Right now, many of you will be setting budgets for next year and let’s be honest, for most it’s 50:50 whether they will be delivered.
Some of your budgets will be beaten, some will be missed – I have no research for this but am prepared to bet that the smallest % is probably those that get hit exactly.
Over many years I’ve observed the standard formula to be: “last years income plus 10%” and my observation is that this approach is no more and no less accurate than any other. It also comes with the (deluded) benefit of making you feel (temporarily) good as you think you’re planning for growth. But why 10%? Why not 20, 30, 43%?
I’m often asked, what’s the alternative, what’s a better way? Here’s a precis of my answer.
Rather than looking at the final number, be that top line income or bottom line profit, instead look at the activities that make up these numbers. For example,
- How many transactions took place on your patch last year? What % did you sell/let?
- What was the average fee generated?
- How much did it cost per transaction?
Each of these “big 3” should be further broken down, for example with 1. you should also look at the number of market appraisals and % conversion of those that came to the market and with 3. the average number of viewings, the average time from instruction to sale/let and the average time from sale/let agreed to exchange/check in. (We’re working with all our members on these and many more key activities).
Armed with this data, you can start to experiment with ratios by asking:
A. What would happen if we increased market appraisals by x%?
B. What would the effect be of increasing our fees by 0.1%?
C. How much would we save if we reduced the number of viewing appointments (note appointments, not necessarily the number of people going on viewings)?
Of course each of these scenarios need to be examined in detail. For example, take A. How many more prospecting sessions would you need to do to generate this increase in market appraisals? Or C. How many individual viewings can you replace with “open for inspection” (open house) group viewings?
What this often leads to is the realisation that relatively small adjustments in activities can lead to significant improvement in the financial results. Take this simple example (the final formula we use has up to 78 ratios) –
2019: Market Appraisals 150, Instructions 100, Sales 70, C/X 50, Average fee 1%
2020: Market Appraisals 165, Instructions 115, Sales 86, C/X 65, Average fee 1.1%
Based on £250,000 average house price:
2019: Income £125,000
2020: Income £178,750 = 2019 income +43%
With each of these activities I adjusted them by between 5-10% – it has a profoundly more significant and positive effect than simply adjusting the top or bottom line and importantly, shows both the desired number for next year and crucially the activities required to achieve it.
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