Agent count: status symbol or useful metric?

Commentary: Real estate is only industry that measures success by head count

Editor’s note: This column has been updated to correct that 74,558 agents were affiliated with Keller Williams as of Feb. 6.  

Over the weekend, I finally got some news I’ve been waiting for since early 2012.

Back in January 2012, I made a prediction that Keller Williams would overtake Coldwell Banker as the largest real estate company in the U.S. by agent count.

This week, during a speech at Keller Williams Family Reunion, the company announced that it was now the nation’s largest real estate franchisor by agent count.

According to Ellen Marks, Keller Williams’ director of marketing, the final count — taken "on the same date, on the same times" (Feb. 6) — was 74,558 vs. 74,418.

What happened next is far more interesting. I posted the fact on Twitter, and got this response from Matthew Ferrara, a top brokerage consultant and an extremely smart guy, who called it a "weird metric."

Article continues below

The short discussion that followed had Ferrara suggesting that market share, profitability, per person productivity (PPP) and outcomes achieved are far more useful metrics — and that consumers could care less about how many agents a real estate company has.

That reminded me of something I’ve always wondered about: Why is agent count such an important metric inside the real estate industry?

I’ve been to conferences and meetings, sat around with brokers talking about themselves and other brokers, and the overwhelming sense from listening to their talk is that a broker’s credibility and influence is tied directly to how many agents he has.

It isn’t at all unusual to see a brokerage get dismissed out of hand because it has only a few dozen agents.

The thought that occurred to me — and I’m sure it’s the same thought Matthew Ferrara is having — is that no other business, no other industry, measures success like this.

Dead presidents

Companies on the Fortune 500, for example, are ranked by revenue. When Fortune talks about "largest companies," they mean the ones with the most sales.

Or if you sort the Fortune 500 by profits, Apple comes in third with almost $26 billion in profits vs. Walmart in 10th with about $15.7 billion in profits.

Apple has 76,100 full-time employees, while Walmart has 2.2 million employees. Even if we want to compare within categories, Dell Computer has 110,000 employees, but no one looks to compare Apple to Dell based on head count, right?

All of the other measures that investors might look at — operating cash flow, operating margin, market share, etc. — are tied to financial performance. Because, well, these are businesses. Their whole purpose is to make money for their owners.

Even real estate companies, when they have to disclose that information, focuses on revenues, profitability, margin, etc. Take a look at Realogy, for example. Because it’s a publicly traded company, we know the following about Realogy’s 2012 performance:

  • Revenues of $4.7 billion, a 14 percent increase over 2011, with $3.4 billion coming from commission income, and $271 million from franchise fees.
  • A net loss of $540 million — yes, a loss, but that isn’t bad news.
  • Approximately 1.3 million closed transaction sides between the franchise group and company-owned brokerages

And so on. In the earnings call, Richard Smith mentions the fact that Realogy has 239,000 affiliated agents, but doesn’t dwell on it, because no one on the call really cares all that much about agent count. What they care about are those financial metrics.

But within the industry, when we’re talking about brokerages that aren’t public companies, going around talking about how much loot they’re stacking is poor form. I mean, unless you’re Alec Baldwin in "Glengarry Glen Ross," you’re not going to be boasting about how much money you’ve made last year, are you?

I believe that in the agent-centric model that virtually every brokerage embraces today, agent count is a useful shorthand for revenues. The National Association of Realtors’ most recent member survey shows that the median number of transaction sides handled by a sales agent in 2011 was eight. Other brokers in the market can kind of guess at how much business a brokerage is doing if it has 100 agents vs. 1,000 agents.

But it does appear to be a "weird metric," as Matthew Ferrara said. Why not simply rank by transaction sides then? You don’t have to talk about the cash you’re banking — just start measuring yourselves and each other by how many deals y’all are doing, rather than by how many people could come to the company picnic, no?

Does it matter?

I actually think what number is used does matter. As Jeff Turner is fond of pointing out, you can’t manage what you can’t measure. The corollary is that you will manage to what you measure.

When things like No Child Left Behind and other misguided educational reform programs got implemented, teachers started teaching to the test. Start measuring crime stats, and you have police departments making it difficult to report crimes. We can tut-tut all we want, but it’s basic human nature.

So when brokers use agent count as a measurement between themselves, they and their managers will naturally focus on raising that, often to the detriment of the whole point behind measuring agent count in the first place: success.

There are companies where agent count should be the focus. A 100 percent shop, for example, that charges some sort of minimal desk fee plus transaction fee probably should focus like a laser on recruiting as many bodies as possible. More agents equals more revenues for them. There’s a direct relationship so, yes, they should manage to that metric.

But companies where agent count isn’t directly related to revenues or profit or some other really key metric should strongly consider using a different metric, because they will end up managing to whatever metric they use.

If that number is transaction sides, you will end up managing to increase that. If the number is per person productivity, you’ll manage to that. If the number is net promoter score (as it is for Redfin), you’ll manage to that.

Of course, you can’t manage to just one number. At the same time that Keller Williams announced that they were No. 1 in agent count, they also announced that per agent units increased 23 percent, closed volume was up 31 percent, and gross commission income (GCI) was up 28 percent. So clearly they manage to other metrics as well.

Nonetheless, I do think that most executives and most brokers and most companies do have a primary metric they use. And that number becomes the standard to which they manage.

This rule of metrics works for individual agents as well. If you measure your success or failure by Web leads, then you’ll manage your business to maximize Web leads. If you measure it on listings taken, you’ll manage on that basis. If you measure it on customer satisfaction, you’ll focus on that.

If you don’t measure at all, of course, and just go by some seat-of-the-pants guesstimate as to "my clients love me" or "I got money in the bank" or whatever … then yeah, you won’t manage to anything at all.

To answer my own question — "What number matters?" — the answer is your typical lawyer-consultant-weasel type of answer: It depends. But measure you must, and manage you will, to the number that matters to your business.

Let me close by congratulating my friends at Keller Williams. 2013 should prove to be an interesting year for us all.

Robert Hahn is the managing partner of 7DS Associates, a marketing, technology and strategy consultancy focusing on the real estate industry. Follow him on Facebook and Twitter (@robhahn).


Contact Inman News:
Facebook Facebook Facebook Twitter Facebook Email Facebook Letter to the Editor