Advisory Board
Whenever I speak at real estate events, I’m always asked what profit I think a real estate business should be making. Now, anyone who has heard me talk will know my answer to that is… “it depends”! It depends on so much; the business model, the stage in the business life cycle, the size of the rent roll, the location and so on.
What I do like to share though, is what I see the standout businesses doing differently.
Below are the top 10 things I believe thriving real estate businesses are doing.
As you read along, consider: how do you compare? Download this worksheet to score your business and identify the areas that need your focus.
1. large rent roll compared to costs [to reduce risk + fixed costs]
How much of your income is from your rent roll? How much of that income is eaten up by fixed costs? The higher your rent roll relative to your costs, the more stable your business is. More rent roll means less reliance on fluctuating sales and a more predictable income.
I like to focus attention on this item through the calculation of a breakeven point for the business, after assuming the fixed income from the rent roll is offset against the fixed costs. Others in the industry like Macquarie Bank, benchmark the Fixed Costs Coverage Ratio. Both do a great job of focusing attention on the relative risk in the business.
2. know your numbers + look at them [to make better decisions]
Do you know your numbers inside and out? From GCI to expenses and profit margins – if you’re not looking at the numbers regularly, you’re missing out on critical insights. Knowing your business is the key to making informed decisions.
A starting point for all real estate businesses is to be able to calculate your operating profit by division. I always work on 4 divisions:
- Sales
- Property Management
- Principals
- Admin / Shared Services / Common Costs
Whether your accounts are set up to calculate your divisional profit automatically each month or if it’s a manual exercise you do on a quarterly basis, just make sure you know your number and the true drivers of performance. Always remember:
sales are vanity, profit is sanity, cash is reality.
3. minimal fixed costs per person [the value of 1 more person and the impact of 1 less]
Do you have lean, efficient systems in place or are you bloated with fixed costs that are draining your resources? Focusing on reducing fixed costs per person not only helps control overall expenses but also highlights the value each additional team member brings in spreading those costs. However, that person must be producing something of value – simply being present isn’t enough. So, don’t forget to also ask yourself, ‘what if they were not here?’
I think one of the most important things in a sales business that’s rarely spoken about is the staff mix. Segment your sales team into 3 bands of performance and consider who is contributing what by way of profit. Or as I like to put it, who are the Gorillas, the Chimps and the Monkeys.
Read more on the staff mix here.
4. a culture that does not tolerate waste [efficiency is a constant focus]
Waste in time, money or resources is a killer for any business. A culture that doesn’t tolerate waste fosters efficiency, accountability and continuous improvement, helping your business stay lean and productive.
‘Waste’ is such a negative word isn’t it?! When I talk about waste I always refer to the Toyota 7 Deadly Wastes model where it identifies waste in 7 different categories.
Waste can get out of control with a thousand cuts… so create a culture that doesn’t let those cuts happen in the first place. To learn more about the importance of eliminating these from your business download our free ebook: 7 deadly wastes in a business.
5. everyone contributes [they have the accountability discussions]
Does every team member know what they need to do to contribute to the overall success of the business? If someone is not pulling their weight, it means someone else has to work that bit harder to first cover those not contributing, before actually making a contribution to profits. Or, as I like to put it, no one is sleeping on the couch [and drinking your beer] while everyone else is working hard.
Start by using the ‘Raising the Bar of Average’ tool on any of the metrics within your business.
Remember, with all accountability discussions, it’s not about micromanaging; it’s about setting clear expectations and not avoiding the hard discussions.
6. cash already put aside for rainy days [or can access it quickly]
Are you financially prepared for downturns or unexpected expenses? Having a solid cash buffer [or easy access to it] is a key indicator of business health. It ensures that you can weather tough times without panicking – because we all know the property market works in cycles.
When a Principal knows they have some cash in reserve, it means they can make the right decision at the right time, not because of the fear factor associated with the hard decisions. The best example of this is when a ‘gorilla’ in the office may be producing the most income but harming team culture. If you know you will survive, you can make the tough call sooner.
7. technology embraced for leverage [change welcomed]
How well is your business leveraging technology to improve productivity and profitability? If you’re resistant to change, it can slow down growth. Businesses that embrace the right technology can automate, scale, and deliver better customer experiences.
Often one of the best things to come out of implementing new technologies is the outcomes of reviewing the process involved in associated tasks. How often do you sit back and review the process of specific tasks and ask your team how that could be done better?
One of my favourite tools to handle the change process is the ‘change readiness tool’ produced by Mindshop where it talks about the 5 factors necessary for a business to be change ready.
8. awesome communication with everyone [in and out of the business]
Clear + open communication is the foundation of a healthy team and satisfied clients. Do you have transparent communication channels both internally and externally? Strong communication keeps everyone aligned and moving in the right direction.
It never ceases to amaze me how much better a business seems to work when there’s good communication internally and externally around what is going on. Just like Jim Collins says in Good to Great, you need:
everyone on the bus,
everyone facing the front,
somewhere to drive,
someone at the wheel.
9. clarity of point of difference [why people choose to do business with you]
Knowing your point of difference should guide pretty much all decisions you make in your business. Does it support your point of difference or sustainable competitive advantage?
Do you even know what makes your business stand out? In real estate businesses, I find that it often links to the values of the Principal/s behind the business – and there’s nothing wrong with that! Do you have a niche focus? Or maybe you have something that you can naturally do better than others in the market. A strong point of difference helps you attract and retain clients and team members.
10. multiple energised principals + strong leaders [able to guide the team through change]
Do you have a leadership team that is energised, engaged, and capable of driving change? Strong leadership is essential for navigating challenges and leading your team toward future success.
In real estate, the property management business is very different to the sales business – it requires different skillsets and maybe even a different approach. Having multiple Principals is one way to split the required focus across different people, often 1 on PM /Operations and 1 on Sales. This is why I believe we have so many great husband/wife real estate businesses!
How close are you to 100 out of 100 on the Thriving Business Score? If you’re scoring high, you’re on track for sustained success. If you’re falling short, don’t worry – use these factors as a guide to improve your performance. Regularly reassess your business to ensure you’re consistently moving forward.
not sure where you are going?
Or, if you know where you want to go, but aren’t sure how to get there, reach out to me or your usual contact at businessDEPOT to discuss how they can help!
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