Imagine if real estate brokers and managers could stop endlessly recruiting. It’s not a dream; it’s a definitely reality for modern companies. Yet for too many brokers, it remains a far off possibility – unfortunately.
To stop recruiting, brokers would have to address a big question: Why do they recruit in the first place? Some would say because they were “told to” by other brokers, or trainers, or people-in-the-know, or their franchise. Few would say, “I recruit because I’m currently running my company at 100% efficiency and my agents are using their maximum capacity and the market opportunities warrant our adding more sales force capacity.”
Real Estate recruiting is completely misunderstood by brokers (and other talking heads) in the industry. Mostly, recruiting is seen as an end in itself. The idea is that recruiting adds “productivity” to a brokerage operations. Recruiting more agents means more sales and more sales means more profits.
Nothing could be further from the truth.
As it turns out, recruiting is not an end, but a beginning. Recruiting doesn’t solve productivity problems, because most of the people recruited into an agency aren’t productive units when they arrive. Sure, some tiny percentage of “top agent” recruiting permits brokers to add “instant productive capacity” to their operations – but it’s usually at a higher cost margin (ie., higher commission split) so top-agent recruiting is rarely profitable, from a P&L standpoint. More likely, however, is that most recruits brought into a company are un-productive capacity: They are cost-creators, not revenue generators. And by the time they consume enough costs to possibly become revenue generators, they usually quit the business altogether.
So most recruiting could easily be classified as an expense-increasing activity that hastens a broker’s journey to bankruptcy.
Brokers recruit for lots of reasons – but rarely do they recruit because the market objectively warrants the need for more manpower. Recruiting is often conducted because we equate a firm’s size with its productivity; rarely the case in a sales-oriented industry with a product cycle as long as real estate. Some recruiting is done because a merger and acquisition opportunity presents itself; although the last decade of consolidation has generally proved the rule that acquiring another company’s agents is more of a liability than an asset (and the M&A goal is merely to reduce overcapacity of manpower in the marketplace – ie., industry consolidation is about downsizing, not expansion).
The number one reason brokers recruit, however, is attrition. Some of their other agents are always leaving. If we want to stop recruiting, then we have to stop agents from leaving. And most agents leave for one primary reason: They aren’t productive.
Essentially, we’ve put the cart before the horse. If the goal of expansion is to increase productivity, then we can’t be recruiting because we’re contracting as non-productive agents leave. It’s a backwards cycle.
Most brokers think that because agents are “independent contractors” they can add them to their companies at minimal cost. Rubbish. New agents suck up tons of money, and more importantly, time. They need more handholding, more training and more attention from the broker who “promised” them all sorts of stuff to join the company. In the meantime, the existing agents get fairly ignored or little left-over resources aimed at increasing their productivity. They become demoralized. And suddenly nobody is doing more business, but less.
The answer is simple. Stop replacing agents simply because you have “so many desks to fill” or “so much space to take up”. Only replace agents when 100% of your existing sales force is working at 101% of their capacity.
Sales manpower isn’t like industrial capacity. With a factory, you can invest in additional machinery and amortize it’s costs over time. When you add additional manpower, however, you can’t store its capacity ever. So every dollar and every minute spent with a salesperson who isn’t producing sales is lost money. Since it costs a lot of money up front to add a sales person – new busines cards, technical tools, marketing, training, etc. – brokers should rarely expand their sales force, not frequently do it. They should ensure that their existing resources are working at full capacity before they start spending money to bring excess capacity into the process – especially when so much of it (some 60%) never actually becomes productive. If 6 in 10 agents join and quit the industry within 18 months, there can be no economic justification for the typical kind of recruiting we conduct today.
What will they do, those brokers, who aren’t busy recruiting ( begging ) people to join their company? Focus on increasing the productivity of their existing manpower. Deliver training, coaching and strategic leadership to their current workforce. Building and maintain relationships that aren’t subject to someone deciding to leave simply for a tiny percentage more commission from another brokerage. Do a little micromanagement of your production cycle – cut costs, create efficiencies, innovate.
Do all of the things brokers never “get around to” because they’re so busy recruiting new agents, driving up their expenses and paying little or no attention to the sales capacity they currently operate.
It’s all part of re-engineering the industry of the future. In Real Estate, the Next Generation, “more agents” will not be a meaningful benchmark of anything. We won’t award bonuses or statues to managers who recruited more than others (which usually means they also lost more agents than others, so they had the space to fill). Brokers will have a limited number of slots to fill – at 100% capacity – so they’ll limit their expenses and develop highly-lucrative careers for agents – who will be lining up to join the company. Recruiting will cease to be begging and become selecting – from the best and brightest, not the newest and least experienced graduates of the local licensing school.
In Real Estate, the Next Generation, brokers will only recruit when they have a real problem to solve: how to tap an expanding market.