Market share. The obsession of an estate agent. Market share is something that is ingrained in us from the moment we enter the industry.
I can remember as a junior negotiator, driving around the streets of Canning Town with a Dictaphone and a highlighter, recording the addresses of the properties for sale and sold and marking off the streets I had covered. Of course, that was 25 years ago, now there are easier ways of doing this using technology.
But my point is that the market share obsession runs from the very bottom of the company to the very top but for very different reasons.
For instance, when I was a junior negotiator I was not interested in, nor did I understand the profit and loss of the business. I was driven by the pure hunger to do my job well and prove myself.
As a more experienced estate agent, more market share in my mind equated to a more successful branch and more praise and commission (actually it was the praise and the recognition, more than the thought of the commission as an extra few sales did not affect my pay that much).
But, as a business owner it is all about revenue. Most small businesses live on the edge, floating between being comfortable and being uncomfortable cash flow wise and over the years I have learnt that the words ‘we would like more market share’ from a business owner is just code for ‘we would like to increase our revenue’.
The way most estate agents try to do this is by thinking of how they could either get called out to more valuations or how they can increase the amount of valuations they win and thus turn into instructions, right now.
Now if you are a new start up or recognise that you are not in the top 3 or 4 estate agencies in your area then looking to get called out on more valuations next month is a decent short-term strategy. However, when you do this you need to expect that your conversion rate will drop.
Most estate agents do not have the means to track their valuation to instruction conversion rates accurately, so whatever you ‘think’ yours is, 99% of the time it is incorrect.
At Iceberg Digital we have a market appraisal tool that agents all over the UK use and has over £6 Billion worth of valuations in it, so I am well placed to tell you that the average valuation to instruction conversion rate is around 30%. Now before you start celebrating because yours is 50% or 60% or even 80%. Every single one of those agents that use Iceberg Digital’s system would have said the same thing and some still do, even though the facts say different.
Even if your conversion rate IS 80% that is unfortunately not a good sign either. As that just means that you are not going out on enough valuations. Having a 30% ish conversion rate is not a bad thing, actually the general rules of thumb in business are that you should convert around one third of your pitches. Meaning one third will go elsewhere and the final third are still thinking about it.
As someone that has had the amazing opportunity to interview and work with some incredible investors and business people, through my TV show and work, I can tell you now that, whilst you might be proud of your super high conversion rate, a conversion rate that is considerably different to this 33% rule, rings all sorts of alarm bells for a seasoned investor or entrepreneur.
So, as a business owner, once you are in the top 3 or 4 agents in your area, the focus on how to significantly increase your conversion rate on the valuations you go out on is going to be a very difficult strategy to maintain, and most likely will result in your fees beginning to drop, in order to get more on, which is actually the opposite of the idea, ‘we want to increase our revenue’. As now you are just doing more work for less money.
So where is this going wrong and how can an estate agency ACTUALLY increase their revenue in the same way some of these incredible entrepreneurs and business people I mentioned would expect it to be done? And also why the hell did no one teach us this shit BEFORE we started a business!!! lol
Let’s look at this on a single branch level as some people reading this may only have 1 branch some may have more but if so you can just multiply this up.
Stats vary from area to area but it seems that as a ball park figure, if you are up in the top 3 or 4 agents in your area, a branch should on average go out on about 40 valuations in a month. It doesn’t really matter if you agree with that or are thinking of a different number, you can just replace my numbers with your own, the principle of this will still work.
On the basis that 40 potential vendors have actually asked you to come out and value their property in a single month, and they did not just magically wake up that morning and think of the idea of selling and using your company, then it is reasonable to assume that much more than 40 vendors need to be ‘considering’ selling and using your services at any one time. Which is why you bother doing any form of marketing at all.
In estate agency this is not really tracked at all but it is the key to increasing your revenue.
