Login
iscover
How do you make more money in real estate? Make sure you’re looking at the right numbers, according to an industry professional.
With another financial year having drawn to a close, One Agency founder and CEO Paul Davies has urged agents and principals to crunch the “real numbers” in order to maximise business returns.
While sales revenue definitely plays a big role in the profit equations, he argues that it’s not the only thing that matters.
He said: “Real estate is a numbers game, but it’s possible you’ve fallen into the trap of looking at the wrong numbers.”
Reflecting on his own experience, Mr Davies admits that when he himself was a principal, he “thought the key to success was sales, sales and more sales”.
But since then, he said he’s learnt “it’s not all about earning more. It’s what you keep that counts.”
Apart from considering the sales revenue, Mr Davies also encourages agents and principals to study their expenses to get a more accurate understanding of their profit.
For instance, one business could be making $100 in sales but paying $85 in costs, while the other could be making $90 in sales but spending only $60. The first one gets to keep $15 while the second leaves with $30.
“I’d rather be the person in scenario two who’s banking more profit while generating less revenue,” Mr Davies said.
Ultimately, the CEO believes businesses will do well to work hard on the big-picture profits more than just sales in order to “finish with more money in their pocket by the end of each financial year”.
“Your tax return doesn’t lie, so if you are disappointed with how much you netted in FY21, the solution might be to switch your focus from sales to profits this financial year,” the CEO added.
Mr Davies laid out two simple steps to improving profitability:
1. Reduce costs
The CEO encourages agents and principals to “trim unnecessary fats” in order to maximise profit — beginning with the biggest expenses.
“Take your office’s rent, for starters. These days, digital presence is everything, so there’s no need to lease an expensive office. Rather, you can work from a less visible location, or even a home office,” Mr Davies said.
“Then, there are fees. If you’re in a franchise group, you’re likely handing over a hefty percentage of your revenue every month.
“Even though sales is the lifeblood of your business, expenses can kill it because the higher your expenses are, the more sales you need to make just to break even.”
2. Strengthen revenue stream
Apart from reducing costs, building a more reliable revenue stream can also make for a more profitable business, according to Mr Davies.
He advises agents and principals to build a rent roll in order to grow their revenue while also minimising risks brought about by unpredictable market movements.
“Sales revenue can be damaged by external forces beyond your control, that’s why I urge principals to build a rent roll,” he commented.
“Rental revenue is much more consistent and reliable, and because people always need somewhere to live, it is less vulnerable to outside forces, no matter what is happening in the market or economy.
He also highlighted that “the other great thing about building a strong rent roll is it’s a tangible, saleable asset”.
While touting the benefit of rent rolls, he also advised agents operating independently to do so with a property management expert, to ensure they are going about it in a “good” way.
Newsletter
