Updated: Nov 29, 2020
Being a data driven real estate agent may not come as second nature to most but the importance of data analytics in real estate is undeniable. According to Forbes, 51% of C-suite executives at large enterprises across North America and Europe say data analytics will only continue to grow in importance. Corporations are investing in data analytics to identify new business opportunities, reduce expenses, build a deeper understanding of customers, and drive higher growth.
The importance of data analytics for real estate agents, and real estate data analytics in general, is no different and this group/industry has really lagged behind in this domain.The intent of this article is to provide agents with an in-depth starting guide to applying data analytics in real estate.
The article is broken into two parts. The first half is more theoretical and philosophical, and focuses on understanding what it means to be data driven in real estate and why it is important. The second half of the article provides more tangible advice which includes understanding how to define KPIs (Key Performance Indicators) and different analytics tool available for agents.
To start, ask yourself this question: do you consider yourself a data driven real estate agent?
What does it mean to be data driven in real estate?
Before even talking about how to become more data driven, we should really take some time to understand and digest what it even means to be data driven. Let’s pause here and think about what data driven means for you and your company.
Being “data driven” seems to be where most businesses are heading towards. If you just browse through LinkedIn or Forbes, it seems like every organization these days are investing heavily in Big Data, Artificial Intelligence and Machine Learning. Do these things define “data driven”? Do you need Big Data analytics for real estate in order to be considered “data driven”?
We’ve explicitly placed quotation marks around data driven on purpose. Although businesses are investing a tremendous amount of money into Big Data and Artificial Intelligence, in many cases it is questionable if they are truly becoming a data driven company versus just following an industry trend.
Big Data, AI, ML, for lack of a better description, are buzzwords and they are nothing more than just tools. Just like how holding a saw doesn’t make you a carpenter, having data tools does not make a company data driven.
Being data driven is nothing more than making decisions based on facts and taking actions based on insights from data instead of your gut feeling. As unsexy and obvious as it sounds, this is the core essence of being data driven. Regardless of small or big data, AI or no AI, the ultimate goal is still the same. This might be counter intuitive but being data driven is not a matter of data but instead a matter of action.
Why is it important to be data driven for real estate agents?
Alright now that we are aligned on what data driven means, we should take some time to understand why you as a real estate agent want to be more data driven. Maybe give yourself a few seconds to think about that.
“In our opinion, being data driven is the only way to ensure over the long term, the right business decisions are being made. ”
There is a lot to unpack from this statement so let’s break this down word by word:
Business decision: every business decision has an impact on the outcome of the business - especially for real estate agents where the room for error is extremely low. Statistics show that half of new businesses fail within the first year and 90% of those that remain fail within 5 years, making each decision critical to the success and survivability of the company.
Right: Numerous business decisions are made on a daily basis for agents. Decisions can be “right” or it can be “wrong” simply meaning not every decision will be beneficial for the company and some even harmful.
Long Term: If you go to the casino and play roulette, there is a chance you might win and even win big. But statistically speaking (data lingo), if you continue gambling over the long term, the chances of winning will not be in your favour (Duh, that’s why casinos are filthy rich). So even if you may have done well up to this point just by trusting your gut, statistically speaking, the odds are against you over the long term.
In other words, being data driven simply increases the odds of you succeeding over the long term.
The four steps to becoming a data driven real estate agent
We’ve summarized four steps that we think will help you become more data driven.
Shifting Your Mindset
Understanding Key Performance Indicators (KPI)
Sharpening Your Toolset
Just Do It!
Shifting Your Mindset
Most companies jump straight into tooling when they are trying to become more data driven, like on-boarding certain analytics tools or technologies. That is the incorrect way to approach this problem. It’s not their fault, that’s a natural human behaviour.
The first and foremost, and arguably the most important step is to shift your mindset. Much like any other thing in life - take health for example, people usually jump right into exercise when they want to achieve a healthier lifestyle. They make New Year's resolutions enthusiastically, but stop several weeks into the new year. On the other hand, those who truly adopt a healthy lifestyle are the people that have shifted into the right frame of mind.
How do we get into the right frame of mind? That’s a million-dollar question. Getting into the right frame of mind is way easier said than done and there are no explicit instructions we can provide here.
