Benchmarking for a sustainable real estate business

An underlying theme in discussions with industry business owners is that performance and profitability have been exceptionally strong. Many are experiencing record profits, and sales agents are achieving personal best results. This is supported by the results of our recent Real Estate Agency Survey, where 81 per cent of respondents felt confident about the future solvency of their business.

With the market in an exceptionally strong state, it is important for business owners to ask themselves whether their results have been driven by holding a competitive advantage, general market conditions, or a combination of both.

The importance of this information will come to bear if the market changes in the future. It is unlikely to remain at current levels in the longer term and will require agencies to generate further volume and increased market share in order to cope with any pull-back in the market.

Benchmarking your agency will help provide an understanding of competitors and the industry more broadly. Real estate businesses should be analysing:

• Which aspects of the business are exceeding market trends and delivering a competitive advantage?
• Which aspects of the business are below industry averages, indicating underperformance?
• What trends and/or variances could help inform plans and goals for future planning and success?

A more detailed application of benchmarking data can help business owners to better understand and action key improvements.

Increase effectiveness and efficiency

This includes understanding key efficiency measures in the context of your competitors and where there may be opportunity for improvement. Some examples of key indicators may include:

• Professional fee per sale and income per property under management: there are many benefits of comparing your averages with the broader industry. The results can provide an indication of the skill set of your staff and the business’ level of success in converting leads and opportunities at higher yields than those of competitors. Knowing whether you are a volume- or yield-based business will also assist in understanding the financial impacts of decisions. An example would be dropping fee rates to win listings.
• Strike rate: this includes measuring how effective the business is at generating leads, appraisals and listings, along with converting listings to sales. High performing agencies have strong inbound referrals while being able to convert deals in a timely manner.
• Property management team: the number of properties managed per property manager or team indicates how efficiently and effectively your rent roll portfolio is managed. It is also an indication of how well systems and technology are being leveraged to streamline operations while still maintaining a high level of service to clients.
• Organic growth: the performance of your business development manager is highly relevant in the current market, with large numbers of investors selling their investment properties and placing pressure on rent roll levels and yields. Sixty-one per cent of respondents from our survey were seeking organic growth, which highlights that a BD manager or team who deliver consistent net organic growth in the current market is a valuable asset and a key advantage for any property management business.

Set clear business goals and understand key financial metrics

Do you have a business plan for each financial year? What are the indicators you use to measure whether you’ve achieved the objectives of your plan? Understanding financial metrics and the impact of improvements or declines in gross profit, operating profit and expense ratios can help you to both build your plan and measure it. Importantly, understanding the higher quartile of profitability metrics in the industry can assist longer-term strategic planning and analysis.  

Understand ‘leakage’

Taking business planning a step further and benchmarking those internal financial metrics will help to identify “leakage” that needs to be immediately addressed. For example, if gross profit percentages are 10 per cent lower than the industry average, a review of the “leakage” across performance and cost structures is in order.

Increase performance and motivation

Real estate is a highly competitive industry, with businesses and agents constantly seeking to lead the market. A solid understanding of competitor and industry benchmarks can be highly motivating and generate internal growth, as well as provide an opportunity to recognise and reward high performers.

Using benchmark data to inform conversations within the business is a valuable exercise. Agents, for example, can consider how they might gain more market share in their target areas and how to list and sell at a greater rate. It can also help remove the “white noise” in performance conversations and provide a tangible, focused point of discussion around the numbers achieved by high performers in the industry.

Improve brand and reputation

Understanding how your brand is perceived and performing against competitors in the marketplace is invaluable to growth. Benchmarking data, such as website inquiries, referral sources, lead generation from marketing campaigns and social media metrics, will not only show areas of improvement for your business but also how your brand and reputation hold up against those of competitors.

How are you known in the market and industry? Does your business have a reputation as a volume- or yield-based business? Are you devaluing your brand and future profitability by discounting fees? Are you an attraction-based business? These are all questions that benchmarking can help answer.

While the market is exceptionally strong at present, it is vital that you continue to set up your business for sustainable, long-term success.

Benchmarking provides clarity on improvement opportunities and how you rank within the real estate industry, which is a by-product of business performance and management.

Eythan Barraclough is an associate director, business services at BDO.