Careful analysis empowers brokers and managers to make bold decisions with more clarity, advance their bottom lines and set themselves up for spectacular success. While there’s a fairly clear formula for successful strategic planning, the path and steps are often not readily accessible to identify or apply.
With the year rapidly coming to a close, this article outlines nine key performance metrics that brokerages should measure. Three to five of these areas will especially help brokers achieve better results in 2022.
The three basic steps to effective strategic planning, include:
- Step 1 – Measure performance. Measure current brokerage metrics.
- Step 2 – What ifs. Evaluate how improved results in a few key areas can improve the bottom line.
- Step 3 – Action. Plan for action. Choose three to five metrics to improve.
Before diving into the metrics, it should be noted that execution of a strategic analysis is just one small part of a total successful year-end planning and review. To appropriately do a strategic evaluation requires thorough prep work. It requires a full evaluation of the entire business, solid competitive research and performance tracking that allows for detailed analysis of financial numbers over the past 12 months. Comparing to the previous 12 months is also very helpful.
This type of strategic analysis is becoming ever more critical as the industry matures into larger, more sophisticated and more corporate-managed entities. Large companies already do this type of measurement and analysis, and it’s increasingly clear that brokerages of all sizes will have to follow suit if they want to compete.
The nine areas brokerages can focus on to help them have their best year ever, include:
- Agent count
- Increase closed units
- Increase average price
- Increase commission percentage
- Increase retained commission percentage
- Adjust company referral program
- Increase transaction fee
- Increase technology fee
- Reduce expenses
Each metric is covered in more detail below.
The fastest and most straightforward way for any brokerage to grow its revenue is by adding agents. This requires a focus on recruiting and clarification of the company’s unique value proposition.
If companies focus on growing agent count, they must make sure that they are not spending too much money in attracting agents in the form of attractive commission splits or in excess resources and support.
Increase closed units
Increasing each brokerage agent’s closed units leads to increased income. While this can be an effective metric to focus on, it can be a challenging way for brokerages to move the needle, as it requires significant coaching, training, measurement and resources to support.
Increase average price
By increasing the average price of each transaction, brokerages can achieve success. They will know if they have an opportunity to improve here by measuring how they stack up with the market.
In general, brokerages should aim for their average price point to measure just above the average price point for their market. That’s the brokerage sales price sweet spot. If they fall much below the average price point, this indicates an area of opportunity.
Increasing average sales price can be achieved by targeted agent coaching, brokerage branding and marketing and other practices.
Increase commission percentage
Increasing the commission rates that agents charge clients can also lead to increased brokerage revenue. One way to ensure that agents do not overly discount their rates is to provide coaching around how they message and work with clients.
In addition, brokerages can set minimum commission standards and communicate to agents that difference in the rates below that standard would be covered by the agent.
Increase retained commission percentage
The percentage of commissions that brokerages keep from all of their agent commissions defines their retained commission percentage. Brokerages, typically, want their retained percentage to measure in the 18 to 20 percent range. If their retained percentage drops into the single digits, that usually means that brokerages are not collecting enough of the commissions in splits with their agents.
This can happen with brokerages who have a more mature agent roster with top producers who have negotiated higher splits. In this instance, brokerages can focus on recruiting and supporting agents earlier in their careers who usually pay higher splits to the brokerage.
Adjust company referral program
Referrals can be a profitable focus for brokerages, who can charge agents a 35 percent referral fee on transactions generated from brokerage-provided leads. While promising, this strategy comes with a fair bit of infrastructure, as brokerages must refine their lead-generation, and -conversion programs.
Without refinement, costs can spiral out of control. With some focus, and measurement, this can grow into a valuable profit center for brokerages and also serve as a strong retention vehicle.
Increase transaction fee
Brokerages also can choose to implement or increase the transaction fees they charge for each transaction. Often, these are fees that consumers pay directly to the brokerage.
To determine how much and whether a transaction fee could work in their market, brokerages should look at how their competitors are operating.
Increase technology fee
Brokerages can also increase revenue by focusing on adding or increasing a technology fee they charge their agents. This usually comes in the form of a monthly fee and typically ranges from $15 to $50 per agent per month.
This can be a great way for brokerages to offset some of the investment they make in valuable technology. They must be careful, however, that agents value the technology and systems provided, as they will grate against them if they are not using them.
Expenses are always something to keep in check. Common places that brokerages can find efficiencies include marketing, staff and office square footage.
These require a careful cost-benefit analysis of each expense area of the business.
There’s perhaps nothing as effective for a business to do than effective strategic planning. But, as this article illustrates, it requires rigorous measurement of performance and the market, and a disciplined approach to growth. If you’re looking to professionalize your strategic approach, reach out to me, Dean Cottrill, senior vice president of brokerage consulting and T3 Fellows.