Running Your Own Business Part 3 - Costs

In the previous column, we discussed maintaining and improving production. This week, let's take a look at the second principle - Controlling Costs - in order to obtain a solid bottom line of profitability.

PRINCIPLE 2 - Controlling Costs

Controlling costs is not an easy exercise, especially when the costs of services keep increasing. It is not a temporary inconvenience but rather, a permanent, built-in discipline.

First, we have to differentiate between controllable and uncontrollable expenses.

Uncontrollable expenses, or fixed costs, are a known factor, appear on a recurring, regular basis and are an unavoidable cost of doing business. They do not represent the same challenge as do the controllable expenses.

For a real estate Agent, controllable costs include advertising, promotions, donations, supplies, entertainment and communications. Of these, the most significant cost is usually advertising. So let's give advertising some special attention.

There are basically two parts to advertising:

  A. Advertising the product (i.e. the listing)
  B. Advertising yourself and your services, sometimes known as "Image" advertising.

Advertising the Listing

When you list a property, your client will expect that you give their property adequate market exposure. In actual fact, true market value can only be established after "adequate exposure" to potential buyers. Exposure is another word for advertising. A prudent seller will want to know how you intend to attract buyers to their home. The commission rate you suggest will influence their marketing expectations. It's not reasonable to offer top marketing at a reduced commission, nor is it equitable to expect a handsome reward and not provide a detailed marketing plan, preferably in writing. A marketing plan should include how you plan to reach the local market as well as the extended market. Since the buyer may not be a local person, you will need to establish the effectiveness of your referral service and Internet presence as an integral part of bringing buyers to you. The degree to which you can demonstrate value for money with a good marketing presentation will influence your revenue and enhance your bottom line by enabling you to justify a good mark up. The advantage of a good Internet presence with a well posted website is that the extended market can be reached at greatly reduced cost. However, you do need to be able to demonstrate to your client how your plan will work for them, in order for them to appreciate its significance. Your local advertising costs can be reduced once the client is aware of the bigger picture.

Promotional or "Image" Advertising

I am often surprised at the amount of personal advertising that is done by Agents. It sometimes seems as if more importance is attached to building an image than to marketing the actual product itself. Clients sometimes wonder why the picture of the Agent is so large and the picture of the property is so small! I sometimes suspect that image advertising is more a matter of "keeping up with the Jones" and maintaining a presence in the real estate community rather than to impress and attract clients. Image advertising is important where you are trying to impress strangers and you are building your business. It is a possible indication that you have not "arrived" yet. You see, once you have established your client base you no longer need to impress with your image. They already know you, like you and trust you. To escape the high cost image trap, focus on a sphere of influence and build it as quickly as possible and advertising directly to them. Prospecting should be for your sphere of influence rather than for buyers and sellers. Listing and sales should be a product of your sphere of influence and not in the reverse order. Once any business has established goodwill their clients do the advertising for them. This approach can significantly reduce your advertising costs.

Next time we will look at the "Goodwill" factor in profitability.

Good, and less expensive, marketing to you!

Coach

Next week: Part 4 - Building Your Client Base