Forecast. Budget. Calculate. We hear a lot about business plans and sales projections this time of year. And though we can find plenty of helpful articles, or can draw from experience, maybe we should think of sales forecasts like Chief Operating Officer’s (COO’s).
In real estate, we always have one question to answer: How much money are we going to make this year? Most of us don’t have consistent paychecks. We don’t have a set salary. We’re paid by the number of real estate transactions. So, defining what this year looks like for business is a top priority.
Now, I’d like to make a quick interjection. I’m not saying think of sales forecasts like a Chief Financial Officer. I’m saying think of it as a Chief Operating Officer. Here’s why:
Because COO’s are looking at the business and market as a whole. Whether you’re a real estate agent or a broker, you want to know how much money you’re going to earn (this month / this quarter / this year). Historical data and averages lose impact if they’re not used within context … i.e. how you plan your business efforts.
You’re not just financially planning. You’re acting on it with your day-to-day decisions. In real estate, we often double as strategist and soldier. We plan, but we also do the dirty work.
Let’s jump into the mindset of a COO and begin sales forecasting …
Goals are second. Past Data is first.
We’re always ready to set ambitious goals. “I want to close 10 deals this month.” or “I want the team to sell $200 million in units.” Those are random goals if you don’t have data to back up those decisions.
And randomness costs money, because it impacts how you market yourself or how much money you spend in advertising. It’s going to hurt when you realize you can’t handle the number of leads it takes to close 10 deals.
Sales forecasting starts with historical measurements.
You can’t forecast if you don’t understand market behavior — the same way meteorologists understand the behavior of certain storms. They can estimate which way hurricanes will move because they have models to guide them … models built on past data. You need the same in real estate.
Here’s what data you should gather:
1. Measuring Agent Workload
Gauge your bandwidth based on the number of leads and deals you handled each month, averaged. Then rate the workload. Was it too much or too little? Could you easily handle more leads or would you need an assistant?
2. Customer Acquisition Cost (CAC)
To determine customer acquisition cost, examine how much you spend to generate leads. Then look at how many leads turn into actual clients. Understanding how much money it’ll take to generate transactions will help you budget your finances, and ultimately estimate how many deals you’ll close per month.
3. Market Growth
Lastly, track and analyze how your real estate market is growing. What percentage growth did it see last year? Over 5 years? What does the market activity look like? If homes are being sold quickly and listings are available at a steady pace, then what does that mean for opportunities this year? Can you expect to aim for higher goals or do you need to prepare for stagnation?
Most of this data can be found with your local MLS organization, housing sold information, etc.
Next Step: Finding Trends
As you look at historical real estate data — how many deals you closed, what costs accompanied your deals — you can begin sales forecasting. On a monthly basis, how many transactions were completed? Now, can you achieve more (i.e. is the bandwidth/workload available)?
Then — thinking like a Chief Operating Officer — what’s the business strategy? Do you need to hire help or maybe increase your marketing budget? Or perhaps, improve your workflow. As a real estate agent or broker, this is where you decide what goals you want to set … and then how to reach those goals.
Answer these questions:
- What is the historical data showing me?
- What are achievable goals for this month/quarter/year — based on the data?
- How will I achieve those goals?
Example: I’m a real estate agent. The data is showing me I can close 5 deals a month within a $500 advertising budget, and with relative ease. If I want to close 10 deals a month, I know I’ll need to raise my marketing budget and maybe hire an assistant.
Advice for Forecasting & Setting Large Goals
A common mistake many agents and managers make with forecasting and setting goals is this: They think it’s a one-time deal. “I’ve set my goals and business plan. Now, I just flow with the current.” NO! You don’t.
Chief Operating Officers know plans go astray. Things happen between today and tomorrow. Between January and June. No plan or forecast is set in stone. Like the weatherman, every day they track where the storm is headed and make adjusted predictions. You need to do the same (though not every day).
What happens is people make a plan and then focus on making it come true. You will stop thinking about other possibilities. You’ve decided ‘this’ plan is the best and your name is on it. You will defend it because it’s ‘yours.’ But really, set time periods to analyze your goals and business plan throughout the year. Be willing to adjust it. Scrap it. Or re-write it.
Flexibility is key to winning any real estate market. Analyze and adjust regularly. There’s no such thing as a ‘perfect’ plan.
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