Getting started in real estate isn’t as complicated as it might seem. The industry relies on a fairly simple concept: you find properties, buy them at a discount, and then generate revenue by selling or renting them. You pocket the difference as profit.
Countless people have used this exact model to build multi-million dollar real estate businesses. However, they did more than just repeat the steps over and over again. They also applied good business skills and steered their teams in the right direction. To do that, they leveraged key performance indicators (KPIs), a quantifiable set of metrics that successful businesses of all kinds use to guide their operations.
We recently hosted a webinar with real estate entrepreneur Rafael Cortez to break down what key performance indicators are, why they matter, which ones to focus on, and how you can implement them in your business. Here’s a summary of what he talked about along with the most important real estate KPIs for your business.
What are key performance indicators?
KPIs are metrics that businesses use to track their output and evaluate their performance in essential areas. KPIs can track many different things, but at core, they help entrepreneurs identify holes in their businesses and give them mechanics they can leverage to accelerate business growth.
As a real estate entrepreneur, KPIs are essential to transforming your business from a side hustle to a scalable enterprise. As Rafael explained, the foundation of real estate is hard work and a willingness to grind, but that mindset can only take you so far. If you want to create a lasting machine that can continue running without your active involvement, you need a way to track, evaluate, and direct your business’ actions. KPIs are the answer you’re looking for.
How do real estate KPIs work?
To use KPIs to direct your business, you need to understand how to set them up and leverage them. In general, a good KPI has the following characteristics:
- Specific – Vague metrics cause confusion and miscommunication
- Measurable – While some KPIs are qualitative, you should generally have quantifiable KPIs that you can measure
- Simple – Being too complicated will distract you from accomplishing goals
- Trackable – Regularly checking metrics will help you stay up to date with your results
- Visible – Giving your team line of sight to your goals will keep everyone on the same page
When you have KPIs that meet these standards, you can use them to set expectations and hold everyone, including yourself, accountable. You can even set baselines, such as the number of calls your team should be making in a week.
KPIs are also an invaluable management tool. There’s no limit to the amount or kind of KPIs you can track, so you can work with your managers to choose KPIs for their teams. This way, your managers can set expectations and evaluate team member contributions.
Finally, KPIs give you the ability to reflect and make changes based on what you see happening over time. For example, Rafael explained that at one point his business stopped focusing on cold calling and turned its attention almost entirely to texting. However, texting eventually stopped being as effective. When they looked into their KPIs, they discovered that the few calls they were still doing were much more successful than their texting campaigns. Without those numbers, they may have spent several months suspecting that there was an issue, but they wouldn’t have had a reliable way to verify their suspicions.
The five most important real estate KPIs
There are countless KPIs that you can track in your business, ranging from profit, sales, customer satisfaction, employee engagement, and much more. However, there are five real estate KPIs that Rafael Cortez’s company Pulse Capital relies on.
Deals closed
Understanding the number of deals you’ve closed over a period of time is important because it illustrates how often your team is achieving its ultimate goal.
Most teams evaluate this metric on a weekly, monthly, and quarterly basis. Doing so helps them consistently identify positive or negative trends and react accordingly. For example, a team that notices a spike in deals closed may dig deeper into the various factors that could have caused the spike. By doing so, they can discover processes that they want to replicate.
Number of prospects
This KPI tracks the number of people that you or your team have set appointments with or sent offers to. It not only shows you how productive you’ve been during a period of time, but also gives you a window into how effective you’ve been at closing deals. For example, you may find a significant difference between your new prospects and the number of deals you close. This is an indication that you need to change something in your negotiation process. It may also mean that you’re generating and qualifying the wrong leads. However, if you don’t pay attention to this metric, you’ll never know when there’s a problem.
Cost per appointment
Marketing to real estate leads can quickly become expensive. Mailers, dialers, text messages, and the teams behind them all add up. This metric will show you how effectively you’re using your tools and how much it costs you, on average, to book an appointment with a seller. It will also help you track how much you’re spending over time so you can identify and fix any problems as soon as they come up.
Average revenue per deal
Making money in real estate is exciting, which often causes investors to chase as many deals as they can. The more deals, the more money you make. However, this isn’t always the case. Blindly cashing out on deals can hide problems in your business.
That’s why tracking your average revenue per deal is so important. It’s not just a vanity metric; it helps you identify a whole host of potential issues, including:
- Cash buyers who aren’t paying enough
- A tendency to overpay for deals or under-negotiate with motivated sellers
- A shifting market
By staying on top of this metric, you can ensure that you’re always working towards getting top dollar for your deals. If you see the number drop, you’ll be able to address it quickly.
Net profit
Net profit is the simplest KPI you should be tracking, but it will give you crucial insights into the inner workings of your business. With this metric, you can track how your expenses increase or decrease relative to your revenue over time. It will tell you when your spending is paying off and when it’s eating into your profits. It can also illuminate cash flow issues before they become an issue. If you aren’t consistently checking your net profit, you need to start now.
KPI mistakes to avoid
Each of the five KPIs that Rafael Cortez lives by tell you more about your business than a surface examination would imply. Of course, there’s a nearly limitless amount of additional KPIs that you can track, and we recommend getting as much information about your business as possible.
However, tracking every KPI possible is not a good idea. For starters, tracking metrics can quickly eat away at your time and become your main job. If that happens, you won’t be involved in the investing part of your real estate investing business. Instead, you should identify KPIs relative to the divisions of your business and leave managers in charge of them. As the business owner, you should be aware of these numbers, but let your team members own them. You should focus on the five metrics we discussed here.
You can also fall into the trap of tracking mostly vanity KPIs, which make you feel great about your progress but are actually very distracting and don’t drive your business forward. They can leave you feeling like you’re being effective when your efforts are barely accomplishing anything at all.
Conclusion
KPIs are essential if you want to turn your real estate side hustle into a growing business. While you can find success and make money by working hard, it will only take you so far. If you want to build something sustainable and scalable, you need to understand metrics, what they tell you, and how to use them.
Of course, what we’ve covered here is just a small taste of what Rafael Cortez shared. He also gave our webinar attendees some vital information including extra KPIs you can have your managers focus on and an exclusive KPI calculator. If you want to see it all, click the thumbnail below to discover all the invaluable insights he shared on our live webinar!
