In an environment and culture that chases medals, awards and the membership to the “million-dollar” club, profit often places a distant second place when it comes to goal setting and achievements.
I see many sacrifice their time, their wellbeing and career longevity in the desire to be the “number one selling agent”. The one that sells the most and writes the most gross commission income, all in the desire to be in the number one place. Now, if that drives you, if that desired goal is the motivation to help you do what you do, I congratulate you. If, however, that relentless pursuit of being “number one” does not fulfill your financial goals, then you may want to revisit your ultimate aspirations.
As my headline states, “volume is vanity and profit is sanity”, and it is something that I have lived by from very early in my real estate career. I won’t lie and say that the desire to gain the “number one” title has not influenced or fuelled my personal ego. I think if it doesn’t, sales and success may not come that easy. It’s a motivational factor and one that must be exploited. Having said that, profit MUST form and be part of the outcome. Just writing as much business as you can does not necessarily or often translate into proportionate profits.
Whether you are growing a personal sales business, building a sales team or property management division, there will be a point where the pursuit of growth may ultimately lead to reduced profitability, defined by “the law of diminishing returns”. This law describes the point at which expanding the business, or trying to secure more clients, actually reduces the profitability and efficiency of the business.
The best example of this is reducing your chargeable commission rate. Often seen in property management businesses, many apply a strategy of low management fees (get it at all costs) in the false belief it will win them more rental managements without any consideration of profitability and break-even points. I have witnessed rent rolls of 1,000 managements with less profit than those at the size of 400. Again, the pursuit and ego of saying “I’ve got 1,000 rentals” clouds many business owners’ judgements and the reason they are business for; and that’s to make a profit!
The same can be said about the evolution and changing landscape of the traditional real estate office. Bigger is not always better and more profitable. Especially in our very volatile and fluid industry which constantly transitions from low and high cycles.
It is also no longer the optimum to have all resources in-house. In fact, it’s the opposite. Efficiency and profitability is now afforded to those that outsource all their essential services, from IT, administration, trust accounting, compliance and even to the receptionist answering the phone. Something we at the Eview Group pioneered over a decade ago.
In any business, I recommend taking the following steps to evaluate where your business (no matter what size and whether you are an office or an employed sales person — every position is relative) is to see if you are operating at optimum profitability.
1. List and calculate your fixed expenses.
2. Evaluate each expense and its value to the business. Is it necessary?
3. What is your break-even point before you start making a profit?
4. What can you outsource?
5. What is your most affordable and effective lead source? Can you amplify them with minimum cost?
6. Benchmark your business against other successful and more efficient operations. How does your profitability and efficiency compare?
7. What is the market capacity? Is there enough business in your area to achieve your goals?
8. Who can support you and has found knowledge of business operations?
There are many, many moving parts to every business and each has an element of cost and efficiency. Being mindful of the volume versus vanity aspect of our working environment, make informed decisions on what you are truly working towards and why. You will find that everything falls into place when you truly know what you want.
Manos Findikakis is the CEO and co-founder of the Eview Group.