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“It’s not what you make; it’s what you keep that counts,” is the message from One Agency chief executive officer Paul Davies.
The industry veteran believes many agents misplace their focus on their gross commission income (GCI), as opposed to what he explains is the more important figure — their net commission income — or their “NCI”, stressing it’s “the number agents should be focusing on”.
Clarifying the difference, Mr Davies explained the difference between the pair of metrics is that “GCI is what you make and contribute to your office; whilst NCI is what you take home to your family — pay your mortgage with, send your kids to school on, and get to spend on holidays”.
He said that throughout his career, he’d witnessed a recurring “light bulb” moment when agents “realise that GCI isn’t the most important thing, as many are taught to believe”.
Often, the two figures can vary dramatically depending on the structure of an agent’s deal between themselves and their principal or head office, despite his belief that “they need to be as similar as possible”.
“This is where the industry so often gets it wrong, which can have devastating consequences,” he said, labelling it as often-times “frustrating” or “disappointing”.
He added that “the difference in the values between GCI and NCI is the ‘cost to do business’, and this is very often too much”.
“Let’s be brutally honest, every dollar spent as ‘cost to do business’ is a dollar that doesn’t end up as NCI or in your pocket,” Mr Davies said.
“The cost to do business, if you’re a salesperson, is usually the commission split with your office, and if you’re already a business owner, the cost to do business can be a long and hungry list,” he said.
During a period of incredible market change and contracting GCIs, it is important “every effort be made to protect as possible the NCI”.
He acknowledges that there are several different strategies for facilitating this depending on an individual’s role within a business.
In such instances, Mr Davies said salespeople should plan towards business ownership, which gives them total income control. This strategy is especially achievable for experienced agents who generate large portions of their existing GCI.
For business owners, numerous strategies currently exist that can be implemented to reduce their ‘cost to do business’, which include shifting their office from more expensive locations to a more cost-effective environment, as well as shopping around with banks to prospect better deals.
Mr Davies additionally advised meeting with accountants to analyse current expenses, which, once controlled, can release large amounts of pressure off business owners.
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