This April, one of Inman’s most popular recurring theme months returns: Back to Basics. All month, real estate professionals from across the country share what’s working for them, how they’ve evolved their systems and tools, and where they’re investing personally and professionally to drive growth in 2022. It’s always smart to go Back to Basics with Inman.
Are you receiving Inman’s Broker Edge? Make sure you’re subscribed here.
We have all heard of companies who have gone through periods of explosive growth only to be followed by spectacular failure. Peloton, WeWork and others made headlines as idealistic gold standards before the headlines reversed into cautionary tales.
Solid, sustainable growth is part of any successful business plan. Here are seven tips we have found to be essential fundamentals for smart and lasting growth.
Unplanned growth is unsustainable
Rising tides lift all ships. The real estate market is having record years. This often leads to a false sense of growth. A false sense of growth inevitably leads to poor business habits. When the market shifts, those bad habits find the spotlight.
If your growth is unplanned, it is unsustainable. You can’t replicate it. You can ride the wave; however, you can’t make a new one. In your business, take advantage of market dynamics. But do so in a way that you can control your destiny when they shift.
Successful expansion is based in solid revenue and cash flow
Use leverage to grow wisely. I’ve seen more than one top 10 company disappear into oblivion because they got over-extended when times were good. Office footprints are getting smaller. The US workplace environment has changed. Hybrid or remote working has left a plethora of deals on office space.
Your revenue should be solid and consistent. Reserves should be building each month, even in December and January. Your profit margin should be 5 percent-plus if you have an operation with over 100 associates. The profit margin percentages are much higher, but with lower net dollars, in smaller offices and teams.
Keep your operating expenses well below your revenue. If your cash flow is good and revenue is solid, then take advantage of the discounted office spaces and expand.
Create a matrix to assess your present business before expanding
Know your key performance indicators (KPIs). Your profit is a lagging indicator. First focus on population, how many associates do you have. Second, focus on average per person productivity (PPP) and how successful the associates are. When you have those two metrics under control, you can scale with relative ease.
Market share is becoming more important than ever. The industry has always favored the listing side of the transaction. This is amplifying. If you don’t track new listings on a monthly basis, you are going to be in trouble in the not-so-distant future.
Identify revenue streams and understand current and target customers
Affiliate revenue really opens up once you hit 100+ associates. There are two agent business models which are diverging and gaining momentum. The first is the elite agent model. This is the agent who builds loyalty with their client base and provides exceptional service and value which transcends the transaction.
The second is the lead funnel model. These are transactional-based agents who make less per deal but make up for it with volume. Both models work and are profitable but mixing the two at the agent level very rarely works well. As a Broker or Team Leader, know which associates are doing what model. It’s then you can expand to fill the gaps in your marketplace.
Analyze financials, especially monthly and cumulative projected cash flow
It is astonishing how few people in our industry understand their financials. Your projections and budgets should be reviewed on the regular. You should know what your next 45 days are going to look like with what is under contract. 90 days out is best projected by your salable listing volume. In a healthy and balanced environment, buy sides should generate out of your new listing inventory with closings on a one-to-one basis.
Develop an action plan with a timeline
Your growth plan needs to outline both timelines and responsibilities. Accountability and transparency are paramount in order to ensure success. Meet with your team weekly to make sure the critical things are getting done. By meeting weekly, you can be nimble and make adjustments before a month has gone by and momentum is lost.
Create unique value propositions for the customers
Sustainable growth is dependent on delivering value to your client base. This applies both to your associates and the customers they serve. Know your value propositions and be obsessive about developing them. It’s not enough just to be good, you need to be the best.
Too often we deliver value in the real world but forget to reinforce the perception of value. The perception of value is what people buy. If your attrition rate is over 10 percent annually, you have a perception of value problem. Your company shouldn’t be losing associates to your competitors. Each loss should be looked at and learned from. Be in a constant state of re-selling the value to your associates and they will do it with their customers.
Smart and sustainable growth can be predictable. Expand wisely when you have the revenue and cash flow to do so. Too often we get caught up in trying to copy what others are doing. Know your lane and stay in it. Be the best at what you do. By doing so, you force your competitors to respond to your game and your rules.
Chris Pollinger, CEO of RE Luxe Leaders, is the profit whisperer to the leadership elite in the business of luxury real estate. He is a senior sales and operational executive skilled in strategic leadership, driving profit, business planning, sales, marketing, acquisitions, operations, recruiting and culture building.