OutFront article by: Ruben Gonzalez, Keller Williams Realty Staff Economist
With the market hitting highs in 2016 and potentially moving toward a peak, questions have been coming up about what agents should do when the market slows down and, specifically, how to manage expenses. To help with this important conversation, I interviewed Garrett Lenderman, lead writer and researcher of KW Publishing.
Lenderman, who works directly with Jay Papasan and Gary Keller, has spent a lot of time studying the Budget Model as well as the accounting and spending habits of agents to provide some insight for others on how they can manage expenses and increase profits, even in a shift.
Gonzalez: I want to talk about how agents should manage their budgets during shifts. But first, I want to start just by asking you, what is the single biggest observation you have had while looking at agent budgets?
Lenderman: The biggest observation I’ve had is that agents need to stay committed to having a budget and maintaining a P&L. Not many agents enjoy looking at numbers, and who can blame them? It’s important for agents to keep score and take into account things like their ROI when making decisions about spending money. Doing so creates accountability and is a diagnostic tool because it’s difficult to continually make smart decisions when you go with your gut.
One tool recently introduced to KW associates to help them with this process is the Profit Dash app. Profit Dash offers agents holistic finance management using KW’s exclusive listing and transmittal data right from their phone. It helps make managing expenses easier.
Gonzalez: On to the topic of shifts, what do you think are the things agents need to watch out for if they are headed into a slower market?
Lenderman: The first place I’d start with are expenses that sit below the line, and by that I mean expenses that aren’t necessary to the operation of your business. It’s tempting to treat your business as a personal account, but it’s important to separate that from your business expenses. If you do a good job of that already, the next place I’d look are expenses that aren’t vital for generating revenue. It’s easy, especially when things are going well, to take on extra expenses that aren’t directly driving revenue. But in a hard shift, those expenses can take you underwater.
It’s also important that you don’t make decisions you can’t outlast if things take a turn for the worst. This means either building up reserves that will prop you up in a shift or taking a good look at the affordability of long-term fixed expenses – especially those that would impact lead generation. When revenue starts to drop, you want to have minimal commitment to fixed expenses.
Gonzalez: What about teams? Are there some specific things that could get a team in trouble when things start to slow down?
Lenderman: The same rules apply for teams. However, I would say one of the biggest issues for teams now is their cost of sales. When things are booming and competitive, it can be a challenge to keep splits and salaries in check, but those are things that could make or break a team and will be a lot harder to negotiate down than it will be to keep them in line. Make sure you are making decisions that your business can survive when things get more difficult.
Gonzalez: Any final thoughts?
Lenderman: Watch out for shiny objects. It’s really easy when things are going well to start spending money on cool new systems, apps, fashionable furniture, sleek logos and watercoolers, but you need to really make investments that give you back multiple dollars in return. Hold your money accountable and have specific goals set for your investments. If you aren’t getting the return you want on something, cut the cord.
By: Ruben Gonzalez, Keller Williams Realty Staff Economist