If you are like most real estate professionals, you are laser-focused on obtaining clients and navigating them through a difficult transaction process. But I want to encourage you to go a bit deeper than that.
You have a general understanding of the growth trajectory of your business. You did $150,000 is real estate sales last year, and this year you are on track for $200,000. That’s great, right? But do you know the trends within those numbers? How many clients led to those sales figures? Do you know what your expenses were for the year? What was your revenue or cost per client transaction?
If you take a deeper dive into those numbers, you might find some really interesting data that will help guide you to a more profitable business. Because at the end of the day, you are not just a real estate professional, you are an entrepreneur running a business!
Break Down Your Total Home Sales By Category
This isn’t a surprise, but most real estate professionals are not taking advantage of it. There are more than 2 types of sales transactions for real estate agents! Your profit and loss statement should include multiple revenue streams beyond home seller commissions and home buyer commissions. Even, if you are not using any other sales channel, I want to encourage you to begin looking at other ways to get you to your annual sales goal. Here are the categories I want you to include:
· Home Buyer Commissions/Revenue
· Home Seller Commissions/Revenue
· Referral Commissions/Revenue (Referring to out of market real estate agents)
· Consulting Commissions/Revenue (consulting for FSBO or situational specific advice)
· Total Revenue (From all of the above sources)
· COGS (Cost of goods sold- A.K.A. broker fees subtracted out)
Break Down Your Expenses By Category:
This list of expenses isn’t an all inclusive list of categories and receipts that you give your accountant at tax time, but rather broad categories. If you operate a QuickBooks account or have a bookkeeper, this should be relatively easy to break down. These figures are very important to determine your profitability as a company. And also profitability by client.
· Direct Expenses (What you pay yourself)
· Indirect Expenses (Overhead, marketing, gifts, lunch meetings, etc.)
· Total Expenses
Amount of Clients You Are Actively Working With YTD
Remember, you are not just a real estate professional, but you are an entrepreneur running a business. It’s important that you not just consider your total sales commissions, but how much that equates to revenue per client, after expenses. Even if those expenses are not directly related to each individual client, it’s still an expense to your business operations.
Now you understand what your total revenue and expense per client is by dividing each respective number by total clients.
· Total Clients (active clients looking to buy, sell, consult, or refer)
Tracking Your Lifestyle By Total Number of Days Taken Off
You’re joking right? You’re thinking, “I’m a real estate agent, I can’t take days off!”. But I’m not joking and if you really wanted to, you could take some days off. Because at the end of the day, you are a business. It’s not only important to recharge and take time for yourself, but it’s also important to realize what your time is worth.
With a well-informed, data-driven profit and loss statement, you can know exactly how much you make per day and per hour. This is a really great exercise to perform. It might not be pretty, but I promise you, it will be eye-opening! And once you get it, well, only growth can come from there.
Bringing It All Together:
Let this article serve to motivate you to think like a business. You may already have a profit and loss statement. You may not. But I want to encourage you to look further into the numbers to drive future growth. Once you know where you are coming from, you can pursue where you want to go.
If you want some help getting your business on track, I’m here to help. I help real estate professionals across the country pursue a better financial future, both professionally and personally!
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.