What is growth potential and why is it powerful?
"Based on the fixed space you currently have (3,000 square feet) how many agents do you estimate would be your 100% maximum number of agents being very conservative?"
When answering this question, consider the following:
- It must be reasonable and realistic, not pie in the sky, not unlimited because of the reality of work-at-home reality
- It has to be based on the demographic of the potential number of quality agents
- It has to be based on the potential being realized in 5-10 years
- When you arrive at that number you would say to yourself, I’ve arrived
- This is not the goal for the year
I stress the importance of this question and challenge you, the broker to get to a conservative estimate. Once I have that answer, I can now do what I like to call, reverse engineering.
Let’s say the answer is 50 agents.
|Space||Current Agent Count||Potential 100% Capacity agent count||Current State|
|3,000 square feet||30 agents||50 agents||
30 agents divided by 50
Knowing growth potential helps us understand the value of a brokerage significantly.
Let me give you a scenario. Let’s say that you have an opportunity to acquire one of two offices.
- They both have 30 agents
- Let’s assume that they have the same normalized net profit
- They both have the same asking price
- Office 1 is at 60% potential
- Office 2 is at 90% potential
Knowing the growth potential makes the choice obvious.
Office 1 is a better opportunity because there is more potential for growth. Let me explain. At 60% potential, you have the ability to acquire another 20 agents. For Office 2 at 90% potential, you only have the capacity to acquire another 5 agents.
Most offices based on our benchmarks hit the break even point at around 60% capacity. Because your fixed expenses are now covered, when you hire an additional agent, every gross dollar they produce for you falls mostly to the bottom line. The more agents after covering your fixed costs the more profit it produces for the office.
This proves that growth potential is an important aspect of value.
It amazes me that this aspect is not discussed or identified in business evaluations. It is significant, to say the least.
At The Profit Centre, I believe that this is the first step to a proper evaluation of a brokerage.
For more information on how you can get an evaluation for your brokerage, click the link below to book an appointment with me, I'm here to help!