While I have been coaching, teaching, and observing many Agents over the years, I have noticed that few Agents tell success stories about how profitable their business is. They often have success stories to tell about sales volume, units sold, plaques, awards, and recognition but not profitability. They become caught up in the company recognition system and for years lose all sight of the true function of a business. The true function is to turn a profit, but the thought of selling one more house to pay for this new service or that new marketing idea seems to be the pervasive way of thinking. This mental philosophy leads Agents down the slippery slope of financial destruction. This philosophical flaw does not happen overnight, or even in a few months, or sometimes not in a few years. Nevertheless, it will surely reach them eventually, just as eating high fat foods and not exercising regularly leads to arteriosclerosis. Some may not have a heart attack overnight, but they are heading that way on the fast track.
In order to keep your business directed toward turning a profit, you must examine return on investment. You want to evaluate all expenditures based on the return you will receive from the dollars you have spent. Most companies are not looking for a one-for-one type of exchange. In other words, they do not want to spend a dollar to make a dollar. You must not be satisfied with this type of exchange either. In a one-for-one exchange you lose money. Let me repeat, in a one-for-one exchange you lose money. It does not matter what the "it" is; you will lose. The reason is you have not factored in all the costs.
Agents have a tendency to see that ad they ran on Sunday as the cost of the ad, $75 or $100. They do not view the true cost of that ad. By true cost I mean all the components of the cost. They have the cost of the ad; let's say $100. They have the time and energy to produce the ad. Their assistant does it or they do it, but they still have to review the ad. No matter how big or small the task, they need to block a minimum of five minutes.
I will give you an example from my own experience. Suppose it took fifteen minutes for my assistant to write the ad. She was paid $15 per hour, which is $3.75. I had to review it and make corrections, which took five minutes. Since I made approximately $350 per hour when I was selling real estate, that cost was $30. Then she had to correct the ad, reprint, and send the ad to the newspaper, which took another fifteen minutes, or $3.75 more. I could also factor in office equipment, computers, paper, and list goes on and on. Those costs, in some cases, can be significant. In this example I will not factor those into the overall costs. Through this example, I had already invested $137.50 into this ad.
When Sunday rolled around, I received ten calls on this ad. That was before I had Buyer's Agents, and I worked weekends. Each one took me away from what I was doing when I answered the call: my family, open house, or buyers. You get the idea. The Sunday calls took 50 minutes of my time or $290. I had invested $427.50 so far in this ad.
If I set one appointment to show the property that is another hour invested. I had to drive to and from the appointment and show the home. In addition I had to spend extra time on the phone to qualify and confirm the appointment before I met the prospects. I also called my lender (or theirs) to make sure they could qualify for a loan before I invested my time. I had invested at least another hour into this client, so there is another $350. I have now paid $777.50 for the cost of one ad and one showing.
I realize that I would receive a good return on my investment if I got the home sold to these people. But if I have to go through ten ads and ten showings and then finally have to accept a co-op sale, unless I am getting a very high commission dollar there is no profit. I have earned wages, but no profit.
Here is the painful part, as if the first few paragraphs were not bad enough. In most states in this nation, in order to pay the state income tax plus the federal tax, you need to make close to $1.50 to make a dollar. When you spend a dollar, you have to bring in $1.50 in revenue to actually get that dollar back. In the case of the ad, even if we do not factor my time at all, I have spent $100 to the newspaper and $7.50 in staff expenses. I also had payroll taxes, FICA and workmen's comp. I will not deal with these items specifically but purpose of our discussion you must understand they are an additional expense. I had $107.50 hard costs into the ad. I need $161.25 in actual dollars of revenue to cover the ad and the taxes I would pay for parting with my money.
Large successful companies think this way; they focus on return of time and dollars invested. Maintaining this focus is how they got to be large and successful. They did not get there by accident. They thought their way to that place of prominence. If you wish to be equally successfully, you must do the same.
The other thing they do effectively is to track their dollars well. They have extensive Profit and Loss statements. You must run Profit and Loss statements monthly. You need to be able to track your expenditures and your revenues at all times. Casinos in Las Vegas do Profit and Loss statements hourly. Because millions of dollars are changing hands they need to know exactly where they are and how they are doing that frequently. You do not need that kind of detail, but you do need to know where you are at any given time, income versus expenses.
The only way to adjust your expenses downward is to know what they are. If you do not know them and track them how can you adjust them? You can adjust them via the slash, or crisis system, but you will have yo-yo income and yo-yo staff. You have to reduce expenses methodically according to a plan.
I have looked at many Agents' Profit and Loss statements and found that most Agents could trim at least 15% off their expenses without affecting revenue. How would you like a 15% raise without putting forth any more effort? Start tracking your expenses. Make a goal to cut 5% to 10% in every category. Look at every expenditure carefully. Do you really need it? Remember it is your money; do not be so free with it.
The last area is return on investment in training and education. This is your best area of expenditure. There is a direct correlation in the dollars you spend here and your increase in income. You need to allocate dollars for yourself and your staff in training and education. The most successful people and companies have spent large quantities of money in this area. Many companies have huge training and Research and Development departments. Research and Development is a fancy name for education. You probably do not have the resources of IBM to gather new knowledge. You do, however, have the ability to spend 10% of your income on books, audio programs, seminars, workshops, and coaches. (You are not really spending the money; you are investing the money in yourself.) There is no better place to invest that money for tremendous long-term growth. You will not get a better return even in a "Bull" market on the stock market.
I am still receiving a return on investment from the $6.95 I paid for the book, Think and Grow Rich by Napoleon Hill. That small investment of $6.95 has made me several million dollars of income. It has led me to other books, audio programs, and seminars. I would not have found this other wealth of information without that small $6.95 initial investment.
You can change your life and start achieving profitability. Profitability does not happen overnight, but the decision to strive for it does. You must decide if you want profits or just wages. No one will give you profits, you have to search and look diligently for them. They are there in every business and every person. You just have to work to find them.