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It's Not About Revenue - It's About Profitability

Profitability is related to analyzing your market and budget, so that you know where money is being spent. If you don't know what your sources of income are, then you're going to spend money in wrong places. If you don't know what you're spending, it's hard to know what your profit line is going to be at the end of the year. It's really important to keep tabs on your budget using Quicken, QuickBooks, Peachtree, or some other software program.
A great many agents have no idea what their profitability is until they go to their CPA at the end of the year. Some of the agents have a general, off-the-top-of-their-head idea of what they have spent, but had no idea what running a real estate business is all about.

Where Is The Money Going?

This down market and its increased competition has forced many of us to really take a long hard look at budgeting and the first place to start is with a solid review of your expenses on a regular basis. Is the phone bill going up? If so, why? Do you have a lot of out-of-state buyers? What's the reason for the change? Should you be looking at another source for your phone service?
You should track the source of your calls to find out your conversion ratio (how many calls actually turn into closed transactions), and then actual closings. What source brought you the most closings? You have to be willing to cut out the things that are not working.
With the market the way it has many agents are reducing their overhead dramatically in very specific ways. One of our Mentors at iSucceed told me that he used to do a full-page ad in the newspaper every Friday, and had done so for about 14 years. He discontinued that because he was not returning calls from those ads and it was costing him $1,100 a week.
In the past those weekly ads had brought in substantial leads and were a major part of his business so it was money well spent. As the market changed and the number of leads began falling off it became obvious that it wasn’t a viable expense. As a result he diverted the ad money to pay for technology expenses and online advertising, where he is now seeing a better rate of return.
At the same time he looked at his other expenses and as a result he cut his staff and the 15 phone lines that they required.  He then sublet the part of the office space that was occupied by that staff. 
Taken together all the changes are allowing him to remain profitable in a shrinking market.

Know Your Market, Track the Trends

You have to track your market daily; otherwise market changes will slip up on you and leave you holding the bag.  One way to insure you don’t get out of step is to frequently ask yourself some basic questions that you need to be able to answer.  Here are a few basic ones to get you thinking – sometimes it’s the basics that get left behind:

  • How many listings are in each specific price range?
  • How many homes are available – listed, FSBO, REO or Pre-foreclosure?
  • Of the homes that show as active, how many are under contract?
  • How quickly are houses going under contract?
  • What's the change in list and sale price?
  • Is the market softening or tightening up?
  • Am I getting a sufficient number of buyers?  From where?

A solid understanding of the current market conditions is critical to your preparation of a marketing plan to get that particular listing to the sales table.  Get your thinking more directed toward each individual listing/buyer and its impact on your budget:

  • How long will it take for that money to actually come into your budget and cover your costs?
  • How many times are you going to need to advertise that particular home?
  • How many open houses will you need to hold?
  • How many signs are you going to need?

If you are a new agent, it will be helpful for you to find a mentor to help you learn how to track the market trends. Once you learn what the trends look like, then you can begin to predict the market, based on current trends. You can't just track the market this year and discard that information. You need to see how current trends compare to other years and seasons. For example, what's happening in a cold-climate January market versus slightly warmer temperature February affects buying trends.
Lead Generation

It’s no secret that the industry is seeing a much better return on investment from the money spent on Web sites and online advertising versus the print media. Web sites are very important with more of the public using the Internet to buy and sell their homes and it is a cost-effective way to get your name and message out.  You Web site is also the best place to begin growing your own “opt-in” email database.   

The national average is approximately two very solid buyers per month from Internet related advertising; that's 24 transactions in this very tough market. For that reason it's important to incorporate your web address on all your marketing.  And once you get them there, be sure that you have strong, relevant and valid content for them to download.  You will find that is the least expensive and most effective way of cutting your lead generation costs – take out the middleman.

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