Key Performance Indicators

Last week I met with a client of mine who operates a Real Estate Agency. I asked the client whether they knew what their conversion rate is for new listings (that is – how many potential listings are converted to actual listings).

To me, in a real estate business this is a critical figure. Unfortunately they did not have a clear understanding of what that number might be. For a real estate agent to not know one of their critical Key Performance Indicators made me question how business people understand their business.

IN its simplest expression, business is selling something for more than you paid for it and repeating. Really, I think this level of understanding is what most clients stick to. It is simple and it is understandable.

However, what it doesn’t allow you to do is really control the things that make your business stronger.

Real Estate businesses generally have a major problem of securing listings. More often than not, there are enough buyers around, but not enough stock.

For instance:

If a real estate business sold 133 properties during the year at an average of $15,000 commission per house- the turnover would be $2,000,000. If they started with a conversion rate of 25% on new listings- they would need to see 532 potential sellers in a year to have 133 homes for sale.

However, if they could manage to increase their conversion rate just 5% to 30%- then they would now have 160 homes to sell. Assuming they sold them all their turnover is now $2,400,000.

To be absolutely clear, a 5% change in one KPI would result in a 20% income improvement!!

Understand what drives your business and fundamentally you will know what strings to pull and when!