Next Year Business Planning – 3 Numbers You Need

As you start your business planning for next year, here are three numbers that might be useful to you.

These are statistics most brokers don't think to look at, but they can give you useful insights into what's happening at your company – and provide a good way to focus on making improvements next year.

1. Productivity Per Person (PPP)

To calculate your PPP, divide your number of listings by the total number of sales associates.

For example, if you take 30 listings in a given month and you have 30 sales associates, your PPP is 1.0.

If your company is in a market with high average prices and lower unit sales, you want to target at least 1.0. If you are at .75 or below, you are in danger of not having enough productivity to meet your profitability target.

If your company is in a market with lower average prices and higher unit sales, you should be in the range of 1.5 – 2.5 to ensure you will attain profit.

You also want to calculate PPP targets separately for New Business Written Sides and Closed Sides.

2. Positive Sales Base

How productive are your sale associates really? By measuring your Positive Sales Base, you will determine if only a few people are doing most of your production or if your production is more widely distributed throughout your sales force.

To calculate your Positive Sales Base, divide the number of associates who made sales by the number of sides.

Let's use the same example as above, where you have 30 sales associates producing 30 listings or sides.

If 10 sales associates were responsible for the production, then your Positive Sales Base is 10/30 = 33.3%. This is lower than it should be, making a brokerage vulnerable to recruiting and retention problems.

Ideally, your Positive Sales Base will be closer to 80%, but realistically should be in the range of 50%-80%.

3. Effective Desk Occupancy (EDO)

Many brokerages look at how many desks they have, divide that number by their cost base, and come up with a number to determine the cost per desk. For example, if the physical costs are $480,000 and you have 20 desks, then each desk costs $24,000. However, this is not an effective way to determine how efficient the use of physical space is, as it does not take into account agent productivity.

Effective Desk Occupancy (EDO) takes a step towards using agent productivity in the analysis. With EDO, if you have 10 agents producing Retained Company Dollar of $24,000 or more, then 10 of your desks are generating cost recovery. If 4 of your agents produce $12,000 of Company Dollar each, then effectively 2 more of your desks are generating cost recovery. If the remaining 6 agents produce $4,000 each, then effectively 1 more desk is generating cost recovery.

This leaves 7 desks not recovering costs. Or another way to look at it is that only 65% of your desks are recovering costs.

Most companies should be in the 80-90% range. Less than 80% is a sign that you might have a problem with unproductive associates.

One thing to keep in mind… while EDO is better than desk cost, it is not a totally effective means of determining cost recovery. The best method uses a statistic we call Fully Productive Equivalent (FPE). This is a number that only CompensationMaster can provide, and we use it when we calculate your company's true breakeven point – it's essential to determining the maximum you can pay your sales associates while still covering your expenses and achieving the level of profitability you want. There is more detailed explanation about FPE on our website:
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