Whether you’re just starting up or have been running a brokerage for a while, cost control is an important element in any business. Here are five things to watch in your brokerage that will directly impact your bottom line.
Rent and direct occupancy costs can be huge. Be very careful when signing your lease. Besides the monthly rent, what else are you responsible for? How long are you tied in for, and what are the annual increases factored in?
Even seasoned brokers may miss things in their lease. One broker I worked with missed the fact that he was responsible for all mechanicals — even the HVAC unit on the building’s roof.
The building had been rehabbed recently and totally renovated, so he assumed the unit was new. It was a used unit that broke down repeatedly (especially in July when the building needed air conditioning desperately) and in the coldest months.
He was tied into a five-year lease that made him responsible for the maintenance and repair of the unit, which was not a small line item on his budget each year.
Another broker was thrilled that his landlord didn’t increase the rent after his first five-year renewal period. He missed the fact that the new lease made him responsible for water and sewer, which previously was included in the rent. Read the lease.
Your brokerage should have error and omissions insurance (E&O), general liability and perhaps auto policies. Keep a log of the annual premiums, and know your coverage dates. If you stay with the same for years, be sure your policies don’t creep up without you noticing. Quote them out every year or two, just to be sure.
My own general liability and auto policies went up significantly last year, and I didn’t even notice until they had been paid (one problem in having automatic payments set up). I had them bid out to different carriers this spring and saved significantly, especially on the auto policies. Being complacent can cost you money.
3. Auto billings
Along those same lines, make sure you check your credit card and bank statements every month. Are you really using all the subscriptions you pay for? These also creep up and are easy to miss when they’re only a relatively small amount every month. What are you truly using? Not using?
At the same time, check to see which ones renew automatically, and be sure to cancel them before the year runs out. I was paying for two different graphic design programs and only using one. I had prepaid for a year in advance to get a discount, and forgot to cancel the one before it auto-renewed. Ouch.
During the good times, administrative staff can get bloated pretty quickly, and you won’t notice until the market turns. In 2020, we cut administrative staff and outsourced very specific tasks (graphic design, digital marketing, etc.) to virtual assistants.
This cut down the number of in-person staff needed and ended up saving us about 25 percent for the year in salaries. Instead of cutting quality, by hiring very specific people tasked for narrow functions, we improved consistency, timeliness and quality of service. That’s a win-win.
Too many brokers put their marketing on autopilot. Every listing gets the same process, same ads run and same marketing channels. You need to track every closed client to find out what is working, and which channels are producing subpar results.
Every advertising or marketing channel should have a tracked return on investment (ROI). Things you think are definitely working may truly be not worth the money. You won’t know if you’re not tracking it.
At the end of last year I mapped out all of our closings for the year, and did the math on where the buyers and sellers came from. I was about to cut one of our online marketing vendors. At an agent meeting, they had voiced concern that the product was not bringing in enough sales. When I ran the numbers, the product had a 7.5 ROI. Yeah, we renewed it.
Know your numbers. Every buyer or seller should be tagged as to source and tracked at closing. If you do not measure it, you’ll never be able to know for sure what works and what is a waste of money.
Gut instinct alone doesn’t cut it. It may work for the smallest of offices, but as you grow, you’ll need systems and tools that help you track everything. Your backend brokerage software should be able to track lead source and dollars spent per marketing channel.
If you don’t know your numbers and brokerage key metrics, this is the quickest path to business failure. Pay attention to cost control to increase your chances of growing a successful brokerage.