Our main recommendation is to really question yourself “why”. Why did you make a certain business decision? What are the alternatives? Why is this decision better than others? This process of continuously criticizing and assessing your judgement will force you to get into the habit of seeking data and facts to back up your decisions. To understand whether you’re seeking the right data and making the right business decisions, you need to first get an understanding of your metrics and KPIs.
Understanding Key Performance Indicators (KPI)
There’s a famous saying “what gets measured gets done” and we cannot agree with that statement more. Think about it, if you don’t have signals to tell you where you’re heading, how will you ever get to your destination?!
The purpose of real estate data analytics, metrics and KPIs is to help incentivize the right kind of behaviour and provide signals to monitor whether your real estate business is heading in the right direction. This is quite abstract and there can be an infinite number of metrics and KPIs you can define.
“The guiding principle here is that metrics and KPIs should reflect the mission, strategy and health of your business and that they are measurable, achievable and meaningful.”
Because metrics and KPI reflect the mission and strategy of a specific business, a lot of times you may have metrics that are specific to your business. That being said, there are universal metrics that can be applicable across most companies. If you have ever watched Shark Tank, you can get a sense of how important metrics are. Every Shark on the show ask questions about the numbers behind the business because it provides them with a signal about the health of the business.
We’ve chosen couple common but very important metrics for data analytics in real estate to briefly talk about below:
Revenue / Profit
This is a no brainer and you probably aren’t even running a real estate business if you are not looking at this. Most of the time people focus on the absolute amount which is very important but there are other metrics that will help provide more context.
For example looking at revenue / profit from a Year-Over-Year (YoY), Month-Over-Month (MoM), Quarter-Over-Quarter (QoQ) perspective. YoY means looking at the same metric at the same time in the previous year and it provides insight growth of a company. For example, if my company made $10,000 in August 2019 and $5000 in August 2018, then YoY revenue is ($10000 - $5000) / $5000 = 100%. This metric tells you that my company is doubling in revenue compared to a year ago.
Similarly MoM and QoQ compares to previous month and quarter respectively and provides context around growth rate. These context is especially important if growth is what you’re striving for and as sayings go, if you’re not growing, you’re dying. Even more important is to set goals to hit certain % YoY growth if you are focusing on growing your business.
Website Visitor / Traffic
Visitors to your website (every real estate agent needs a website. We discussed this topic in depth here) is one of the best indicators of brand awareness and whether people know about you. Digital marketers refer to traffic as a top of the funnel metric, meaning it tells you how many people are flowing into your marketing funnel.
A marketing funnel is what takes a potential customer through the whole journey from discovering your business, all the way to purchasing your products on a regular basis. Customer journey is divided into different milestones and phases, reflecting different stages of a potential customer’s journey. Also every real estate agent should have a marketing funnel by now and we also discussed this topic in depth here. You need to bring traffic to your website and marketing funnel to ultimately convert them into customers, which leads us to our next metric.
Conversion rate is typically defined as the percentage of people that make it to the next phase of the customer journey. For example at MUDAVEN, we’re a B2B company offering digital marketing, website design and data analytics for real estate agents. A potential customer might visit www.mudaven.com and we have a call to action to submit a request to speak with us. The percentage of visitors that fill out the form is a conversion rate. Measuring conversion rate is important because if we can increase the conversion rate through user experience design, it directly means we increase the number of potential customers.
Cost Per Acquisition
This metric is to understand how much it cost to bring in a customer for your company. For example you may spend money on marketing and advertising to acquire new customers for your business. Cost per acquisition is critical as it helps you determine whether the customers you are acquiring is profitable for your business. If you know that for every new customer you acquire it cost $50 but they provide a revenue of $150, that means you are making $100 per customer. This means you should be scaling up your marketing spend to continue growing you bottom line.
There are a countless number of metrics and we won’t be able to go through each one here. For example:
CLV (Customer Life Value) / LTV (Lifetime Value)
Churn Rate / Churn Risk
ROAS (Return on Ad Spend)
Net Promoter Score (NPS)
We’ll be talking about each of these metrics in depth soon in separate blog posts to help you with you journey to become a data driven real estate agent. So don't forget to subscribe to receive updates when the blog posts are out!