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<\/p>\nYou’ve likely heard the term “KPI,” which stands for key performance indicator, thrown around the business world. It seems like every successful investor is using KPIs and has nothing but great things to say about them. If successful investors are using them, we know they must be good for us, too, but actually putting KPIs into practice is a different story. So, let\u2019s start from the beginning.<\/p>\n
According to the Oxford Dictionary, a key performance indicator, or KPI, is \u201ca quantifiable measure used to evaluate the success of an organization, employee, etc. in meeting objectives for performance.\u201d<\/p>\n
Simply put, KPIs allow you to measure how productive you and your team are in achieving your goals.<\/p>\n
In any business, if you’re not meeting your objectives, your work can be largely (or wholly) useless\u2014it is imperative to know whether the things you’re doing are effective and, therefore, a good use of your time and effort. Otherwise, you’ll find yourself spinning your wheels, making it only a matter of time before you burn out, quit, or get fired.<\/p>\n
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A simple Google search can provide various examples of KPIs, but you, your team, and\/or your business leaders will need to develop those specific to your objectives. Every organization is unique\u2014your KPIs will be, too.<\/p>\n
As a real estate investor, begin by laying out each stage of your strategy\u2014from deal acquisition through closing\u2014whether you’re wholesaling<\/a>, building, or purchasing a dwelling.<\/p>\n Related:<\/strong> Will Mobile Home Parks Be the Hottest Real Estate Investment of 2020?<\/a><\/em><\/p>\n Each of these has quantifiable outcomes, and these outcomes can be optimized with appropriate KPIs. KPIs allow you to track these quantifiable outcomes, so you can determine where you currently stand and what issues your organization may have.<\/p>\n Before you begin actually creating KPIs, you need to wrap your head around the two broad types of indicators: lead indicators<\/strong><\/em> and lag indicators<\/strong><\/em>.<\/p>\n A lead indicator is something you can control and something that can create change. A lag indicator is essentially the result of your actions.<\/p>\n As a real estate investor, whether for commercial real estate<\/a> or residential properties, finding a deal is often the first stage of our strategy. Let’s look at a scenario that starts there.<\/p>\n In this case, the lead indicator is making an offer<\/em>, while the lag indicator is an offer being accepted<\/em>.<\/p>\n You can completely control when, how, and how often you make offers, but you cannot control whether those offers are accepted. Furthermore, if you do not make offers, you will not gain accepted offers.<\/p>\n Related:<\/strong> Top 5 Rental Property Investment Killers<\/a><\/em><\/p>\n This is important to note because your leading KPIs need to be achievable and actionable. If your KPI is to have three offers accepted per week, you could offer 10, 100, or 1,000 times and not get a single accepted offer.<\/p>\n On the flip side, you could make three offers and achieve three accepted offers. The point is, the lag indicator, or accepted offers in our example, is the result or the goal, and not an action or activity.<\/p>\n What is it that you and your organization are trying to solve? What issues are you having? What obstacle do you need to overcome to achieve your goals?<\/p>\n Scenario: <\/strong><\/em>You have a hard time finding properties to analyze. You are spending hours each day searching for properties to analyze.<\/p>\n Problem: <\/strong><\/em>You are not generating enough property or seller leads to achieve your goals.<\/p>\n How will the solution be measured?<\/p>\n Scenario: <\/strong><\/em>Your ultimate goal is to close on four deals per month, or one deal per week.<\/p>\n Measurement: <\/em><\/strong>One accepted offer per week.<\/p>\n What needs to happen in order to get to the solution you are measuring?<\/p>\n Scenario: <\/strong><\/em>To get to one accepted offer (and ultimately one closed deal) every week, you first need to know how many deals you will have to analyze, as well as how many offers you will have to make to achieve one being accepted.<\/p>\n You know from experience that you have to analyze seven properties in your market before you find one that could work and is worth offering on. Of those, one out of every three offers is accepted. Therefore, you have to analyze 21 properties for every accepted offer.<\/p>\n Since you\u2019d like to close on one deal per week, you have to analyze 21 properties every week, or three properties every day.<\/p>\n Action:<\/strong><\/em> Analyze three properties every day.<\/p>\n Now that we know what needs to happen to drive results, it’s time to get to the root of the problem. In this case, we aren\u2019t getting enough leads each day. To put it more simply\u2014we don\u2019t have enough deals to analyze.<\/p>\n In order to impact results, you have to nail down the exact solution. You already know that you need more leads, but \u201cfind more leads\u201d is not exactly measurable.<\/p>\n Scenario: <\/strong><\/em>How will you get to your baseline of three deals per day?<\/p>\n If you need to get three deals to analyze every day, you need to find the source of these deals. Deals can be found in a variety of ways\u2014agents and wholesalers, driving for dollars, direct mail marketing<\/a>, cold calling, auctions, etc.<\/p>\nWhat Are Lead Indicators and Lag Indicators?<\/h3>\n
Five Basic Steps to Develop KPIs<\/h2>\n
Step 1: Clearly Define the Problem<\/h3>\n
Step 2: Lay Out Exactly How the Solution to the Problem Will Be Measured<\/h3>\n
Step 3: Figure Out How to Achieve These Results<\/h3>\n
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<\/p>\nStep 4: Determine Exactly How Success Is Measured<\/h3>\n
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