10 ways agents can increase profits
Bernice Ross
Inman News
In today's tough market, you have to make every penny count. While how much you earn is important, what really matters is how much you keep.
When you ask how much most Realtors earned in 2009, most report their gross commission income (GCI), which is how much they made before expenses. Profitability, however, is determined by how much you keep after expenses. If you want to keep more of your hard-earned commission dollars, here are 10 ways to do it.
1. Begin by calculating your net hourly rate for 2009
Take the gross commission amount that you earned and subtract all your business expenses. (If you are in the U.S., take the net income you report to the IRS.) Next, divide it by 2,000 (i.e., 40 hours per week for 50 weeks) to determine your net earnings per hour. (This is your after-tax, hourly rate of profit per hour.) If it's greater than the minimum wage, seriously consider delegating part of your business to a minimum-wage earner. When you spend time doing minimum-wage tasks such as going to the Post Office, dropping off dry cleaning, filling brochure boxes, etc., you are working for minimum wage. This reduces your profit because you could be engaged in prospecting, presenting offers, or doing other activities that produce more income.
2. Eliminate nonproductive opportunity costs
"Opportunity cost" refers to the "value or benefit of something that must be given up to achieve something else." For example, if you spend four hours holding an open house, you would give up the opportunity to work with your relocation buyers during that time.
To understand the "cost" of that decision to your business, assume that you had an after tax net income of $40,000 in 2009. Your hourly rate would be $20 per hour. Thus, if you held a four-hour open house that generated no leads, the opportunity cost of that open house was $80 plus the cost of operating your vehicle to get there, refreshments, and any prospecting pieces you may have used. To reduce these costs, carefully examine which activities consistently generate leads and which activities generate little if any income. Be ruthless about eliminating activities with no return, no matter how much you think you should do them. Remember, the less time you spend on nonproductive opportunity costs, the greater your profits.
3. Get more bang for your marketing buck
Top producers consistently report that the bulk of their business comes from their referral database. Nevertheless, many agents continue to spend a huge percentage of their marketing dollars developing new sources of business rather than strengthening their existing referral database. To be more profitable, focus on building referrals from your existing sphere of influence. It takes less time and as a rule, usually yields higher results.
4. Innovate to keep pace
Each quarter, challenge your assumptions about how you conduct your business by experimenting with new ideas, new niches and new processes. Profit is always temporary. What keeps profits increasing long term is staying in touch with an always-changing marketplace and a willingness to try what is new. Be willing to invest at least 1 percent to 5 percent of your gross revenues in making mistakes, taking time away from the business to do strategic planning, and learning new ideas.
5. Slash expenses
Limit marketing and promotion to 10 percent of your gross revenues. Instead, use your telephone, e-mail and social media to keep in touch with your client base rather than expensive mailings and other forms of print advertising.
