Real estate teams of all sizes continue to perform, according the Streamlined Quarterly Team Benchmarking Report, which looked at the financial performance of more than 200 teams across the nation.
Steamlined, based in Arizona, has a roster of hundreds of U.S. real estate teams and individual agents as clients for their accounting and bookkeeping services. The firm confirms actual financial and operational details of these businesses and assemble the data in useful benchmark studies to help their clients assess how effectively they are operating.
This is extremely valuable information, not only for teams but also for the brokerage firms with whom they are affiliated. A clearer understanding of the performance of teams helps everyone understand the impact of the growth of the organization and performance of teams and confirms the importance of LG in the industry.
Small teams lead in retained gross margin
The smaller the team; the higher the retained Gross Margin (GM) — what the team had after paying their internal agents. For teams under $300,000 in gross commission income (GCI), gross margin was 79.5%. while for the largest segment — those teams having over $3 million in GCI, the GM was 45.7%.
“Our view is that smaller teams generally have a closer-knit cultural fabric,” said Steve Murray, senior advisor to HW Media and a partner with RTC Consulting. “The relationships between the leader of the team and the agents of the team are necessarily tighter than larger teams with dozens or more agents. The value provided is more frequently reinforced. Some of these same trends have been noted among larger versus small brokerage firms for years based on data from RealTrends + Tom Ferry The Thousand and America’s Best agent and team rankings,” he adds.
How are teams spending money?
The largest expense for teams was employment cost — salaries, wages, employment taxes and contract labor. As a percent of GCI, the smallest teams had employment expenses of 11.2% of GCI, while the largest teams experienced costs of 17.4% of GCI. Much like any business, scale brings the need for higher personal costs.
“Larger teams have more personnel as the division of labor gets expanded as a firm gets larger. This is true not just for teams but for businesses of all shapes and sizes (outside of a few giant technology firms.),” says Murray. “The tasks handled by the leader of a small team are far more numerous and it is only when a team grows that these duties are dispersed to others in the organization. This factor enables a team to grow beyond the expertise of the owner of the team.”
Lead generation costs
What we found highly interesting is that lead generation expenses did not vary nearly as much as we would have thought between the smaller and larger teams. The percentage spent on lead generation by the smallest team category was 9.7% of GCI. The largest teams spent 10.2%. It makes sense that larger teams spend more absolute dollars on leads, but here scale does benefit larger teams.
Say Murray, “Lead generation is, of course, at the heart of a successful team regardless of its size. RealTrends has noted that as teams grow, they don’t require proportionately more spending as a percentage of gross revenues on lead generation for a few reasons. First, the cost per lead decreases as a team buys more of them.”
Second, generally larger teams have developed processes that enable them to process and capture more transactions per dollar spent on lead generation, “thus lowering the need to ramp up exponentially as they grow,” he says.
In total operating expenses, when expressed as a percentage of GCI, the larger teams had the lowest number at 30.8% of total GCI spent on operations (these are costs not associated with the team’s agents.) The smallest teams spent 42.6%.
“There were no surprises in this category of expenses,” says Murray. “Larger teams are more efficient in operating overhead the same way larger brokerage firms have the same experience. Whether it be in accounting, marketing, occupancy, insurance, etc., larger firms will spend less per dollar of revenues than small entities.”
Extrapolating actual dollars is a bit imprecise but helpful. Taking the minimum of the smallest team and the maximum for the largest teams and the midpoint for the four categories in between, it indicates that actual dollar profits are $110,700 for the smallest teams and $444,000 for the largest teams.
In the middle, for example, teams producing between $550,000 and $800,000 in GCI showed a dollar profit on average of $226,800. It appears that while the largest teams, on average, are 275% larger in terms of GCI, they are only 96% larger in terms of their average profit.
Streamlined, RTC Consulting and HWMedia are teaming up to share this data with our readers to help create transparency in the results of over 200 teams. We will publish these results on a quarterly basis roughly 45 days after the end of each calendar quarter.
David Pittiglia is the CEO of Streamlined Business Solutions.