Brokers’ Spending Strategies Follow New Course
Brokers’ Spending Strategies Follow New Course
Thirty-seven percent of all owners who responded to NAR’s 1997 Residential Real Estate Brokerage: Income, Expense, Profit study say they’re actually losing money despite rising sales volume. That was a jump from the previous year's study, in which 23 percent of brokers were losing money.
Besides the profit squeezes everyone knows about—bigger commission shares for salespeople and rising advertising costs—brokers have been pumping a lot of money into computerization.
“Spending on technology has skyrocketed,” says Laurie Moore-Moore, editor of REAL Trends. Companies are spending to automate the office with hardware, software, and some training or consultants. However, they’re spending less on occupancy costs, she notes. “Either they’ve downsized their facility or they have less square footage per salesperson.”
Want to know where you should be allocating your precious resources? We asked three successful brokerages—a small independent, a midsize company, and a large regional operation—how they’ve kept costs in check and raised profits. Here's what they told us:
Lois Schneider, REALTORS®, Summit, N.J.
1997 sales volume: $118 million
Company size: One office, 15 salespeople
Years in business: 22
Increase in profits over past five years: 60 percent
Best profitability tips: Hire plenty of full-time support staff so that salespeople can focus on selling rather than pushing paper; don’t be afraid to ask salespeople to shoulder some of the rising costs.
Lois Schneider pampers her salespeople more than she did five years ago.
The 15 salespeople at the independent boutique, located in an upscale community about 20 miles west of Manhattan, are backed by a full-time support staff of five—a remarkably high ratio of one nonsalespersonfor every three licensees. “This might seem expensive, but it pays off in the long run,” Schneider says. “I want the salespeople to be selling and serving buyers and sellers 100 percent of the time, not pushing paper.”
Five years ago, the company employed only two support staffers—a receptionist and a bookkeeper. Today there's someone to handle the MLS-related work; a graphic artist produces the salespeople's promotional material; and another staffer coordinates the company's growing relocation business.
Freeing her salespeople from most back-office chores has improved their sales productivity. And the higher commission revenue they generate helps offset the cost of the growing nonsales staff, she says.
All training is done in-house. The company is too small to justify the cost of hiring a full-time trainer, so Schneider periodically calls in various types of experts—lawyers, asbestos-removal companies, home inspectors, and the like—to share their knowledge.
Schneider pays for half the cost of the salespeople's training. And last year the company instituted a transaction fee whereby the first 2 percent of each commission goes into a fund that helps defray the brokerage's ever rising operating costs.
“The salespeople didn’t complain when we started charging the transaction fee,” Schneider says. “They figure it’s a small price to pay for having all this support and advertising. And the additional sales they make more than offset the fee.”
The Daniel Gayle Agency, Huntington, N.Y.
1997 sales volume: $675 million
Company size: 13 offices, 275 salespeople
Increase in profits over past five years: 65 percent
Best profitability tips: Combine your offices’ spending clout to gain concessions from suppliers; hire a technology specialist to maximize your computer capabilities.
Pat Peterson, president and co-owner of The Daniel Gayle Agency, has recently begun using the collective buying clout of her 13 offices to cut better deals with suppliers and contractors.
For example, individual offices used to choose their own vendors for office supplies. Now all supplies are ordered by the company's headquarters from a consolidated list of vendors that provide Daniel Gayle with bulk discounts. “It’s saving us tens of thousands of dollars a year and lets us keep much better control over our inventory,” says Peterson, adding that switching telephone services two years ago has saved an additional $10,000 annually.
And the company provides financial incentives to employees and salespeople who can figure out new ways to save money.
“If you make a cost-saving suggestion and we adopt it, you get 10 percent of the company's savings,” Peterson explains. “That’s a nice little bonus, especially if you're a support staffer on a fixed salary.”
In addition, with 275 salespeople and nearly $700 million in annual sales, Peterson admits that she can no longer handle the bulk of the company's hiring decisions and other administrative duties. So she has added both a recruitment director and a chief financial officer to her payroll over the past few years.
Peterson and some of her managers also recently approached the six magazines and newspapers the company uses to publicize its listings to ask for price reductions. “We didn’t threaten to pull our advertising, but we certainly let them know how much we’ve been spending with them and that other publications were available,” she says. The result: Four of the six cut their prices or offered other concessions, with one of them providing savings that work out to about $20,000 a year.
Like many other brokers, Peterson has seen the cost of keeping her company on the cutting edge of technology soar in the past few years. The computer network includes an E-mail system that allows each salesperson to transmit information about new listings instantly to all the other Daniel Gayle salespeople in other offices—an important competitive edge, especially because many clients give the company a seven-day window to market their property in-house before taking it to the local MLS. The MLS itself often needs up to 72 hours before a new listing is posted.
