Today’s REI Classroom Lesson

KPI’s, or key performance indicators, are important as they tell you how you’re doing. You need to know how you’re doing now so that you can analyze where you want to be in the future.

REI Classroom Summary

From the number of leads generated to your profit margins to your ROI, you need to be tracking your progress on a regular basis so that you know how your business is performing.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Gabriel: Hey, this is Gabriel Garcia here from Florida Cash Home Buyers down in south Florida. We’re going to talk about today the KPIs that you absolutely need to know to run your business.
Mike: This REI Classroom real estate lesson is sponsored by, FlipNerd’s private investor coaching program and your blueprint to investing success.
Gabriel: KPIs stand for key performance indicators. Basically they’re just numbers that tell you how you’re doing. They’re your report card when you go to school. It’s your report card for your business. You need to know this because you need to know where you are so you can know . . . How can I say it? In order for you to know where you’re going, you need to know where you are. That’s the starting point.
In a business in order to get where you’re going you need to plan. If you don’t have the data of where you are, you can’t plan forward because you just have no data to give you the information that you need. A lot of times in the beginning you just make up numbers. Well, I think I’m averaging five properties a month. You think, or you know? I mean if you do the numbers, you’d be surprised that maybe you’re averaging seven properties a month. Maybe you’re averaging three properties a month. You really want to look at the numbers.
Here are the KPIs. These are the ones that you have to absolutely know. You need to know what you’re spending in marketing either weekly, monthly. I would say at least monthly would the minimum requirement. You need to know how many leads you’re generating. We look at leads that we generate on a weekly basis, and we look at them monthly, and we look at them quarterly, and we look at them annually.
You want to look at appointments. I mean everything for us is the same. We look at everything on a weekly, monthly, quarterly and yearly basis. You want to look at how many appointments you’ve gone on. If you just sell on the phone then maybe you don’t need this metric. But, if you’re going out on appointments and tying up contracts in sellers’ homes, you want to see how many appointments you’re going on and you want to see what your conversion ratio is. For instance if I tell you hey man if you go on 10 appointments how many contracts are you going to get on average, you need to know what your conversion ratio is. Are you tying up 4 out of 10? Are you tying up 3 out of 10? Are you tying up 1 out of 10?
Another valuable part is you can look at what other businesses have to know if you’re either doing better than other businesses or you’re doing way worse. I had a friend call me not too long ago and told me he was converting 1 out of every 200 leads into a contract. I’m like man that’s crazy because we convert 1 out of every 30. He knew he had a serious problem. He had his data, so that’s why he was able to tell. You need to know this information.
Next is contracts. You need to know how many contracts you’re getting, same thing — weekly, monthly, quarterly, yearly. You want to look at your gross profit. What’s your gross profit? You want to look at what your business profit margin is. If you’re grossing for the year $200,000 or $500,000 or $1 million or $3 million, you want to look at how much percent of that do you actually keep before taxes. How much of that is net? You want to know what your profit margin is. That’s a big indicator of maybe you have too much overhead. Maybe you’re not getting the juice out of the employees that you need.
The next thing is average profit. You want to see what your average profit is. If you know that you want to do $1 million in business this year, well the first thing you need to know is what’s your average profit going to be per deal.
The next thing you want to know is projections. You want to have projections to know okay well how much properties do I have on the books that close this month and how many properties do I have on the books that close this quarter. You want to know that because that’s also going to tell you hey through my planning if I want to make $1 million and next month I’ve got 50K on the books, you’ve got to do something quick to start getting properties on the books real fast. You need to start making some phone calls, go knocking on doors, whatever it is. That’s mainly the stuff for the KPIs that you need to know. There’s more in-depth KPIs you can look at.
The only other ones I’ll go over really are for marketing because you need some more in-depth marketing KPIs to make marketing decisions. Those KPIs are the basic ones which is your cost per deal, your cost per lead, your ROI, your leads per deal, and your response rate. I think response rate is the least important out of all of them. Most people look at response rate and think oh it’s so amazing I’ve got 10% response rate. It’s irrelevant compared to your ROI. That’s the most important one, so look at that.
You want to have that itemized by each lead source that you’re looking at. If you’re doing tax delinquents, probates, all that stuff, you want to have all these marketing KPIs done per your lead source and for any split tests you’re doing. If you’ve done five different split tests for your probate campaigns, you want to have these metrics for all of them so you can make good marketing decisions as to hey this month I want to do with my postcard campaign because it’s giving me a better ROI. My cost per deal is a lot less money than my other split tests. That’s the most important stuff you need for marketing.
Yeah, you need your KPIs to run your business. You need it to make decisions. If you don’t have them, get to work.
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