While I have been coaching, teaching, and observing many
agents over the years, I have noticed that few agents tell success stories about how
profitable their business is. They often have success stories to tell about sales volume,
units sold, plaques, awards, and recognition but not profitability. They become caught up
in the company recognition system and for years lose all sight of the true function of a
business. The true function is to turn a profit, but the thought of selling one more house
to pay for this new service or that new marketing idea seems to be the pervasive way of
thinking. This mental philosophy leads agents down the slippery slope of financial
destruction. This philosophical flaw, does not happen overnight, or even in a few months,
or sometimes not in a few years. Never the less it will surely reach them eventually, just
as eating high fat foods and not exercising regularly lead them to arteriosclerosis. They
may not have a heart attack overnight, but they are heading that way on the fast track.In
order to keep your business directed toward turning a profit, you must examine return on
investment. You want to evaluate all expenditures based on the return you will receive
from the dollars you have spent. Most companies are not looking for a one for one type of
exchange. In other words, they do not want to spend a dollar to make a dollar. You must
not be satisfied with this type of exchange either. In a one for one exchange you lose
money. Let me repeat, in a one for one exchange you lose money. It does not matter
what the "it" is; you will lose. The reason is you have not factored in all the
costs.
Agents have a tendency to see that ad they ran on Sunday as the cost of the ad, $75 or
$100. They do not view the true cost of that ad. By true cost I mean all the
components of the cost.
I will give you an example from my own experience. They have the cost of the ad,
let’s say $100. They have the time and energy to produce the ad. Their assistant does
it or they do it, but they still have to review the ad. No matter how big or small the
task, they need to block a minimum of five minutes. Suppose it took 15 minutes for my
assistant to write the ad. She was paid $15 per hour, that is $3.75. I had to review it
and make corrections, which took five minutes. Since I made approximately $350 per hour
when I was selling real estate, that is $30. Then she had to correct the ad, reprint, and
send the ad to the newspaper, which took another 15 minutes or $3.75 more. (I could also
factor in office equipment, computers, paper, and list goes on and on. Those costs, in
some cases, can be significant. In this example, I will not factor those in to the overall
costs.) Through this example, I had already invested $137.50 into this ad.
When Sunday rolled around, I received ten calls on this ad. Each one took me away from
what I was doing when I answered the call: my family, open house, or buyers. You get the
idea. The Sunday calls took 50 minutes of my time or $290. I had invested $427.50 so far
for this ad.
If I set one appointment to show the property that is another hour invested. I had to
drive to and from the appointment and show the home. In addition I had to spend extra time
on the phone to qualify and confirm the appointment before I met the prospects. I also
called my lender or theirs to make sure they could qualify for a loan before I invested my
time. I had invested at least another hour into this client, so there is another $350. I
have now paid $777.50 for the cost of one ad and one showing.
I realize that I would receive a good return on my investment if I got the home sold to
these people. But if I have to go through ten ads and ten showings and then finally have
to accept a co-op sale, unless I am getting a very high commission dollar there is no
profit. I have earned wages, but no profit.
Here is the painful part, as if the first few paragraphs were not bad enough. In most
states in this nation, in order to pay the state income tax plus the federal tax you need
to make close to $1.50 to make a dollar. When you spend a dollar, you have to bring in
$1.50 in revenue to actually get that dollar. In the case of the ad, even if we do not
factor my time at all, I have spent $100 to the newspaper and $7.50 in staff expenses. I
also had payroll taxes; FICA and workmen’s comp. I will not deal with these items
specifically but purpose of our discussion you must understand they are an additional
expense. I had $107.50 hard costs into the ad. I need $161.25 in actual dollars of revenue
to cover the ad and the taxes I would pay for parting with my money.
Large successful companies’ think this way, they focus on return of time and
dollars invested. Maintaining this focus is how they got to be large and successful. They
did not get there by accident. They thought their way to that place of prominence. If you
wish to be equally successfully, you must do the same.
The other thing they do effectively is to track their dollars well. They have extensive
Profit and Loss statements. You must run Profit and Loss statements monthly. You need to
be able to track your expenditures and your revenues at all times. Casinos in Las Vegas do
Profit and Loss statements hourly. Because millions of dollars are changing hands they
need to know exactly where they are and how they are doing that frequently. You do not
need that kind of detail, but you do need to know where you are at any given time, income
versus expenses. If you need help on categories for your Profit and Loss statement, e-mail
us at www.realestatechampions.com and we can send you out information on "How to
Track Your Expenses."
The only way to adjust your expenses down is to know what they are. If you do not know
them and track, them how can you adjust them? You can adjust them via the slash, or crisis
system, but you will have yo-yo income and yo-yo staff. You have to reduce expenses
methodically according to a plan.
I have looked at many agents’ Profit and Loss statements and found that most
agents could trim at least 15% off their expenses without affecting revenue. How would you
like a 15% raise without putting forth anymore effort? Start tracking your expenses. Make
a goal to cut 5% to 10% in every category. Look at every expenditure carefully. Do you
really need it? Remember it is your money, do not be so free with it.
The last area is return on investment in training and education. This is your best area
of expenditure. There is a direct correlation in the dollars you spend here and your
increase in income. You need to allocate dollars for yourself and your staff in training
and education. The most successful people and companies have spent large quantities of
money in this area. Many companies have huge training and Research and Development
departments. Research and Development is a fancy name for education. Probably you do not
have the resources of IBM to gather new knowledge. You do have the ability to spend 5% to
10% of your income on books, tapes, seminars, workshops, and coaches. You are not really
spending the money; you are investing the money in yourself. There is no better place to
invest that money for tremendous long term growth. You will not get a better return even
in a "Bull" market on the stock market.