Peterson has also taken the unusual step of hiring a full-time technology director to train the salespeople. “I figure that if we’re going to spend all this money on computers, we ought to make sure the hardware and the software run properly and all the salespeople know how to maximize the equipment's capabilities,” she says.
“The idea that midsize companies can’t do well in today’s marketplace is dead wrong,” says Peterson of the trend toward large or small real estate companies. “They just have to work a little harder to flourish.”
Coldwell Banker-Success, Phoenix
1997 sales volume: $2 billion
Company size: 18 offices, 1,100 salespeople
Increase in profits over past five years: 300 percent (including income from several recent company acquisitions)
Best profitability tips: Don't overspend on computers; maximize your telephone system; review your advertising strategy—there may be something you can stop doing.
Bob McCord, owner and president of Coldwell Banker-Success, is a relative newcomer to the real estate industry. Before buying the company in 1992, he had spent 20 years as a tax partner with consulting and accounting giant Arthur Andersen LLC.
“What I've found is that broker-owners are very good at marketing and selling,” McCord says, “but not all of them are particularly good at running a business, especially when it comes to accounting and figuring out how to best spend their company's money.”
For example, many salespeople and broker-owners “have gotten carried away” and spent too much to constantly upgrade their company's computer hardware and software.
“It doesn’t make sense to spend a lot of money just so that you can have the latest bells and whistles,” McCord explains. “Constant upgrades cost a lot more than the price of the system itself: Take into account the time and cost of retraining your employees. Every hour they spend in a computer class—or trying to figure out the system on their own—translates into one less hour of making money.”
Instead, his company buys equipment when new salespeople come in, and pass older, slower technology to staff who don’t need as much power.
In fact, he says, much of the money the company had earmarked for technology over the past few years has been spent on improving its telephone system rather than its computers. Prospective buyers who call Coldwell Banker-Success can now use their push-button phone to obtain detailed information about any of the company's hundreds of listings and then connect directly to the listing salesperson.
“We actually get a lot of calls from people using their cell phones,” McCord says. “They pull up to a house that has our sign in the yard and call in to the automated system for more information. It’s a lot faster and more effective than hoping they’ll go home, turn on their computer, get on the Internet, and visit our Web site.”
Like many other broker-owners, McCord is spending more for in-house training on everything from effective use of the company's technological equipment to new marketing techniques and recent legal developments. The company employs two full-time trainers: “With 1,100 salespeople, it’s much more cost-effective for us to offer in-house training instead of sending our salespeople to outside classes,” he says, adding that salespeople pay $40 for each three-hour course they attend.
To save money, the company recently quit advertising in local newspapers and began publishing its own monthly magazine to showcase listings. The sleek-looking magazine, Southwest Living, is distributed free through hundreds of news racks in the Phoenix area.
“We were tired of [newspaper] ad rates going up every year, especially because the vast majority of subscribers aren’t looking to buy or sell a home,” McCord explains. “The magazine is a much more effective marketing tool because it reaches a more targeted audience. You're not going to pick it up and thumb through it unless you're at least thinking of buying or selling a home. And since the ads feature only our own listings, they’re not competing with ads purchased by our competitors.”
Brokers’ Share of Commission*
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7Ways to Shore Up Eroding Profits
Here are seven things you can do to stem the tide:
- Beef up your support staff. Although it’s costly, it'll pay off in the long run if it allows salespeople to spend more time selling instead of doing paperwork.
- Don't go overboard on technology. There's no reason to upgrade computer hardware and software constantly; teaching salespeople how to use the new equipment is costly and time-consuming.
- Reexamine your advertising strategy. It may make sense to stop using newspapers and switch to monthly publications aimed directly at buyers and sellers.
- Ask salespeople to share part of the rising operating costs. Instituting a transaction fee or other surcharge will be easier if you are willing to open your books to salespeople for inspection or can explain how the money will be used for the company's and their benefit.
- Shop for the best insurance rates. Premiums for E&O coverage and other types of insurance vary widely, sometimes by as much as 50 percent. If you haven't shopped for a better deal in at least a year, do it now.
- Minimize your space requirements. Leasing or buying additional space is an expensive proposition. There's no reason to have unusually spacious or fancy digs, because good salespeople spend most of their time out of the office.
- Tie nonsales staff's compensation to performance. A growing number of companies are offering bonuses to managers and support staff based on the company's overall profitability. They say this system fosters teamwork—a clerk has more incentive to process a salesperson's paperwork quickly—and rewards those who go the extra mile.
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