The latest issue of the Michigan Realtor magazine has an interesting article written by Walter Sanford which opens with the following quote:
"It's time to address something that's really a closet issue in our industry. It is so rarely mentioned in mixed circles and looked upon with such fearful consideration that you might not immediately recognize the word: Profitability."
It's the dirty little secret in our industry that most of us would rather not air. Huge commission checks and tons of leads for buyers and sellers does not necessarily guarantee living above the poverty line when the balance sheet tabulates the bottom line.
And this is not limited to a particular segment of the industry. Brokers (small and large) as well as individual agents often find that expenses have a way of mounting and spiraling out of control.
Part of the problem Sanford points out is our ignorance or lack of application of common sense business tools.
It's so easy to get caught up in expending huge amounts of money in expensive training and seminars or the latest gadgets and loose sight of the obvious ways in which the money spigot is gushing out dollars and cents in a careless fashion.
Here are some of the items which I found helpful in the article:
1. Research your office supply purchases.
The tendency to buy without researching can be very expensive when it comes to purchasing office supplies over a period of time. This is multiplied when supplies are purchased for multiple offices with different vendors. There can be significant cost savings by consolidating purchases and negotiating preferential rates based on volume. This method could also be used by GROUPS of individual agents purchasing in bulk and benefiting from lower costs.
2. Eliminate ALL credit card debt above 16%
I thought this benchmark was interesting. I would put the rate even lower than 16%, but it's at least a good starting point. Higher interest cards should be consolidated to lower interest cards when possible and paid down as quickly as possible.
3. Live on 90% of your income.
This is huge! I am a firm believer in charitable giving, but in addition, it's important to put something in savings from EVERY commission check. The rainy day fund does not hedge against a rainy day, it presumes that there will be one!
4. Watch the "I am too busy to Eat at Home Syndrome
I loved this item on the list! Eating at home is much healthier and less expensive than eating on the go. I'm finding it useful to cook a little more than normal and to plate up the extra food for later. When I'm in the car debating eating out, it's easier to head home if I know that something delicious can be easily warmed up in the microwave.
Also, according to Sanford, some agents spend up to $500 a month eating out at restaurants and subsequently gain an average of eight pounds a year. If you continue at that rate, that's an average of 30 POUNDS every 4 YEARS and and additional $6,000 in meal expenses!
5. Advertise where your returns are the greatest!
Sanford advocates immediately STOPPING ANY ADVERTISING that is not bringing in a 4-1 ration. That means for every dollar you spend, you make $4 AFTER expenses. When you look at your investment in money and TIME, you may be surprised to find out exactly what your advertising dollars are or are not doing. This includes time spent online...some mediums far outweigh others in terms of lead generation and conversion to income.
6. Cut the fancy car habit.
For many agents, fancy cars are an outward statement of success. But according to Sanford, fancy cars are probably the worst investment you can make. In an era of escalating fuel costs, fancy cars not only cost more to purchase, they often guzzle more gas. And in the end, your value is not in your wheels, but rather in your integrity and competence in successfully completing a transaction.
Have you had a personal profitability discussion recently?
Have you had a personal discussion about profitability recently? Either with yourself or another broker/agent? There are a number of ways that we can do things more efficiently. Are there some of the ideas you have used to shore up resources and increase your profitability during this time?
This article was very timely for Michigan as we face ongoing challenges in our economy, but I think Sanford's advice is well heeded by all real estate practitioners who are determined to thrive in today's market.
Copyright 2009 Audu Real Estate All Rights Reserved
Image courtesy of Mike Schmid on flickr
Lola Audu, is the Designated Broker & Owner of Audu Real Estate. Our company specializes in helping people buy and sell homes in the greater Grand Rapids, West Michigan area. You can contact us via e-mail @ info@auduhomes.com or by phone at 616-791-0511. Thanks for visiting our blog. Here are links to some of our most popular posts for you to enjoy!
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