Real estate is a numbers game. But it’s possible you’ve fallen into the trap of looking at the wrong numbers. I know I once did.
Years ago, when I was a principal, I thought the key to success was sales, sales and more sales. Then one day, though, it hit me like a brick in the back of the head: it’s not what you make, it’s what you keep that counts.
Let me run two scenarios by you, and you tell me which sounds better:
- Scenario 1: You make $100 in sales, but you pay out $85 in costs, (rent and other expenses), leaving you with $15.
- Scenario 2: You make $90 in sales, but your costs are $60, leaving you with $30
I’d rather be the person in Scenario 2 who’s banking more profit, whilst generating less revenue.
Your tax return doesn’t lie. So if you are disappointed with how much you netted in FY21, the solution might be to switch your focus from sales to profits this financial year. That way, you might finish with more money in your pocket at the end of FY22 than you did in FY21.
Reduce your costs to increase your profits
Of course, there’s no reason why you can’t simultaneously increase your sales and reduce your costs. You definitely can – these two things together are very potent . I’m just trying to open your eyes to the idea that what you keep is more important than what you make.
So even though sales is the lifeblood of your business, expenses can kill it. That’s because the higher your expenses are, the more sales you need to make just to break even.
The solution? Trim unnecessary fat. And the first place to look is at your biggest expenses.
Take your office’s rent, for starters.
These days, digital presence is everything. So there’s no need to lease an expensive office. Rather, you can work from a less visible location, or even a home office.
Then, there are fees.
If you’re in a franchise group, you’re likely handing over a hefty percentage of your revenue every month. But if you switch to a group like One Agency, it’s a low set licensing fee.
Build a more reliable revenue stream
My other bit of advice is to grow your revenue – but not in the way you’re thinking.
Sales revenue can be damaged by external forces beyond your control. That’s why I urge principals to build a rent roll.
Rental revenue is much less vulnerable to outside forces, no matter what is happening in the market or economy. The other great thing about building a strong rent roll is it’s a tangible, saleable asset.
Paul Davies is the founder and CEO of One Agency, which has more than 150 businesses throughout Australasia. During his 40-plus years in the industry, Paul’s biggest single insight is: it’s not what you make, it’s what you keep that counts.
If you love what you do but want to make a change – either to keep more of what you earn, shift to a more lifestyle focused operation and reduce running costs; I invite you to contact me at One Agency and discuss confidentially how our model, (less than $1000 + GST per month regardless of your GCI) may be just the answer to breathe new life into your career and future proof yourself.
"It’s not what you make, it’s what you keep that counts."
‒ Paul Davies, Founder and CEO
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