Buy the Numbers™ – The Personnel and Occupancy Expense
Last week we learned that to increase the value of your brokerage by over $100,000+, cutting $3,000 in monthly expenses has the same effect as recruiting 32 new agents. (If you missed the edition, you can read that here)
Amazing, right?
For today’s report, we’ll be diving into what are typically the two biggest expenses for a real estate brokerage: occupancy and personnel.
We’ll go over a couple of important metrics within these categories and share what we find to be healthy ranges/industry norms for a typical, established brokerage after consulting over 1,000+ clients.
Let’s dive in.
The Occupancy Expense
Of course, there are brokerage models that use little to no office space.
eXp Realty is a perfect example.
But for a typical full-service brokerage, you’ll see a need for office space.
In a full-service brokerage, there are multiple ways to look at and analyze occupancy expense.
Two of the most important ways are total occupancy expense as a percentage of revenue (or company dollar/gross margin) and rent per agent.
Another important metric is square feet per agent.
Here are the formulas:
Total occupancy expense as a percentage of revenue:
- Total Occupancy Expense / Total Revenue
Rent per agent:
- Total rent expense / number of agents
Sqft per agent:
- Total occupied square footage / number of agents
Our experience shows that for an established brokerage, a good range for total occupancy expense as a percentage of revenue is 20% – 30%. In other words, your rent is 20% to 30% of your revenue (or gross margin).
These percentages have come down recently as brokerages have more agents working remotely.
The Personnel Expense
Here’s an important way to think about the personnel expense when looking at your brokerage: Total personnel expenses as a percentage of revenue.
Here’s the formula:
Total personnel expenses as a percentage of revenue:
- Total Personnel Expenses / Total Revenue
For a medium to full-service brokerage, a healthy range for personnel expense typically runs around 25-35%.
One thing to mention: we do have clients with healthy, successful brokerages that have higher numbers.
However, they are focused on extremely high luxury service business models that offer more support, etc.
Summary
Let’s recap.
We went over some of the important metrics to look at in the occupancy and personnel expense categories. They were total occupancy and total personnel expense as a percentage of revenue.
Then we also shared healthy ranges for each number.
We hope it helps!
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