We’re not sure how GCI became such a prolific form of competitive currency in the real estate industry. How it became ‘a’ thing, let alone ‘the’ thing we focus on remains an enigma. An enigma, wrapped in a mystery.
Don’t get us wrong…top line sales revenue is an important indicator in any business but it is a lag indicator. Lag indicators, as the name suggests, measure the outcome of performance for the previous period. GCI measures history.
With the pace of change, uncertainty, and complexity of selling real estate in the 21st century, we need a measure to predict and create our futures, not simply to record history.
CHOOSING METRICS THAT MATTER:
To determine the lead indicators that would be helpful in real estate, we need to think a bit harder about how we achieve our outcomes.
It goes to show that if there is not enough GCI, something has fallen down earlier in the process:
- Not enough GCI means that there have not been enough sales,
- which may indicate not enough stock movement,
- which may indicate not enough converted appraisals,
- which may indicate not enough opportunities,
- which may indicate not enough relationship management,
- Which could mean that there is not enough property ownership data,
- Which could indicate that there has not been enough gross data acquisition.
So, you can see there is a whole lot more to the story than just GCI. We can use this understanding to build a better understanding of the lead, in-process and lag indicators that help us understand how to influence our business outcomes – as opposed to just observing them.
LEAD INDICATORS:
Lead indicators are the proverbial canary in the coal mine. They are things that show us which direction we are headed in, with very early warning signs where a change in direction is needed.
#1 LEAD MEASURE
Metric: Gross Data Acquisition
Gross new contacts added to the database
Meaning:
Top of funnel flow
How to interpret:
If there is a high level of new data being added to the database, you should be aware of where it is coming from. If you have automated or manual data feeds from open for inspections – this figure by itself can be a gross indication of marketplace demand.
All of these data records are relationship opportunities. They may be short-term opportunities in terms of those who become purchasers or vendors immediately, or they may be realised over a much longer term.
#2 LEAD MEASURE
Metric: Property Ownership Data
Net new contacts with property ownership details attached
Meaning:
New relationship opportunities
How to interpret:
As real estate agents, we don’t actually sell houses – we sell professional services to people who own houses. The net acquisition of contacts with ownership details, is the number of new relationship opportunities we have with potential clients.
#3 LEAD MEASURE
Metric: Property Ownership Data
Total number of property owners in a database
Meaning:
Total relationships with potential clients
How to interpret:
The total amount of property owners under personal management by an agent essentially determines your client base. You need a certain base in order to produce a particular number of transactions per year.
The exact number will be determined by a lot of factors, such as the turnover rate in your market. For example, if you wanted to sell 80 homes a year with a 5% turnover rate, you are going to need a database of around 1500 property owners. For more information on how to work out your target for this, see: https://www.getaire.com.au/moneyball-model-real-estate/
#4 LEAD MEASURE
Metric: Relationship Management
% of pipeline engaged within the last 90 days
Meaning:
Strength of relationships
How to interpret:
The propensity to list with a given agent is directly linked to the history of service already provided, through regular and highly personalised touchpoints. The temptation to outsource relationships to bulk email and brand marketing or even P.A’s or V.A’s no doubt weakens the relationship between agent and prospect.
As a strategic measure of the strength of relationships between agent and their contacts, you can take a proportion of the high-value agent to contact personal relationship touchpoints. This is an arduous measurement to generate manually (actually its almost impossible), which is why we have taught Rita to generate it because it is arguably one of the most valuable in a real estate business.
IN-PROCESS INDICATORS:
In-process indicators monitor the current reporting period and can provide a real-time sense of how things are tracking for the immediate, current period. This allows for a responsive application of time and resources to the areas for impact or where correction is needed.
#5 IN-PROCESS MEASURE
Metric: Opportunities
Market Analysis
Meaning:
The number of listings we won, compared to the number we lost (as in known to us but listed with competitors), and the balance of listings we neither won nor knew.
How to interpret:
When looking at a market analysis for the current period, we should be looking for three important indications:
WON LISTINGS v TOTAL LISTINGS
This tells us the proportion or share of the market we can claim. The proportion indicates our competitive position compared to other agents.
LOST LISTINGS v TOTAL LISTINGS
Where a competitor listing matches an ownership record in our database of property owners, we can consider it lost to a competitor. If the proportion of ‘lost’ opportunities is concerning, it is worth further investigation in terms of whether this is because of a deficiency in relationship management (not getting the opportunity,) or whether some upskilling could increase conversion (getting the opportunity but losing competitors).
NO OPPORTUNITY v TOTAL LISTINGS
This measure will show you the gap in your property ownership data. If there are many listings coming to market that belong to owners that you have no relationship with – then you have a strategic imperative to acquire more data and build more relationships.
#6 IN-PROCESS MEASURE
Metric: Converted Appraisals
Stock Take – signed authorities available now or scheduled to come online in the current period
Meaning:
Stock measurement – the opportunity for sales
How to interpret:
This is a stock measurement – which measures the immediate opportunity you have produce GCI.
#7 IN-PROCESS MEASURE
Metric: Stock Movement
Days on Market Differential
Meaning:
The days on market for your office/salesperson compared to the days on market for the broader marketplace.
How to interpret:
This is a measure of the product-market fit for the stock that you have on hand. If the days on market is shorter than the market benchmark, then you can quantify an above average proficiency in pricing, adjustment and negotiation.
If this begins to blow out, then you will need to upskill or do some research on what is available to vendors.
LAG INDICATORS:
Lag indicators measure the overall effectiveness of your efforts in the previous reporting period. As a business outcome, revenue (or GCI), isn’t the only indication of success and it is important to give this gross figure some supporting metrics to help you make better decisions about how your business is performing.
#8 LAG MEASURE
Metric: GCI
Gross Commission Income
Meaning:
Sales Revenue
How to interpret:
The value of sales transactions finalised in the previous quarter.
#9 LAG MEASURE
Metric: Net Profit (after tax)
Revenue minus expenses and Tax
Meaning:
Efficiency
How to interpret:
There is no point earning a million dollars in GCI if it cost you $900,000 to do it – there are easier ways to take home $100,000 a year.
Profit has long been misunderstood as a financial measure of ‘how much money you made’ but strategically profit also speaks to how efficiently your business is running.
To increase profit, you don’t always need to increase revenue or prices, for example by reducing costs, or lowering prices while increasing volumes.
#10 LAG MEASURE
Metric: Market Share Acquisition
Change in competitive position
Meaning:
Marketplace penetration
How to interpret:
Both GCI and Profit are linked to the value of transactions. Given the nature of real estate transactions as a % commission of sales, the financial lag metrics are vulnerable to market forces.
This can create a bit of a fool’s paradise where markets are on the rise – which we have seen in the boom. We have seen high-revenue businesses go backwards in terms of market share without them even noticing. The danger for high-revenue but low-growth businesses is two-fold:
Firstly, while focussing on revenue, you can lose opportunities through complacency.
Secondly, your reduced share leaves you with a much smaller piece of the pie when the market corrects, which it always will.
BREAKING UP WITH GCI
What will be far more difficult than creating new metrics that measure more than GCI will be breaking our addiction to it as an overly simplified and misunderstood measure of success.
Focussing solely on GCI is the equivalent of knowing how many calories you burned at the gym, without knowing how many calories you ate, not paying any mind to the nutritional value of the food nor taking stock of short-term energy requirements and not benchmarked against how many calories a person in your gym burns in the same time.
