The market might be hot right now, but what happens when it’s not? How can you predict your earning potential and what you need to do to boost it? Inhabit Managing Director Bill Shields explains the income pipeline and how improving your KPIs can affect your bottom line.
Today, more than ever, we have access to a vast array of metrics and key performance indicators (KPIs).
But, which ones matter the most? And how do we best interpret them?
Ultimately, how do we take KPIs and turn them into a positive outcome that will lead to a greater understanding of what affects your future income?
We all like to plan our financial lives, and understanding our annual income is something most professions take for granted but, in real estate, our world is one of unpredictable income and uneven cash flow.
Traditionally, most salespeople count pending settlements and sometimes listing stock.
In today’s tech-savvy world, CRMs now have access not just to your financial data but to your behavioural traits as well.
Using this information, you can accurately forecast your income, and see what effects improvements in your presentation and negotiating skills can cause.
To forecast your income, we first need to calculate your income pipeline.
Your income pipeline is the aggregation of potential commission for all your sales in progress, current listings and pending opportunities and appraisals, adjusted for the probability of each resulting in a settled sale.
Uniquely, the income pipeline applies a value to your prospecting activities.
Far more than a cash flow report that confirms what money will shortly arrive, it looks at recent tasks, such as a listing presentation, and applies your specific metrics to provide a statistically accurate representation of its probable value.
To calculate the income pipeline, we need to know some core KPIs, but first, we need to redefine a long-held real estate concept because not all appraisals are what they seem.
We must acknowledge there are two types of appraisals:
- The first is the literal definition of the word “to set a value on, or to estimate the amount of.”
- The second is when you have a genuine opportunity to sell their property.
Let’s refer to these as ‘appraisal’ and ‘opportunity’, respectively.
Use judgement to determine whether a homeowner is seeking an appraisal or is giving you an opportunity to sell the home.
Be honest with yourself and be prepared to change your assessment.
If you flagged an owner as an appraisal and later noticed it for sale with another agent, update your records so you always keep an accurate picture.
Making this change to the way we think of appraisals assists in several ways.
Most importantly, your opportunity-to-list ratio won’t be artificially skewed downwards by marketing initiatives that bring in owners seeking appraisals but aren’t genuine opportunities.
Further, you can mentally separate them.
Hone your skills and presentations specifically for opportunities and relax and take your time with appraisals to garner rapport.
The core KPIs we need to calculate the income pipeline are:
- Appraisal-to-list ratio
- Opportunity-to-list ratio
- List-to-sale ratio
- Fall-over rate
Although these can be determined manually, or even estimated, your CRM should be able to supply them.
With these KPIs, we step through each appraisal, opportunity, listing and sales in progress to determine their likely commission and then adjust it based on the probability of it progressing through to a settled sale.
The income pipeline includes a single dollar figure showing you the value of all your prospecting work to date.
Once calculated, multiply by three, and you’ll have your forecasted income for 12 months.
Why three?
We have found that the average time from appraisal or opportunity to settlement is four months.
In some slower markets, this factor might be slightly lower.
Some of our markets do have listings that take much longer to sell, but statistically, they are the outliers and typically don’t represent a large source of income.
How to make it happen
Take a look at your CRM and check to see if it can distinguish between appraisals and opportunities.
Look to see if it can supply your basic conversion rate KPIs.
Finally, check to see if it can calculate your income pipeline and your annual income forecast because, although it is possible to do the calculations manually, it isn’t any fun at all.
Having done the maths, I’d strongly suggest getting a CRM that does this for you, but If you don’t have access to these numbers in your CRM, we’ll look at the calculations that form the basis of the income pipeline below.
It’s a complicated process that may seem intimidating at first, but there is great value in understanding how your core skills and habits such as listing presentations reflect in your KPIs and how that can have a dramatic influence on future income in real dollar terms.
It may be daunting to look at so many numbers, but I urge you to move past that so you can understand how improving your KPIs can boost your income.
Make the numbers work for you.
