Real estate brokerage profitability

In the wake of market-crashing global paranoia and a deadly disease spreading across the nation, we’re grateful over here at Sisu that we’ve had the opportunity to talk to some of the leaders of this industry.

These conversations have been full of insight. They’ve told us all we need to know about why these leaders are in the market-leading position they are in.

For a lot of these people, this isn’t the first time they’ve dealt with adversity—think 2008.

What we find the most interesting is that they’re not “doom and gloom”. They’re staying optimistic.

Rather than panicking, the best and brightest in this industry just turned the volume all the way up to 10, and they’re ready to rock and roll.

It’s not the kind of optimism that pretends this isn’t a big deal.

It’s the type of leadership that’s ready to leverage the opportunity that lies beneath the panic and paranoia. It’s been a while since we had an opportunity like this and the true leaders are ready to show their colors.

The good ones are going to capture market share.

They’re going to inspire their agents.

They’re going to kill it with recruiting.

And next year, when we’re all looking back on this…. this could be the defining moment that made their organization great.

At Sisu, we’ve been working tirelessly over the past three years to build a system that will help you accomplish exactly what we’re talking about above—put the data at your fingertips to make educated decisions. These are the types of decisions that now, more than ever, leaders need to make. They need to be able to pull the trigger on the correct big moves that will claim their spots at the top of the market for years to come.

It’s not time to panic. It’s not time to think small. For this industry’s leaders, it’s time to make moves.

And trust us, we feel the same way at Sisu.

So here is a guide to Sisu features that were built precisely for times like these.

The P&L Statement is Not Everything

For every real estate organization, there’s a simple P&L statement that compares money flowing in and money flowing out. Everyone has it—if you don’t, you’re in trouble.

We call that knowing brokerage profitability—but we wouldn’t necessarily call that managing brokerage profitability. Just like a lot of popular real estate metrics out there, your P&L statement is a lagging indicator. It tells you what happened in the past in broad terms, but doesn’t really give you any kind of solid direction to change your business.

At least, not at a surface level.

So how can you manage your profitability with a higher level of certainty? What are some of the metrics you could be looking at to drive higher margins?

Start at the top: Lead gen

Profitability starts with lead generation. How do your agents find and close business? This starts with simply knowing the following:

  • The lead source for each closed side
  • The Gross Commission Income (GCI) for each side
  • The amount spent on those leads, if those leads were purchased

You get a report that looks like this:

Taken from the lead source ROI report in Sisu.

From there, you get a pretty good idea of what’s working and what isn’t. But there’s more context to the story that we believe makes it worth taking it one step deeper.

What about the opportunity cost of each lead source? Say your team/brokerage generates 2000 leads at $1.00 lead. One of those leads converts into $12,000 in GCI.

You might be thinking “wow! A 600% ROI!”

Sometimes, the greatest cost of your leads is not capital. It’s the time and effort wasted by your agents on partial or irrelevant leads.

If you had a 600% ROI on a lead source but your agents had to waste time sifting through 1999 trash leads, you most certainly did not have a positive ROI. The opportunity cost of their time negates any profits made from the minimal sale.

Getting to this level of specificity in our data isn’t hard. We just add one more ingredient to our data mix:

  • How many leads were generated of each lead source?

With that, we get the full picture of profitability for a lead source, including both financial cost and opportunity cost.

The opportunity cost of a lead source is the time your agents spent working it when they could have been spending time on other leads or other lead producing activities.

The holy grail of tracking lead source profitability

We talked to a few clients of ours who are big into online lead gen.

We’re talking tens of thousands of dollars spent every single month—and these leaders track their profitability religiously.

They tell us cool stories all the time about how they identify new and wildly profitable lead sources to double down on.

Other stories are about lead sources that just aren’t quite cutting it.

In the second scenario, they’re able to make those initially unprofitable lead source profitable. How? They make a simple proposition to their agents.

Hey agents. We’re spending a fortune on lead source X. Here are the graphs. They’re providing a negative return. We don’t want to cut them completely because we know some of you are having success with them, however, we want to free up marketing budget to try some new lead source types. If you want to continue working lead source X, let us know. We’ll keep assigning them to you in the CRM, but will have to pay them at a lower split.

That’s a pretty reasonable message, but these team leads don’t stop there. They don’t just track lead source ROI for the team, but are actually able to take it down to the agent level.

The team’s conversion on lead source X might be .5%, but it’s possible agents on the team are converting at 3-4x that rate. This is not an uncommon scenario—not at all. We see it all the time.

And if you have the right kind of tracking, you can even use this type of data to incentivize.

In fact, we’re tracking lead source X conversion rates and will be able to offer a normal split if you’re able to keep conversion rate at or above 2%

This type of tracking requires a new level of dedication, but it’s the holy grail of tracking lead source ROI and conversion. A lot of our clients do this manually with the help of a VA, but we also have some who are able to achieve deep integration with their CRM to make this type of tracking automated.

If you’re interested, we can look into setting this up for you. Just start a chat in the bottom right-hand corner and let our team know you were reading this article.

Still paying for your own leads?

Ok, last note here before we hop onto another topic.

If you are still paying for 100% of your own leads, why?!

