What Metrics Should Real Estate Agents Track?

Success in real estate is often quantified by sales volume, the number of transactions, or Gross Commission Income (GCI). For many, "growth" signifies an increase in these figures. When talking with agents about their business performance, a typical response might be, "My business has grown 45% compared to last year, and my GCI has increased by x."

Three key indicators come to mind right away when I hear this. What about profitability, time, and market conditions?

When it comes to profitability, many agents struggle to identify whether it has increased or decreased based on the number of transactions they've completed. Recently, I have been paying significant attention to this factor and wish someone had emphasized its importance earlier in my career. Time is another essential factor. It's a finite resource, and in real estate, we need to weigh it against profitability. Most of a solo agent's income in real estate is active income, meaning that to increase the number of transactions, an agent must invest more time. For a solo agent, understanding which transactions yield the most profit can provide clarity on where to allocate time or marketing resources in the future. It can also create insight into how to grow your profitability. 

Profitability should actually be given more emphasis as a metric; it may even be the most crucial one. Consider this: if you're expanding your volume and GCI but witnessing a decline in profitability, is the trade-off truly worthwhile? The answer isn't always negative. There may be a space where assessing your expenses, processes, team, etc., becomes essential to boost your profitability. Alternatively, an increase in revenue, albeit at a lower profit margin, could still be beneficial for you. Ultimately, you just need to know the numbers to decide.

This is where the conversation can get a bit contentious. What are the current market conditions, and how have they changed year over year? Why do I ask this? Why is this important?

It's because business growth and market growth are not one and the same! If the market is booming, it's likely that the businesses of all agents will flourish. So, the real question is, has your business truly grown, or has the market simply expanded?

Consider this: if the market has expanded by 40%, and your business's GCI or transaction count has only grown by 35%, your business has underperformed in the current market. 

Genuine growth is independent of market conditions. You can increase profitability even when the market is in decline. Another reason why evaluating your profitability is key. At a minimum, it is a healthy exercise to compare your business to market conditions for a true measure of your personal business growth. If the market is down by 40% and your volume is only down by 35%, you have actually outperformed current market conditions. If you are increasing your per-transaction profitability due to making changes to your team structure, expenditures, etc, that too is growth.

It can also be a slippery slope to focus on perceived business growth that is really attributed to market growth because when the market decreases, as we have seen over the last year and a half, you can fall victim to feeling like your business is in a downward spiral. Focus on how you are performing in comparison to the market, evaluating your expenses, fine-tuning your processes, increasing your profitability, time allocation, generating more passive income, and sustainable growth instead!