Free Advice to Brokers: Three Things To Do in 2009

I’ve been engaged in much discussion of late on the future of real estate, and we’re having a debate right now between those who believe that the future is made up of numerous independent agents (or small agent teams) operating in low-cost, low-service brokerage models and those who believe that the future actually belongs to Big Brokers who come to their senses and start investing in their future.

Let’s call the former camp Kristians, and the latter camp the Robnecks. Fact is that the Kristians are much nicer, better looking, and have invaluable perspective as on-the-ground practitioners of the craft. On the other hand, the Robnecks have the laws of economics on their side….

But this post isn’t about either one of those Grand Debates. This post is… well, I don’t know what it is. Whimsy, probably — which also happens to accurately describe 95% of the posts on this blog.

Basically, I wanted to offer a bunch of free, unsolicited advice to brokers of all sizes, varieties, and business models. Being that this is free and unsolicited, the approximate value of this advice asymptotically approaches zero on a relatively steep curve. But hey, when has ‘value-free advice’ ever stopped me before?

So… rather than grand theory, here are the top three things I would do if I were running a real estate brokerage in 2009:

1. Get a Clear View of My Business
2. Invest in Technology
3. Hire a Real Marketer

Let’s get into it, shall we?

1. Get a Clear View of My Business

While I’m sure that there are huge numbers of broker/owners out there who have a steel-grip on what’s actually going on in their business, seeing as how major corporations with whole departments setup to do just this often don’t understand exactly what’s going on… this is number one on my list of priorities.

Basically… this means getting deeply, madly, passionately involved with Excel.

I’d want to know for all of 2008, then going back at least three years, the following:

• Gross Revenues (GCI)
• Net Revenues (AGCI – Adjusted GCI)
• Gross Profit (i.e., Company Dollar)
• Net Income
• Profit Margin
• Major Cost Centers
• Return on Investment
• Return on Assets

Presumably, if my brokerage is like just about every other brokerage in America, my numbers for 2008 were atrocious. I probably lost sides, lost revenues, lost money, lost the will to live, etc. I would take an evening, go out with Mr. Jack Daniels, have a grand old breakdown, wake up, drink a gallon or so of water, and then want to understand just WTF happened, how, and why.

Once I have the financial metrics above, I’d probably want to delve in deeper.

For example, I would want to tie every single major expense to revenues. Let’s say that Office Rent was a major cost center, representing 26% of the total expenses, and amounting to (let’s just say) 15% of Gross Profit number. I’d want to know revenue per square feet, etc.

I’d want to rank my agents not only on GCI, but by company dollar, and by profit. I might think that Joe is my super agent, but let me make sure that Joe is contributing more to the bottomline as well as to the topline.

If I’ve spent $150K on newspaper advertising, I’d want to associate some revenues to that. And it gets complicated, because I’d have to decide whether the increased brand exposure I got from those newspaper ads led to fifteen more listing assignments than I would have had otherwise.

Seeing as how I’m looking at an ugly scene in 2009, I’d want to know exactly where my money is going, for what reason, and to what effect.

I would also sit down, drink a bunch, get trusted friends and advisors, and do a soul-searching strategic analysis. Some of the questions that need to get answered are:

• What is my competitive advantage?
• Is it sustainable? What is required to sustain the advantage?
• If I’m not #1, what do I really need to do to become #1? (If I am #1, what do I need to do to defend being #1?)
• Is my branding and positioning consistent with my competitive advantage?
• What sort of broker am I? Boutique expert in s segment? Or lowest-cost provider? Which path promises growth (or at least, defensibility)?
• Who are my top competitors? What are their strengths? If two of my top competitors merged, how would that affect me?
• Am I vulnerable to being poached? (I.e., if a competitor lures away my top agent, how much does that hurt me?) Is my competitor vulnerable to being poached?

These questions (and more like them) should lead to a clear strategic plan for 2009. If I’m the little guy with a huge Big Broker competitor, then I need to think about how I differentiate myself from them in a way that’s meaningful to consumers. Maybe I decide to specialize in a particular market niche; maybe I decide to compete on price; maybe I decide superior service is the key. Whatever it is, I can craft a strategy based on an honest assessment of myself and of my competitors.

2. Invest in Technology

This depends almost entirely on how large I am, what sort of business model I’m operating under, and what the competitive pressure looks like. However, as a general matter, I would invest heavily in technology in 2009.

How heavily? Who can say. But I would deploy the Rob Rule of Thumb: My technology investment should be at least double what I spend on office rent.

This Rule of Thumb is based on zero research, and entirely on Rob’s right thumb, actually, hence the name. But deep-down, you know it sort of makes sense. After labor costs, physical space is probably the largest line item for brokerage expenses. And typically, space has strong correlation to the overall size of the business. So if I’m spending $5,000 a month on leasing my office, then I’d want to spend $10,000 a month on technology; if I’m only spending $200 a month, then $400 a month on technology will get me some sweet results, scaled to my operations.

The reason is that I truly believe that technology investment improves productivity to a degree that office leasing cannot. Maybe having a nice storefront office brings me 50 walk-in’s a day; but it doesn’t make my people more productive. I’m getting the same amount of output (GCI) per unit of labor (agent hour). Only technology can move that productivity curve upwards.