When you ask an estate agent their ‘conversion rate’ it is universally accepted that you are referring to their valuation to instruction rate. There are no other conversion rates to discuss. But this is wrong, very, very wrong and learning to monitor other conversion rates will change the way you run your business.
Actually, if you were to find yourself on the apprentice in front of Lord Sugar or a serious investor, some of the questions could get uncomfortably embarrassing for you (believe me I know as I went through this uncomfortable moment with my own version of Lord Sugar many years ago).
So, here is the first question from Lord Sugar as you sit in the chair, with all eyes on you…
“You want my investment to help you grow your business. So, let me ask you this. The stage of someone inviting you to pitch to them (valuation) is called the stage of intent in the cycle towards them becoming a client. In order for you to get your 40 valuations each month that are at the stage of ‘Intent’, how many people do you require to be at the stage before that, the stage of ‘consideration’, in order for that number to be consistently hit?
At this point, not wanting to look silly, you stumble and make up some sort of number off the top of your head, Lord Sugar looks a little perplexed, and says:
“Hmmmm, Ok, let’s break it down further. There are loads of people out there that live in the areas you cover, that own a property and that may sell at some point in the future. How many of them do you need to be aware of your brand and have then moved on to the stage of being ‘interested’ in your brand, before they then hit the stage of ‘consideration’ and then ultimately the stage of ‘intent’ when they ask you round for a valuation? And how will you go about reaching those numbers consistently?”
That is the reality of business, sounds complicated right? Actually, it is not that complicated. When you have a system in place to monitor those numbers, it is no more complicated than the fact that you already know how many valuations, instructions, exchanges etc that you need to do. All you have to do is work on the numbers being correct by creating marketing for each of those stages listed above.
Let’s try to make some sense of this from an estate agency perspective.
Luckily there are companies out there that have already done the research to show how many people you need to make aware of your brand in order to convert some of them into enquiries, or in our case valuations.
Wordstream, analysed this over a period of 3 months by looking at a wide range of websites and landing pages across multiple sectors to compare traffic to actual conversions and found that ‘average’ sits at 2.35%, if you are over 5.31% you are in the top 25% of companies and the absolute elite companies out there have a traffic to enquiry rate of 11.45% or higher.
So, going on the basis of ‘average’ we would need around 1700 vendors to hit our website each month in order for them to eventually begin to work their way down the process to get our 40 valuations.
Of those 40 valuations we can apply an industry average conversion rate of 33% that will go ahead with you within a few weeks, providing you have a decent pitch.
So, 40 valuations will on average bring you 14 instructions. Or at least 14 instructions that are not vastly overpriced or being under charged.
Now we go a little into the unknown but let’s say we sell 70% of everything we get instructed on, that would leave us with 10 sales per month.
If we say that our average fee is £4000+vat that would equate to £40,000 of sales per month.
If we then say that 70% of all agreed sales will actually go on to exchange and complete that would lead us to £28,000 of income from sales in a month.
Multiply this by 12 months and we have a sales turnover from one branch of £336,000.
Now your average fee might be higher or lower depending on where in the country you are based and your numbers may vary slightly but from this you can see the principle, but what is my point?
My point is that the main number most estate agents are focusing on there is the £28,000pm or the £336,000 per year and whilst this number has obvious importance, you can’t increase this number unless you start to focus on the other numbers.
Each month the agent crosses their fingers and hopes that they will ‘hit’ these numbers. But they can’t be sure as they don’t know the answers to Lord Sugars questions above. They have recently sponsored a school fete or sent out some marketing and now they hope it will all come together, and often it does, but they don’t/can’t actually know for sure. However, it does not have to be this way. So what is the secret?
The secret is to structure your business generation around the other numbers we spoke about and employ systems that will let you see if you are hitting those numbers in order to try and solve the problem BEFORE it starts, as by default we know that if we increase those numbers the others will follow. I call this, looking further down the funnel.
Let’s look at those numbers again…
1700 vendors hit the website in a month (or were made aware of your marketing somehow, via boards, leaflets, or whatever).
