Gross Commission is booming but what about your Gross Profit?

The impact of aggressive recruitment and tough market conditions over the last 4 years, culminating in the Covid lock down, has been highlighted by the Gross Margin (Income less Cost of Sales)/Income ) of the Sales Divisions dropping from 35% to 30% from the previous normalised levels in capital city markets. This has a big impact on ongoing profitability, and it has never been a better time to be an Agent.

You would know this if you have been trying to recruit at pre 2017 commission package levels, where you will find Agents have not been joining, you would have to add at least 5% to your older packages.

In this booming market this simple fact means that for good businesses, with high performing Agents, the profit in dollar terms is okay, but in percentage terms gross profit has dropped by 5%.

Some would ask, so what? Well in short, this is the whole point of business, protecting margin, and now in a booming market, margin loss has been hidden by Sales Volumes, however experience says enjoy it while it lasts, but be ready for the return of the normal market conditions, and when that happens the lower sales and higher cost of sales payouts could cause a dramatic turn down in profit.

So how do business Owners manage this? Well, it is not a simple answer, it is a balance of several. These include:

  • The number of Agents you employ.
  • The mix of average to high performers you have in your business performing.
  • Cost management of the expenses you provide for Agents on-top of their commissions.
  • Clever use of technology and outsourcing, to lower the cost of your transactions.
  • Other income streams, that you can generate from the deals your business have sold.

You will notice that I have not recommended Principal sales to help fund the profitability, this is because I believe that has happened for too long. The industry is full of Principal selling businesses where the Owners do not get paid their market rate as an Agent, and it is this subsidisation of loss leading Agents, then paying high percentages to their good Agents that causes the downward spiral for Owners, when action to correct it is the answer. This is the test of business leadership.

You can do something about this now, by doing a business financial health check and assessing what would your business look like if turnover dropped 10%, or what strategies you can implement to grow your business beyond it is current performance.

This is not the first time the markets have surged, I recall 2002/03 and 2011/12 but this lift is the first one since the rise of technology enabling platforms and social media, that allow individuals to think they are the whole story. When it gets tougher, well led businesses who have engaged and challenged their teams to be ready for all conditions will show their strength, but for those who are riding along they may not have the profit they thought they once did.

 

Which business do you want to be?

 

Live Business Coaching Interview Michael Murray

Michael has recently concluded a remarkably successful seven-year tenure with McGrath Estate Agents. His pivotal role in orchestrating the most prosperous era in the company’s history stands as a testament to his contributions. In his final three years at McGrath, Michael ascended to the position of Head of Sales, overseeing the operations of McGrath’s 27 company-owned offices.

Currently, Michael is embarking on a new phase of his career, delving into high performance coaching in collaboration with Chris Mercer and the Live Group. This new chapter is part of the Live Group’s distinctive real estate profit insights tool, REAP Dashboard, focusing on harnessing exclusive industry performance data and analytics. Michael is using this tool to pinpoint avenues for revenue growth and profit preservation. Drawing from his diverse background as an agent, sales manager, and Principal, Michael brings a proven track record, which will equip you with the right tools, tactics, and strategies to propel you towards your performance targets.

Michael eagerly anticipates sharing his extensive insights with a wider audience within the real estate sector. Throughout his professional journey, Michael has closely collaborated with foremost trainers and coaches in the industry, personally mentoring some of Australia’s most accomplished agents and their team. His wealth of experience and unwavering enthusiasm converge in his upcoming endeavours. 

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