Properly understanding the numbers needed to turn a profit separates the top agencies from the rest, writes owner of The Rent Roll Broker, Chris Goodway
IT IS important to know your break-even point intimately and accurately. Not just for your sales, but for the other departments of your agency.
Many principals know the detail of their sales revenue down to each listing, but they need to also understand the overhead structure of the business. In times when revenue is strong it is easy for expenses to rise, but these are often not managed down effectively when sales commission weakens.
One of the main variables is your advertising expense. Aim for at least 95 per cent of vendor advertising recovery and get as much of it upfront as possible. This will make a significant difference to your profit, and more importantly, your cash flow.
Every agency should regularly go through the exercise of calculating how many sales they need to make per sales person on a monthly basis to be in profit, reviewing against expenses each month and adjusting the figures accordingly.
Likewise the property management department and any other department should be monitored separately to ensure they are running at a profit.
Each department in your agency needs to be a self-sustaining profit centre and if it is not, unless it is part of your growth strategy, make the decision to bring it into profit or close it down.
When markets change, it is often wise to review remuneration structures and staffing levels. This is your largest single expense and must be controlled on an ongoing basis. Keeping unproductive staff in tough times can cost you thousands of dollars and even jeopardise the agency’s existence. You must act quickly and decisively.
Updating your business plan to reflect the current environment will help you identify areas for focus or review. A business plan is a simple outline of what you want to achieve, how you will achieve it, who will assist you and when you want to reach certain goals.
Holding firm on your sales commission rate is also a must. To do that you have to understand your value proposition, your market position and how the market perceives your brand.
Your business plan should contribute to your understanding of your value proposition. You must be able to articulate what makes your business different.
It is all about the prospective vendor understanding the value for money, not just the commission rate.
Your rent roll continues to bring in money, regardless of whether property sales are up or down.
Not only will your business feel the benefit of regular predictable income from the rent roll, it will also feed the sales side of the business when landlords decide to sell or move in.
When you think about investing in staff, don’t just consider the sales side of your business. If you had funds to invest elsewhere, you would complete a thorough due diligence on the investment adviser who would manage the investment.
Be sure to do the same with the staff who manage your rent roll.
Even in a slower sales market opportunities always exist, but only for those who look for them. Businesses that are well capitalised have sound management structure and systems and a desire to grow, so they are well placed to take advantage of the current acquisition and expansion opportunities.