40 of them made their way from awareness, to interest, to consideration and finally to intent and booked in for a valuation.
14 of them instructed you at £4000 fee
10 of them sold £40,000
7 exchanged = £28,000
But rather than ignoring everything above sold, what if we place our average fee of £4000 against those other numbers too? From this we can see where money is leaking out.
For instance, although we were instructed on 14 properties and sold 10 of them that still leaves 4 properties on the table and at an average fee of £4000, that is an extra £16,000 per month that we are accepting will choose another agent or are still just thinking about it, or as some may say ‘timewasters’. But it is as we go up higher in the funnel that we start to really see how to improve the business.
The next level up says that we went out on 40 valuations and were instructed on 14 – that leaves 26 sales on the table. At an average fee of £4000 that is £104,000 PER MONTH that for one reason or another are not quite ready to instruct us just yet. Again, after a week or two of chasing, they are considered by most to be ‘timewasters’. But selling their property is clearly something they have on the horizon somewhere and now that you have had the chance to meet with them and they have used your service for a valuation, they are effectively a client of yours, therefore it is vital that you do not lose touch with these people…ever.
Again, it is not feasible to think you’ll talk to all of them via a diarised call back forever but technology can take care of that, hence the reason there is £6 Billion worth of property in our market appraisal tool lol.
Now let’s go up the funnel another level and say 1700 potential sellers had to become aware of you through your marketing in order for you to book your 40 valuations.
Again, using our made up average fee of £4000 that is £6.8 million of potential business PER MONTH that is fully aware of you but for multiple reasons not yet ready to contact you.
This is such a critical stage of the funnel and one that many agents try for a bit but then fail to see direct valuations from and so stop or become inconsistent with it. Using awesome content writers such as Jerry Lyons or Christopher Watkin you can actually keep these areas of your funnel healthy to make sure you get the longer-term benefit of turning those people into revenue. But you must have a marketing system in place that allows you to see the great work they or you are doing is paying off in the funnel as you will see the stages of awareness, interest and consideration expanding in numbers in your marketing funnel.
Now, based on all of that, what if you could increase the numbers right through your funnel by just 1%?
Nothing crazy – none of this magic wand bullshit about how to become a millionaire in 3 months, just a simple 1% increase in the funnel. Here is what would happen (aside from Lord Sugar thinking you were the right person for him to invest in)…
You would attract 1717 vendors to the website instead of the 1700 previously.
Your conversion of them would increase from 2.35% to 3.35% which would mean 58 valuations per month.
Your conversion rate would increase from 33% to 34% meaning you would be instructed on 20 properties per month instead of 14.
You would still sell 70% of them, as nothing we have done would change this, which would be 14 sales instead of 10.
70% of those would go on to exchange/complete, which would be 10 as opposed to 7.
Meaning your monthly income would be £40,000 as opposed to £28,000.
Increasing your annual income from £336,000 to £480,000!
A whopping £144,000 increase from 1 branch by simply employing marketing tactics based around a funnel – imagine what would happen if you moved from the industry average of 2.34% awareness to conversion rate right up to the elite band of 11.34%??
Without wanting to bore you with the numbers, out of one branch you would be generating £172k per month and have an annual turnover of £2m
Now aiming for the elite level might be a little ambitious and require a bigger marketing budget than is possible but by using the same type of big data marketing system that companies like Facebook, Google, Amazon and Apple use and actually having the ability to see your funnel and strive towards a 1% increase is perfectly achievable, and let’s face it, who wouldn’t like a £144,000 bonus next year?
Iceberg Digital have developed a world first big data marketing platform specifically for estate and letting agents. The platform sold out within hours of launch and Iceberg are now taking pre-orders for spring 2020.
If you are interested in learning more about how to implement this way of working at your estate agency schedule a call with our team by completing the form below.
If you are interested in finding out more about what we do for Estate & Letting Agents, please complete the form and we will get back to you.