Is yours big enough?
I met with an agency owner recently who was extremely disappointed with the results from one of his branches this year.
As always, my starting point is to identify the potential size of the market and I was shocked to learn that in the last 12 months, the total sales commission value (based on 1.5%+VAT) for the stated patch was just £702,000.
With the area being served by four agents, also with an office in the patch, and 20+ more with offices adjoining, clearly this branch can’t survive even if the market had double the number of transactions.
Three years ago, I spent some time in Sydney with Alexander Phillips, Australia’s number one agent who earned $11million in personal commission in 2018 and is set to beat that in 2019. I recall asking him, “what does it take to be a $10million agent?” and he replied: “The first thing is to be operating in an area where you can earn $10million.” Pretty obvious really, but perhaps not in light of my recent meeting and I wonder just how many agents might similarly be trading in a market that just isn’t big enough? Here’s the simple formula we use with our members to assess a patch.
- What were the total number of completions in the previous 12 months?
- What is the average selling price (even better to calculate the total sales value, particularly if there’s a significant range of property types/values)?
- Which agents cover this area? What is their average commission rate?
The answers to these three questions will generate the total potential sales commission and the current average share of it.
From this point you need to be realistic about the competition. We have a process that enables a detailed examination but as a quick starting point, the current stock on Rightmove is a useful indicator of market share. The key question to ask then is “what will we need to do and what will it cost to increase our market share to x%?” (where x% delivers a return that makes it worthwhile operating on the patch). If you can’t see a clear way generate income of £500,000 I’d seriously consider operating elsewhere or at least assessing whether it’s possible to extend the patch covered.
Running a business is hard enough but near impossible if there’s not a suitable sized market in the first place – make sure yours is big enough.
On December 19th, one week after the general election, we’ve booked one of the country’s most in-demand behavioural economists, Roger Martin-Fagg, to share his views with our members. Roger has called the results of the last two general elections, the Trump victory and the decline in the Chinese economy far ahead of the events and so whilst he’s not always right his record is way better than most. Also, I’ll be sharing some of the key aspects of the plans we’ve helped agents to create to gain a distinctive advantage and the things you need to focus on next year. At the time of writing, we have some additional places available for this free event in London which I’d like to offer to readers of four-i. Please register here for your chance to get a really clear picture of what to expect in 2020 and more importantly, what to do.
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