In the fast-paced world of real estate brokerage, the pursuit of profitability can be a daunting challenge. It’s a field where many aspire to make their mark, but not everyone succeeds. However, Wayne Einhorn, the President of Inner Circle Broker Coaching, has dedicated his three decades of experience to unlocking the secrets of brokerage profitability.
Einhorn shares a piece of wisdom he received from a seasoned broker when he was just starting out. The advice was simple yet profound: “If you want to make a small fortune in this business, start with a big one.” These words encapsulate the challenges many brokers face in the pursuit of profitability. However, Wayne Einhorn’s journey is a testament to the possibility of achieving financial stability in the world of real estate brokerage.
A Revolutionary Approach to Brokerage Profitability
Historically, there hasn’t been a widely known secret sauce for making money in the real estate brokerage business. Training programs have often lacked a focus on the fundamentals of profitability – until now. Inner Circle Broker Coaching introduces a revolutionary way to think about your real estate brokerage business: the seven core competencies.
One of these core competencies, aptly named “Business Model,” is the key to ensuring continuous and consistent profitability, regardless of market conditions. At its core, profitability in the brokerage business boils down to producing an in-demand service for less money than it costs to deliver. However, the real challenge lies in determining your target profit and understanding how to allocate your resources effectively.
Thinking in Percentages
We encourage brokers to shift their perspective from thinking about profit as a whole number to considering it as a percentage of their company’s revenue. His goal is clear: aim for a 25% return on every dollar your company collects. This approach allows you to determine how much remains to be invested in your expenses, as each expense should contribute to delivering that target return.
The Expense Buckets
To illustrate this concept further, lets discuss the idea of “expense buckets.” Each expense line represents a bucket that must be filled with a certain percentage of the company’s revenue. For instance, in a typical real estate brokerage model aiming for a 25% profit margin, the “premises” expense bucket should receive 24 to 27% of the company’s revenue. This includes costs like rent, utilities, and cleaning services. Understanding how much money should be allocated to each expense bucket is a crucial step in achieving profitability. It ensures that you’re investing in the right areas to maximize your return.
The Biggest Expense: Wages and Salary
Wages and salaries represent the largest expense for most brokerages, accounting for 26 to 31% of company revenue. It’s vital to understand the importance of investing this money wisely to drive profitability. Effective recruiting and retention efforts play a pivotal role in agent growth and productivity, further contributing to the desired profit margins.
Forecasting for Success
One of the most empowering tools in the pursuit of profitability is understanding your business model. By being able to forecast cash for every month of the year, you become a more effective broker-owner. To aid in this, Inner Circle Broker Coaching offers a suite of tools within REBOS, enabling brokers to quickly and easily forecast profit and monthly cash flow. These tools not only help you understand how to drive profitability but also provide insights into revenue, expenses, and profit forecasting.
Take the First Step
By shifting your perspective to think in percentages, understanding the allocation of expenses, and using forecasting tools, you can pave the way to sustainable profitability. Don’t miss the opportunity to unlock the full potential of your real estate brokerage.