doing it?  Training?  Requiring more previewing?  Having a contest?  I knew a great agent in another life who set a goal on this metric every year.  The year we talked she had just gone from 6 showings to 5 and she believed it was a reflection of how well she listened to her buyers and how well she knew her market.

You may determine that 20% of your transactions are in-house and therefore, 2 sided.  Maybe you decide you’d like to see 30% in six months.  How would you go about doing that?  Bonuses for selling company listings?  Working harder to get your listings priced right from day one? Increasing your showing fee or becoming a little more firm about when you will charge one?

Maybe your team is getting a buyer data sheet and contact information on 6 out of every 10 buyer inquiries.  Maybe you want to move that up to 7 out of 10 in three months.  What would you do?  I’m sure you’d do training and lots more role play on the incoming call, but what else?  Maybe a contest – once a month each person fielding buyer calls gets one chance to win for each Buyer Data Sheet he or she gets during the month.  First prize could be an Ipod or an elegant dinner for two or whatever!

I knew an amazing real estate consultant years ago.  He was actually an industrial psychologist who had gotten involved with one of the franchises early on and became a guide and mentor for the entire organization.  His name was Dr. Dick McKenna, and one of the things I remember him saying when he’d talk about tracking metrics and KPI was:

‘You have to massage your numbers until they throb!’

 

Ready for Step 8?