Comparative analysis has become a mainstay of American business over the years. Statistical data available for various business segments as well as businesses themselves has generated acceptable performance standards and created benchmarks allowing businesses and their owners, or investors, to measure individual performance against peer groups and/or the norm to be found in other related entities.

For those of you who have not yet read Moneyball, by Michael Lewis, you are encouraged to do so. The book is about the baseball’s Oakland A’s who simply came up with a whole new way to measure and gauge the performance and recruiting targets for their ball club using data and statistics that others had never considered. The result was one of the lowest payrolls in the league with increased attendance and greater profitability. We may take a lesson or two from this source.

Publicly held companies provide great benchmarks inasmuch as most of the performance measuring data is public and is reported on a periodic basis to various regulatory agencies. Whether in business where performance is measured in terms of dollars or returns on assets or capital or earnings per share or whether the activity is sports and athletics with measurements of won/loss or time or percentages, standards are set, records are recorded, or Wall Street responds.

Leading real estate brokerage firms are just now seeing the real value of comparative benchmarking. In order to establish standards of practice, the data must be collected on a voluntary basis. Publicly traded real estate companies filing public documents for securities compliance simply do not exist. We are pleased therefore with the continued response of brokerage firms across the United States who recently submitted information about their companies for the 2nd annual Brokerage Performance Report. The data compiled is for the period ending December 31, 2003.

The bottom line was that the average profitability for last year of all respondents showed a marginal increase over the prior year to 7.1% of gross commission income. One can draw their own conclusion and compare to their own company as to whether or not this is a good number! Remember, however that 2003 was also a record year in sales and appreciation buoyed the numbers substantially.

Along with the good news about profitability there were some caution flags last year. The first is that the retained company dollar percent increased 2.4% over the prior year. The yellow flag is that only two tenths of these dollars fell to the bottom line. The rest were absorbed in added expenses. One could argue that owners took more out of the company but as has been the practice with this annual study, owner’s compensation is excluded. The difference was consumed in personnel expense technology and others.

Two other yellow flags continue to be visible. The first revolves around per agent productivity. Respondents of this year’s study reported that the average annual closed sides per agent was 11.5. This compares favorable with the REAL Trends Big Broker Report which reflected an average of 11.2 for the 500 participants. The downside of this is that last year the respondents in the Brokerage Performance Report averaged 12.2. Again, an increase in average sales price may have camouflaged a drop in productivity. Of perhaps greater consequence though is that this number has eroded consistently over the past several years. Costs continue to increase annually but productivity does not.

The second flag relates to recruiting and training. Allocation of resources for 2003 for both of these items was approximately one third of what it had been for the prior year. If we are not recruiting new talent to our business it would seem logical that the training expense would also decline. Have we been caught up in the euphoria of an average sales price that we have not continued to seek new talent, who, when trained and encouraged do not know that the average productivity is 11 units?

A postscript to this year’s study is the comparison of profit for those companies who also participated in last year’s study. Their profit increased 1.3% of gross commission income. Hopefully they initiated some strategies last year to improve their performance from the prior year.

One other word of note is that the effective commission rate per closed side for the REAL Trends Big Brokers actually increased one hundredth of a percent. Not much but the first time in nearly a decade that it did not decrease.

All of this begs the question: What are we in business for? If it is to make a nice and comfortable living without the barriers to corporate life while being an entrepreneur then this is a great way to do it. We can have fun along the way, reap some benefits and probably work until we choose not to.

On the other hand, if we are in business to achieve the comfortable living AND see an investment increase in value for whatever long range reasons or motives we have then we need to continue to improve our numbers, manage our ratios and seek alternative methods to measuring our performance. Becoming more efficient and productive will have long term benefits for all.

Editor’s note: The 2004 Brokerage Performance Report was recently published by REAL Trends.