How to level up your brokerage profits!
5 Steps That Will Make You More Money
Many company owners have a friend that’s a broker or team leader who rakes in money like a boss and makes them feel like their working too hard and not making enough money! Or maybe they have a broker friend who constantly stresses about how they’re going to make ends meet and keep their business afloat. Either way, it seems that we all know someone who makes us feel like there is something missing from our financial landscape. If you have ever felt that way, this article is for you. It might seem like an impossible task, but increasing profitability in your brokerage isn’t out of reach. With the right knowledge and planning, it can be accomplished. That’s why we’re going to walk you through 5 steps that will increase profits faster than you can say “market shift”….not really that fast but you know what I mean, let’s get started!
Know what drives profitability in your business
Hopefully you’ve got a good idea of what your monthly and annual costs are and what your average revenue and profit per transaction are at this point. You have also identified your ideal agents and customers as well as you have an idea of how to market to them. Now, it’s time to get down to the nitty gritty what drives revenue and what cost erode your profitability. The most obvious revenue generator is commissions from real estate commissions but where else can you create opportunity. First and foremost look at revenue opportunities per transaction. That means per transaction fees (paid by clients or even agents), such as: can you raise your avg commission % per unit, can you get your agents to convert more of their transactions into new business, can you create real opportunities for referral fees to your brokerage, ancillary opportunities like mortgage/title/insurance, marketing fees for all listings, and Transaction Management fees are just a few. This goes without saying but it’s critical for you to understand what you can and cannot legally and ethically collect. With that being said I know brokers who pass up on potential profit because they are not disciplined enough to learn what they can and cannot do so their profits linger at dismal levels. Don’t be afraid to explore and learn because just like always education leads to opportunity and in this case it leads to profits! Once you get a handle on per transaction opportunities you can look at monthly and annual opportunities. Do you charge for your database, leads, E&O, desk fees, and even look into annual cost of living increases. I know a broker who instituted a per transaction fee almost 15 years ago and has not raise it. They do about 2400 units a year and collect a transaction fee on about 93% of those transactions. An increase of just $75 X 93% of 2400 is an increase in gross revenue of $167400.
Set up a process that brings in new money easier than even
Part of the reason I started with per transactions is because the revenue generation would be tied to something that was already happening. To increase profitability, you’re going to need to increase your revenue at a larger scale than you raise expense based on what you put in place. The easiest way to do that, add something to what is already happening. If you cannot do that, then likely the next way is to bring in new customers but you need to get them to a closing. Unfortunately, the world of marketing and lead gen is a fickle beast that can be difficult to pin down. There are some tried and true methods, however, the key is to make it as easy as possible for your agents to focus on converting. When many brokers start to lean into growing profits they start by train agents to prospect more or even worse they buy platforms to deliver leads. You might be saying “leads are where the transaction starts” and I agree with that but closing is where everyone gets paid. There is another saying as well “the fortune is in the follow up” and if you focus on converting you will be very surprised how many transactions your agents already have available but are not closing due to lack of soft skills. If you focus on conversion you will see new revenue coming in. Why? For two reasons. The first is that resources are already being spent to create opportunities that are slipping through the cracks. We all know that is true! The 2nd and more compelling is that customers who do not convert do not refer anywhere near the same level as people who get to the closing table!
Know which expenses are mandatory and which are discretionary
The most obvious cost that drives profitability is your labor. Your compensation structure should be set up so that as you scale you win bigger and not that you lose more. You would think that goes without say. It does not. Your compensation plan should be scalable and grow profits as you get bigger. You can only tell if that is the case if you take a real look at what your expense are both fixed and variable. My suggestion would be that you hire an expert to help you with this asap.
Expenses are a big factor in profitability. Certain items are mandatory, like your rent and mortgage. Other items are discretionary, like your vacation expenses and your coffee habit. Without containing these expenses, and minimizing their growth you won’t be able to create legacy profits and more importantly you may not even be able to pay your bills and keep the lights on in a shifting market. Are you buying your building, are you completely virtual, do you pass on 100% of your cost? All of these are great questions but the first step is to really get an accurate handle on what you spend and what you could cut back on. Then if you want to increase your profit margin, you’ll need to determine which expenses are mandatory and which are discretionary.
Set up automated processes to help with consistently recurring tasks
When you have employees, you’re required to pay taxes. This is a mandatory expense. Most businesses also have employees who have benefits, like healthcare and vacation time. These are mandatory expenses, too. Some other expenses that are required by law are payroll taxes and worker’s compensation. Utilities are reoccurring, tools and systems platforms, and so many other day to day expenses are important to review but the mistake that so many brokers make, especially smaller brokerages, is that they do these things as they pop up. Have things set up so that you can review them all at one time but so that they are paid on time. That way your day is focused on growth and profits and not spending a part of every day reviewing and paying bills. This again where having some dedicated professional, trusty worthy help will really come into plan.
Be a little meaner when you negotiate
You’re negotiating with everyone right? Do you ask for the best rate on your rent? When did you renegotiate the interest rate on the loan for you building? Are you getting the best price for the SAAS, your lead gen platforms, can you use the franchise provided website vs your own, do you negotiate with your franchise, and the list goes on. All of these expenses can and do add up.
While you are at it, if you are getting the best price from all of them are you discounting the commissions you accept? Not just on sales but what about property management fees, referral fees, and how much of a discount teams get within your office? So why are you letting your customers get away with paying less than they should be paying for the top level service you offer? Negotiations are a good thing. They help you know that you are getting what you are worth while helping them understand that by negotiating you are making a promise to offer better service. The problem occurs when a company doesn’t take a good look at the details of their negotiation. The most profitable brokerages are the ones that drive the most revenue and pay out only what they must to uphold their company integrity. While you are at it, have negotiations classes for your agents on a regular basis. The better they are at negotiating the better your profits will be in return.
What is your first action step!
If you want your business to generate more profits, you need to know what drives profitability. You need to truly understand what processes brings in the most revenue constantly while helping you keep costs down. Your first step is to look at how effective you are with what you are doing already. How competitive are you in recruiting, retention, and PPP and what is the one thing that you can do today that will impact the profitability the easiest for the longest. In other words what do you do best and how can you make it better! If you still sell and are great at getting full commissions and your agents discount every time, start there! If you have loan officers that love how well you run your office and want to be part of it, do a JV or MSA. If you own rental properties and manage them effectively get your SOI and the SOI of your agents to participate in a “Get started in investing” class. Grow your sales and property management division at the same time. And a final thought, just be meaner (in a stingy kind of way) when you negotiate. Doing these things with intention will help you increase profitability in your brokerage faster than you can say, well you get it!