Remember that I’ve gotten a pretty good sense of revenue per sq. ft. from the financial analysis. That in turn gives me at least an idea of the ROI I might be deriving from the office lease. If technology can’t beat that ROI, then I’ve picked poorly and need to go out of business.

If it can, then the investment is fully worth it.

Because… capital investment alters the relationship between me and my agents.

When productivity is output per unit of labor, investing in technology should raise the output without needing to raise labor, whether that is because my agents can now handle two closings a day where they could only handle one before, or because an agent can process 25 leads a day when before, they could only handle 10 leads a day. Conversely, I can maintain the same revenues (output) while eliminating a few agents or staff members, because of the productivity gains from technology.

Note: technology investment does not mean just the website. And it doesn’t mean just the actual hardware and software. It has to include the cost of operations, cost of maintenance, and the cost of training and changing operations to incorporate technology.

A state-of-the-art $25m CRM system is worthless if my people aren’t trained to take advantage of it. If my operating rules aren’t modified to leverage that investment, I may as well have taken the money and put it on the Jets to win the Superbowl.

Another note: The cost of operations includes time. The software that powers my blog might be free, but the 25 hours spent blogging most assuredly is not. Those are hours that could have gone into something else, like making phone calls, or putting on seminars at the local Kiwanis club, or spending more time with my family.

3. Hire a Real Marketer

Maybe this is entirely biased, since I’m a marketer, but so many of the critical issues with brokerages today seem connected in some way or another to a failure of marketing.

Too many real estate people equate marketing with “advertising a home for sale”. That is, to put it bluntly, perhaps the least important of the things that marketing should be doing.

Far more important, in my view, is ensuring my brokerage’s overall brand reputation and awareness. Being a service business, brokerage is essentially selling a promise to perform to people who have no idea whether you can actually perform or not. A great website is no surefire indicator of performance, nor is the ability to recite the days-on-market stats for the last three years. That being the case, brand is a critical part of competitive positioning.

Again, too many real estate people (and a fair number of marketers) believe that ‘brand reputation’ has everything to do with the number of signs on lawns, the prominence of the company logo, and the like. All of those are important, of course, but for a retail service business, far more important is the single biggest consumer touchpoint: the agent.

Whatever my strategic plan is (see #1), and no matter how much I’ve invested in technology (see #2), fact is that if the quality of service is uneven between my agents, then my brand is only as good as the agent representing me. It is critical, therefore, that every single person who wears my brand, carries my flag, be consistent with my brand positioning in every way.

So, if “friendly customer service” is my strategy for differentiation, then every agent who works for me had better be incapable of frowning. If the brand promise is one of “local expertise” then by golly, every agent who carries my business card should be able to give a seminar on local market conditions on demand.

And marketing has to enforce this. In a way, this is the single most important thing that a marketer for a brokerage can do. Enforcing brand standards, brand expectations of performance, and brand messaging throughout the entire agent salesforce (as well as other touchpoints, like the receptionist, the website, publications, blogs, etc.) takes tremendous work, discipline, and a bit of ruthlessness. But its payoffs are both immediate and lasting.

A consumer may or may not remember that blogpost she read on your website. She will remember if the agent she dealt with was professional, expert, courteous, and diligent. And she will absolutely remember if the agent she dealt with was a surly idiot who couldn’t put a full sentence together. Seeing as how there is as yet no form of marketing more powerful than word of mouth marketing, one customer with a crappy experience with your agent probably means losing dozens of listings, dozens of sales, as that customer goes and tells all her friends and neighbors.

After enforcement of brand discipline, a real marketer for a brokerage must be able to do some real strategic segmentation and market analysis.

Should my little brokerage of 50 agents go head-to-head against the local Big Broker with 2,000 agents? If so, how? We can’t compete on the basis of numbers, or exposure. But maybe we focus on a market segment where Big Broker doesn’t have a major advantage — like luxury properties, or horse farms, or ski chalets or whatever. Maybe we specialize in mobile homes.

Where is the traffic to my website coming from? Not just the referring website , like Google, but geographically — next town over? The nearest big city? From across the country? For that matter, combining with #1, where is my most profitable traffic coming from?

How are my revenues and profitability from representing buyers of detached single family homes?  What about condos?  How about ranch and farm properties?  What about new builders?  Which is most profitable for me, given my company, given my resources?  Let’s focus there.  Is there a market segment where we’re not active but should be?  Which one?  How do we attack it?  Is there a segment or a practice we should exist, because it’s proving to be less than optimally profitable?

These are the kinds of questions that marketing should be able to answer for you.  I rather think they might be important questions in 2009.

Putting listings and photographs on websites is, as you can see, just about the least important thing that marketing can do.

Three Is the Magic Number

To be honest, there are a lot more than three things I would do.  I left out important topics like training, leveraging social media, and so on.  Because three is the magic number, and because 2100+ words is quite a lot of words.  For those of you who made it this far… um… I wish I could give you back the last 15 minutes of your life, but since I can’t… I can only hope that some of this gives you something to think about for 2009.

1.  Clearly Understand Your Business

2.  Invest in Technology

3.  Hire a Marketer

Please do feel free to let me know where I’m smokin’ the funny cigarettes, and where I might have badly gone awry. 🙂

-rsh