The traditional, commission-driven residential real estate brokerage model sits in a tightening vice. As commission splits rise in favor of agents and teams, and the commission rates consumers pay continue to compress, brokerages face dwindling profit margins. Given that splits and commissions make up a traditional residential real estate broker’s two primary revenue channels, firms must redefine their businesses to survive and thrive.
Brokers, managers, and executives will find the answers they need to remain viable by closely evaluating their key business metrics. By carefully tracking and analyzing these, they can identify the prime stress points their businesses face and uncover what changes they can make that will increase their all-important profit margins.
T3 Sixty has identified 33 key brokerage business metrics all brokerages should track, organized into eight categories.
These numbers tell a story that will help owners navigate the brokerage business, and, if managed and addressed correctly, will lead to higher profits. Although analyzing brokerage financials provides firms a black-and-white look at where they stand, how they need to respond will differ: every brokerage and market presents different options and circumstances.
Improve specific profit-and-loss metrics
Brokerages have a variety of options to increase their profit margins. The first step involves carefully reviewing their profit-and-loss statements, analyzing their performance relative to local companies with similar business models in their market, and then revamping their company’s operations to improve efficiency.
For example, they can determine whether or not they are over- or understaffed, if their per-agent productivity stands below market average, if their office expenses are too high and in what areas, or if their deal fall-out rate is too high.
All brokerages must review these metrics and optimize them just to turn even a limited profit today. To really face the challenges of real estate’s new era and grow profits to a meaningful and sustainable level, they also need to add or increase revenue from ancillary businesses and consider developing a refined company-generated business program.
Add ancillary services
Real estate transactions are just the tip of the real estate iceberg. When consumers transact, they need title and home warranty insurance, escrow (in states where practiced), and many need mortgages. Brokerages are in a natural position to take advantage of the ancillary service opportunity.
If executed well, a brokerage can maintain slim profits, but really shine with higher bottom-line profits operating brokerage ancillary business units. The real estate transaction is the engine that drives these valuable opportunities.
Build out company-generated business program
By developing in-house systems to acquire and deliver leads, brokerages can charge higher referral fees or higher splits with agents. This requires a significant investment in systems and an agent population that supports it.
Brokerages can adopt this by training up a special e-team of agents to handle the leads the brokerage delivers. Of course, the brokerage needs to efficiently acquire leads, have tight processes to follow up and respond to them, and consistent training on conversion.
Takeaway
Traditional brokerages face daunting times, and one thing is certain: without a rigorous analysis of their business and some smart, aggressive adjustments, their businesses may not survive.
To thrive in real estate’s next era, traditional brokerages must revamp how they make money and carefully measure, tweak, and improve every aspect of their business. T3 Fellows can help. In our program, T3 Sixty and a cohort of peers and mentors work with brokers and teams to analyze, customize, and execute on real estate brokerage and team leader growth and profit goals. Learn more at T3 Fellows, or reach out to me directly: Dean Cottrill at dean@t3sixty.com.