One reason real estate agencies don’t do as well as they should is that they are run by salespeople. It’s what is called the dilemma of salespeople at the top.
When an office’s leader is a person who loves making sales, you often find such people too busy doing what they love to spend time tracking where the income goes. This is a recipe for disaster. There is no point, no point at all, in making lots of sales unless you keep a good proportion of the sales income. It’s like setting sail in a leaky ship – sooner or later you’re going to sink.
I knew one leader who had no idea how much money he needed to cover his basic expenses. One month, his office did forty-two sales but after expenses he noticed there still wasn’t much profit left. Something had to be wrong.
And it was – radically wrong. The person in charge of this office was a salesperson – somebody who loved making sales – and he did so at any cost. When this leader finally examined his expenses he found he needed a whopping thirty-three sales just to break even. What causes this? On one hand you have a leader who needs thirty-three sales to break even while there are other leaders who, if they made that many sales, would have a profit of two and a half million dollars.
People who attend the Real Estate Agency Management Program for the first time, learn that much of what we do in real estate looks good but is not necessarily profitable. As quickly as we can we drop these unprofitable practices and substitute them for the more profitable components that make us the Six Essential Elementsnecessary for an agency to be profitable. We have seen many offices get off to a ‘flying start’ only return to the old ways when the office’s sales slump. Slumps occur for one of two reasons:
- The team is not performing winning actions.
- The team can’t perform winning actions.
It’s simple: either you have a winning team, which means that your office is in a slump because it is not doing the actions it is supposed to be doing, or your office is in a slump and you do not have a winning team, which means that even if it does the winning actions it does them poorly.
Most of the sales and reward systems our industry typically teaches are labour-intensive and not very profitable. If you doubt that claim, look at the profits most agencies make. In most real estate offices, if it weren’t for the income produced by the rental department, most agencies would go broke. This means that most agencies run unprofitable sales departments.
Having spent many years speaking with the owners of real estate agencies, the best I ever saw had a profit percentage of 26 percent. The fact that the leader even knew this statistic was a rarity. Most offices ranged from 10 percent in the black to minus 10 percent. Nearly all of the offices in this latter category suffered from ‘salesperson at the top’ syndrome.
An ‘I-prefer-to-sell’ leader in this position knows sales have to be made or the office will go broke. And he knows the ‘team’ won’t get the office to break even, so he goes out and sells just to keep the doors open. Now he is working for his salespeople. The team is running the office.
Some leaders will do anything to avoid hiring. Even worse, more leaders will do anything to avoid firing, including make excuses for the team. Mediocrity festers in such an environment. A leader too busy to hire and too afraid to fire knows that, if he wants to have a day off, he needs to have somebody to look after the office.
One leader cut his team down to himself and one salesperson. When asked, “Is the one you kept a winner?” he replied, “No, but he was the best of what I had!” The leader said, “I’ve got to have a break.” On hearing this, another leader said, “So you kept the best of the worst. How sad.”
In such offices you always see the leader ‘run into the ground,’ a slave to inferior systems and mediocre salespeople. And after all that hard work there’s little money left over. Mediocrity is expensive, not only in high expenses, but also in lost income.
Most offices that have a salesperson at the top do not have the basic Financial Foundations in place. Very few have an up-to-date Incometer. Such leaders run their businesses from day to day without an idea of its current financial position. Then one day they express surprise when there is no money left to pay the bills. Astounding! How can lack of money be a surprise when you choose to run the business with a blindfold on? This is like driving your car with your eyes closed, then being surprised when you hit a tree!
A current Incometer is the simplest method for measuring the amount of income to the amount of profit. With a current Incometer you will see at a glance how many listings and sales equals how much profit. Without this figure at least, you are lost.
Just when you have a string of good months and the sales are coming at such a rate that you think they’re never going to end, you’ll be ‘shovelling’ money out the door at an ever-increasing rate, because you do not have a gauge that warns you of the waste. You will work hard and in the end have little to show for it.
You would not build a home without solid foundations and you will not build a great business without solid Financial Foundations.
While I cannot give you all of the tried and tested ways of increasing your profit that are contained in our five-day Real Estate Agency Management Program, I can at least offer you a tool that will give you a fully completed Sales Incometer. You will need to know your Office’s Monthly Expenses, the percentage of the total commission you pay to your Franchise, and the percentage of commission your office keeps after it pays its salespeople. Enter those details and click ‘Calculate’ and you will see how profitable your sales department is.
Gary Pittard