The proof is in the P&L: Industry execs’ tips for a profitable brokerage

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Imagine you’re a broker running a small brokerage with just a handful of agents. The group works hard and closes deals. Things are good.

But how exactly do you know who at the company is most productive? Of course, you could look at the number of deals the agents close. But what if the agent closing the most deals is also costing the most for leads? Or if a lower producer is also operating more leanly?

These questions get at one of the key things that, according to a panel of industry leaders, brokers absolutely have to do if they want to succeed: Track their numbers.

That panel of leaders assembled Thursday morning for a session on indie brokerages at Inman Connect, and argued that there is an array of different ways to introduce financial accountability into a brokerage. But no matter what method brokers choose, they need to track not only the deals and revenue their agents create, but also how those numbers interact with costs, expenses and efficiency.

Here are some of the suggestions the panelists offered:

Barb Betts, broker-owner of The RECollective

Betts runs an independent brokerage in Southern California that provides an array of services and resources to its agents. The agents get business cards, photography and a variety of other services when they join the company.

But in the early days, Betts’ accountant raised a question about the business.

“She said, ‘how are you going to know if this unique team model is profitable?’” Betts recalled.

Betts’ solution was to put each of her agents into a spreadsheet and to track, monthly, what she spends on services for each agent.

“Every single expense that I spend on each agent from business cards to installing signs to property photography to postcards is tracked to their individual class,” she explained. “I run a [profit and loss statement] every single month on my agents. And we see a true picture of how each agent is contributing to the bottom line.”

Betts noted that the results of these efforts can be surprising, with good producers also having high expenses for example. But tracking the numbers this way allows her to understand exactly how well every dollar at the company is performing.

Thomas Heimann, founder and CEO of Realty Partners

Heimann said his company is larger, which makes it challenging to evaluate agents in the same way that Betts does. But he did agree that tracking the specifics of profit and loss was essential for brokers who want to succeed.

In Heimann’s case, he looks at figures such as gross revenue per agent, and also looks at the average overall numbers his agents are generating. Additionally, he evaluates the leads that the agents are generating and how much each of those leads are costing. This method has yielded useful insights, such as the fact that “internet leads are much much more expensive than other sources of business.”

But on top of that, it allows Heimann to understand if agents are actually contributing to the overall success of the company and what kind of agents he wants to seek out.

“You don’t want to be spending $5,000 to get an agent that is only going to make you $500 per year,” he noted.

Wendy Forsythe, chief strategy officer of Fathom Realty

Like the other panelists Thursday, Forsythe stressed the importance of financial accountability. In order to achieve that, she creates four quadrants that evaluate agents on their productivity and the number of transactions they are doing. The quadrants include spaces for “up and comers” who aren’t doing as many transactions as they want, “steady Eddies” who are consistent producers, and “non-producers” who aren’t performing well, among other things.

Forsythe said brokers can choose whatever metrics they want in order to parse agents into quadrants, but the point is to identify who would like to be doing more business, for example, and which people are happy where they’re at.

This is useful because it helps identify which agents need more assistance and which are thriving. But it also offers deeper insights into how well the overall brokerage is doing. If most agents are falling into less productive quadrants, Forsythe explained, it means the brokerage overall has significant room for improvement.

“You want to see,” she said, “where the bulk of your agents are.”

Email Jim Dalrymple II