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 10 great strategies to start your year off right.
1. Calculate how much you earn per hour
Begin by looking at your Schedule C on IRS Form 1040 or your LLC/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 earnings per hour. (This is your after-tax, hourly rate of profit per hour.)
If you’re earning more than minimum wage, are you still doing minimum wage tasks like filling brochure boxes, dropping off your dry cleaning, addressing mailers, etc.? 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.
2. Eliminate ‘nonproductive opportunity costs’
When a buyer doesn’t purchase from you, you have incurred a “nonproductive 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 nonproductive opportunity costs, the greater your profits will be.
3. Focus on referrals
Top producers consistently report that 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 their 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.
4. Profit is always temporary
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.
To keep your profitability strong, constantly monitor market activity to identify shifting patterns, and be willing to try what’s 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.
5. Limit your marketing spend to 10%
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, 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.
6. Buy in bulk
Items to buy in bulk include postcards, door hangers, computer supplies, paper products as well as personal items you use at home. Watch for sales on products you use regularly, and buy a six- to 12-month supply. This saves time and money because you don’t have to make several trips to purchase the same products or spend time reordering them online.
7. Save time, money and energy by reducing drive time
The COVID-19 pandemic forced us to work from home. Once the vaccines become readily available, will you be going back to the office, or will you continue to spend more time working from home?
The current IRS mileage deduction for 2020 is 57.5 cents per mile. If you cut your mileage by 50 miles per week by working at home and doing all your errands before or after appointments, you can save almost $1,500 per year, not to mention the reduction in time and stress.
8. Cut ‘market time’ by pricing your listings correctly
The shorter the time your listings are on the market, the greater your profit will be because you will spend less time and money on getting them sold.
9. Have clarity about what your buyers really want
Decrease time spent showing buyers property by conducting a thorough “buyer’s interview” to determine their most important needs as opposed to their “wants.”
A “need” is something the buyer must have if they are to purchase. A “want” is something the buyer would like to have but is not an absolute necessity. Having clarity about what your buyers are really looking for saves you both time and money.
To find out what they want, the best question to ask is: “Tell me about your favorite house from your childhood.” They may say they want a midcentury modern house, but emotionally, they’re more likely to fall in love with the house that looks most like their childhood favorite.
10. Be proactive about seeking client feedback
Ask for your client’s input during the transaction and after it has closed. Be proactive about discovering what your clients are really 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 his or her 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, President and CEO of BrokerageUP and RealEstateC