It’s important to realize that your real estate business is a lead generating machine for everything downstream of you. Most people realize this with their lenders and are able to negotiate some type of partnership, but it doesn’t stop with lenders. You could create the same type of relationship with title, home insurance, home warranty, and more. It’s completely legal and is absolutely a win/win for both sides.

We recommend that all Sisu users track every relevant type of partner on a transaction so that they can pull up a report like this:

Report taken from Sisu reports admin>vendors. Choose a vendor type and run the report over a time period. Must be tracking vendor type per transaction. Missing a vendor type? Here’s how to turn them on.

Notice that 68% of the business in the report above is going to one mortgage company.

You might already know that your situation is similar with your partners, but it’s important to put the data in such a clear format so that you can take control of your vendor partnerships. Rather than hoping they bring in donuts each week, you can have the following type of conversation.

Hey partner. We really like working with you. Our agents appreciate your quick response times and that you’re able to help our clients. It’s a win/win. In fact, check out this graph. 68% of our business goes your way. We want to put together a big advertising campaign next month. Knowing that it will benefit both of us, would you be willing to match our ad spend so that we can see double the business?

There’s not a reasonable vendor out there who would refuse or push back. If they do push back, you’re working with the wrong vendor—and there’s probably 5 more that would line up to work with you if you can prove the ROI through the numbers and a chart like this.

Take a look at your splits, fees and deductions

Lead source ROI is about optimizing expenses and the amount of GCI coming in to your brokerage/team.

The next way to ensure profitability is to manage the money going out.

Here are the ingredients:

  • Total GCI per side
  • Deductions paid per side (i.e. royalties, brokerage fees, referrals, etc)
  • Agent paid income per side

With that, you get a neat little equation like this:

Taken from Sisu income report. Reports>income

That could turn into some slick graphs like this:

Taken from Sisu’s snapshot graphs, dashboard>snapshot use the drop-downs to modify the graph.

This is pretty basic stuff, but it helps to have an easy way to track it, beautiful reports, and the ability to run it over any date range.

The next important thing is to be able to, with one click, switch the profitability view between segments of your team/brokerage.

For example, are you more profitable in one office than another? Do you net more off of buyers agents than listing or co-listing agents? How much of your income is still coming from your personal efforts vs. team generated efforts?

Looking at profitability on a per-agent level

Sisu has a handful of dropdowns built to address profitability on a per-agent level or per-group-of-agents level.

Admin>team settings>groups allows you to sort your agents into groups that can be used at any level of reporting. This might be buyers agents and listing agents, or it might be new agents vs. experienced agents. It could be one office vs. another. The possibilities are endless, but it allows you to gain more insight into your data.

Then, from the income report we were just looking at, you can drill down into the data to see profitability per-location or per-segment of agents, or per individual agent.

Breaking down deductions, royalties and fees

Often, a “grass is greener on the other side” mentality is not beneficial.

But in real estate, that’s just not the case. Often, the grass is greener on the other side. And the only way to tell is to emotionally detach and run the numbers!

How much of your GCI is going towards brokerage fees and royalties? How would this change if you were doing more or less business?

We run this in a neat little report called the commission report, which knows where every single dollar of commission went.

Taken from Sisu’s commission report, Reports>Commission

Each transaction in Sisu has a commission form (some call it a CDA or DA) that denotes where every single dollar of commission went. You can run this report to see what you’re really paying in brokerage fees/royalties and make more educated decisions on where to take your business.

And, yea, you guessed it—you can break this down on a per-agent, per-office, or per-group basis as well as over any date range.

This type of reporting is critical to know if you’re operating in the right environment for maximum profitability.

So detach emotionally, take the report, analyze it, crunch the numbers, and take your brokerage where it’s going to get the most value per dollar spent. You wouldn’t be the first to have an eye-opening experience 😉

General Expenses

There are expenses that are not transactional that can be tracked in Sisu as well.

Taken from Sisu’s expense tracking at admin>expenses

Here, you can track non-transactional expenses such as payroll, videography, office space, etc.

Note that expenses here are separate from expenses generated on the lead source ROI report. Lead source expenses should also be entered into admin>lead sources>counts and expenses for optimal lead source ROI tracking.

This takes the equation one step further, to tell you what your real profitability is after paying out all deductions/royalties, agents, and general office expenses.

From there, you’ll have the full story on profitability.

Be aware of the bottom line but never divert your focus from growing the top

It’s important that through this all you keep a growth mindset. There are certain benefits that can’t be justified financially, but are absolutely worth keeping around.

You’re either growing or you’re dying.

That’s why humans still run businesses, not robots.

It’s not always about scalability. Sometimes, it makes sense to do things that aren’t scalable!

Dominating your market isn’t about obsessing over expenses. It’s about figuring out what’s working and doubling down on it, while cutting out or fixing what isn’t working.

If you have all the right data, you’ll know exactly what to do and where to take your business. But you need that data first.

Then, focus on growing the top line while keeping the bottom line in check. That’s how you capture market share and dominate in your region.

The Sisu personal dashboard is hand-picked with metrics that focus on growing the top line and the things a sales rep can do right now to improve

Want some helping dialing in Sisu?

We have a chat box in the bottom right-hand corner. Whether you’re just looking at Sisu for the first time or an existing customer looking to take things to the next level, start a chat!

Let us know that you read this article. We’ll be happy to set up a meeting with you.

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