Profit

Many agents want to know how to manage business expenses while still generating new business when facing an economic shift. In the book SHIFT: How Top Real Estate Agents Tackle Tough Times, Gary Keller outlines how to ensure profitability in any market, even a shifting one.

Planning effectively for change will help guarantee long-term success and is vital for any professional. As 2016 comes to an end and we enter a new year with new opportunities for the housing market, here are some tips to get the best results, cut expenses, find your margin of profit, and then put your money behind it!

Cut Costs and Manage Expenses: When an economic downturn occurs, cutting costs and managing expenses are key to remaining profitable and surviving in the current market conditions. If a marketing activity is not resulting in profitable returns, cease the spend and find an activity that works. If your expenses outweigh revenue, you have a deficit, and expenses must be cut immediately or the deficit could grow, resulting in a larger cut in your profit.

Which expenses should you cut? Nothing should be untouchable, and both fixed and variable expenses should be reduced or totally eliminated where they can to keep your business in the black.

Economics 101: Fixed and Variable Expenses

Fixed expenses do not fluctuate with changes in production level or sales volume. These aspects include rent, insurance, equipment leases, and depreciation. On the other hand, variable expenses respond directly and proportionately to change in activity level or volume. Some of these expenses include raw materials, sales commissions, inventory, and shipping costs. Re-budgeting is your first issue, and this includes cutting expenses quickly and effectively in order to find your margin.

Budget: Create a budget that matches your revenue, also known as re-margining your business, to ensure that market changes will have as little impact on your business as possible.

Be Financially Awake: When the market is strong, people tend to spend and invest large amounts of money, developing habits that can hurt them when a shift occurs if they don’t see the shift and make adjustments. To remain profitable in a down market, you must never violate the fundamentals of finance and be financially awake and alert. One of these fundamentals is the cost plus principle. This means that for every dollar spent, there should be a return of its original amount plus a reasonable profit.

Lead with Revenue Philosophy: You must always work from a position of profitability. If you are just getting started in the real estate business, have enough revenue so you know when profitability will begin.

Economic shifts are inevitable, but following the useful methods and tactics above to handle them when they come will differentiate those who remain financially healthy versus those that begin to amass debt. When you lead from a position of profit, your world is full of possibilities!