Bernice Ross
When it comes to profitability, most real estate professionals are focused on revenues or gross commissions. What many agents miss, however, is how they can be more profitable by working smarter and cutting expenses. If you would like to increase your profitability in 2021, here are ten great strategies to start your year off right.
Begin by looking at Schedule C on IRS Form 1040 or your LLC or corporate tax return. Take the net income you report to the IRS and divide it by 2,000 (i.e. 40 hours per week for 50 weeks) to determine your actual after-tax earnings per hour.
If you’re earning more than minimum wage, are you still doing minimum–wage tasks such filling brochure boxes, dropping off your dry cleaning, addressing mailers and other similar activities? If so, you are working for minimum wage. This reduces your profit because you could use that time to engage in revenue-producing activities such as prospecting, going on listing appointments or presenting offers.
Eliminate Non-Productive Costs
When a buyer doesn’t purchase from you, you have incurred a “non-productive opportunity cost.” In other words, you gave up cold calling, holding an open house, or some other activity that could have generated income for your business.
To illustrate this point, if you earned $50,000 this year, your hourly rate is approximately $25 per hour. Spending four hours at an open house that produces no leads has an “opportunity cost” of $100 plus the cost of operating your vehicle to get there, refreshments, and any prospecting pieces you may have used.
To reduce these costs, carefully track 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 non-productive opportunity costs, the greater your profits will be.
It’s also important challenge your assumptions about how you conduct your business by experimenting with new ideas, new niches and new processes each quarter. To keep your profitability strong, constantly monitor market activity to identify shifting patterns and be willing to try what is new. Invest at least 1-5 percent of your gross revenues in making mistakes, taking time away from the business to do strategic planning and learning new ideas.
Limit your marketing and promotion budget to 10 percent of your gross revenues. Rather than paying for expensive print mailing or online lead generation programs, use your telephone, email, the social media, video and Zoom to keep in touch with your client base. Being in regular personal contact with those you know yields the best results.
Top producers consistently report most of their business comes from referrals, past clients, and other people in the sphere of influence. Yet, when it comes to how most agents spend their marketing dollars, they often spend a large portion of our time and money developing new sources of business rather than strengthening their referral database. To be more profitable, focus on building referrals from your existing sphere of influence. It takes less time and yields better results.
Knows What Buyers Want
Decrease time spent showing buyers property by conducting a thorough “Buyer’s interview” to determine their most important needs are as opposed to their “wants.” Having clarity about what your buyers are really looking for saves you both time and money.
The best question to ask to find out what they want is: “Tell me about your favorite house from childhood.” They may say they want a mid-century modern, but emotionally they’re more likely to fall in love with the house most like their favorite from their childhood.
Also, make sure to ask for your client’s input during the transaction and after it has closed. Be proactive about discovering what your clients really are feeling and experiencing. By identifying potential problems early on, you can avoid having to clean them up later. It also requires significantly less time and effort.
In addition, always survey every client when their transaction closes. Ask what you did well, but also ask about what you could have done better. By constantly monitoring what your clients are experiencing and always working to improve your customer service, you not only can be more profitable, you’ll also increase client loyalty and gain more referrals.
In terms of being more profitable in 2021, work smarter, reduce expenses, and constantly search for ways to make the best possible use of your time.
Bernice Ross is a nationally syndicated columnist, author, trainer and speaker on real estate topics. She can be reached at bernice@realestatecoach.com.
