8 Strategies for Being More Profitable in Real Estate
Who doesn’t want to work smarter, not harder? If you’re ready to boost your income, read on!
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. Here are eight great strategies to boost your income:
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 2000 (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.)
Payoff: If you’re earning more than minimum wage, are you still doing minimum wage tasks, such as filling brochure boxes and addressing mailers? If so, you’re 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 and presenting offers.
2. Eliminate non-productive opportunity costs.
When a buyer doesn’t purchase from you, you’ve incurred a non-productive opportunity cost. 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.
Payoff: 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 non-productive opportunity costs, the greater your profits will be.
3. Focus on referrals.
Top producers consistently report most of their business comes from referrals, past clients and other people in their sphere of influence. Yet, most agents spend their marketing dollars developing new sources of business rather than strengthening their referral database.
Payoff: 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, niches and processes. Profit is always temporary. What keeps profits increasing long term is staying in touch with an always-changing marketplace and having a willingness to try what is new.
Payoff: Be willing to invest at least 1% to 5% 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.
Set your marketing and promotion budget to 10% of your gross revenues. Use your telephone, email, social media, video and Zoom to keep in touch with your client base rather than expensive mailings and other forms of marketing.
Payoff: Free tools can net you results if you use them consistently.
6. Price 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.
Payoff: Less time on market means less marketing money spent and more money in your pocket.
7. 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.
Payoff: Having clarity about what your buyers are really looking for saves you both time and money.
8. Seek customer feedback.
Ask for your customer’s input during the transaction. Be proactive about discovering what your clients are 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.
Also, survey your customer when their transaction closes. Ask what you did well, but also ask about what you could have done better.
Payoff: By monitoring what your customers are experiencing and working to improve your customer service, you can be more profitable, increase client loyalty and gain more referrals.