Master the Skill of Spending Money
When you master the skill of spending money, it’s so much fun. And making money on your purchases — well, that puts you on the break-out-the-champagne level. Not to mention, you will create the business and lifestyle of your dreams.
If you’re a veteran who’s failing to increase revenue and profit at the pace you’d like, it’s time to audit yourself, be objective and open-minded, and think about taking these best practices to heart, and eventually, to the bank!
When it comes to managing a business and increasing revenue and profit, my track record is four for four companies. Here are my philosophies and best practices for budgeting, forecasting and decision making:
Audit your time, know your capacity, and look for efficiencies
Here is what you need to know:
- Which activities in your life are a need to do vs. a nice to do
- How much time you spend on every need-to-do activity in your life
- How much time you have to spend prospecting, marketing and serving clients
- How much time you spend, on average, with a buyer
- How much time you spend, on average, with a seller
- How long it takes to drive to most areas in your target market
If you don’t know these answers, then you’re driving your business blind! Figure these numbers out ASAP because then you know your capacity as a professional.
As a result, when decisions come to you where you have to invest your time and/or money, you’re able to make smarter decisions.
You won’t commit to something if you don’t have the time to execute it. Many Realtors say: “I have said yes to too many obligations that really don’t move the needle forward in my business and life.”
Furthermore, when you audit your time, you will be able to see opportunities to increase efficiencies.
Perhaps you’ll realize that your travel time is a huge hindrance on your capacity as a professional, which will motivate you to invest in products and services that allow you to build your business closer to home.
Maybe you’ll see that you’re spending too much time on social media or administrative work, and investing in an assistant or some piece of software will be totally worth it.
That, in turn, increases your capacity to prospect and serve clients, which you’re better at, a move that could result in boosted revenue.
Be conservative in your planning
Here are the metrics you should be conservative about:
- How many sales will be in your target market. First look at the sales in the last 12 months, then look at what’s projected, and take the lower number for your sales forecasting.
- Your close ratio. Think about all the meetings you’ve had with buyers and sellers, and figure out how many clients you won versus lost to competition. This doesn’t mean the deal closed; you just closed the client. Determine this number, then round down because competition is increasing, and competition affects your close ratio.
- Total sellable households = your market. Look to your MLS, USPS, or government census to see how many households there are in your market. Then, take out all rental units and add all new builds to be completed in the next 12 months. Here you will arrive at your market size: the number of sellable households you have.
- Your market’s turnover rate. Divide total sales in the last 12 months by total sellable households. This gives you the market absorption rate. Example: 500 units sold / 10,000 sellable households = 5 percent absorption. Then divide 100 by the absorption rate, and you will get your market’s turnover rate in years. Example: 100 / 5 percent = 20 years. This means that people move every 20 years.
- How many outbound calls you can make in a day. First, time block and commit to a certain number of hours per day or week to call. Then call for 30 hours, average the number out, and round down to the nearest 5. Example: If you average 12 calls an hour, round down to 10. Then multiply the number of calls you can do per hour by the number of hours you call per day, per week and per month.
- How many in-person meetings you can do in a day. First, time block and commit to a certain number of hours per day or week to meet people face to face. Make prospecting meetings 30 minutes in reality, but give yourself 45 minutes. Also factor in travel time and round up here. Then see how many meetings you can achieve per week and month.
Sales forecasting should be done from the bottom up, not top down
Top-down sales forecasting: Look at the market, decide what percentage you’re going to capture, and figure out your revenue.
Example: “1,200 sales are projected in my target market for this year. I had a 1 percent market share last year; I think I can get that to 2 percent this year, so I will do 24 deals this year.”
Bottom-down sales forecasting: Look at your level of activity for acquiring clients, factor in your skill level at acquiring clients, and figure out your revenue based real action, real numbers and real situations.
Example for relationship and referral-based agents: “I will prospect 480 people this year. My markets turnover rate is 15 years. Therefore, 32 people will move. My close ratio is 50 percent, therefore, I will get 16 deals from prospecting. I have also, on average over the last 3 years, converted 2 percent of my database into referrals. My database (of strong relationships) is 516 people, therefore, I can project 12 referrals.”
Example for lead generation-based realtors: “I get, on average, 3 leads per day. That’s 1095 per year. 50 percent are junk, 60 percent already have an agent, and I only get appointments with 75 percent of the remaining. That’s 164 appointments. Fifty percent aren’t moving in the next 12 months, and I win 33 percent of these leads. That’s 27 deals.”
Here are other numbers to be conservative on:
- How many people you convert in your database into referral generators. Average out your performance over the past 3 years, and round down to the nearest percent.
- The percentage of leads that are junk (the trend is getting worse), how many have an agent, how many you get appointments with, how many aren’t moving in the next 12 months, and how many you win.
And here are the benefits of a bottom-up sales forecasting approach with conservative data points:
- You are forecasting your revenue and your family’s income on your actions that you have more control over.
- You will more likely stay under budget/spend less for non-revenue producing purchases and therefore profit when you beat your sales forecast.
Yes, it’s harder to create big goals and big projections with the bottom-up approach.
Yes, you’re going to have to suppress your ego.
However, this will allow you to make smarter business decisions.
World class philosophies on spending money
- Don’t be cheap when it comes to physical equipment. Good equipment increases the speed and quality of performance.
- Always be frugal with meals and entertainment. Eat less. Drink more free water. You’ll be healthier and so will your bank account.
- Spend more money to maximize the events you go to, and choose to go to less events.
- Decide to go premium or value with your personal website. Don’t waste money in no man’s land. Your personal website will either be a digital brochure or the foundation for your business. Keep it basic with your bio, contact info and an IDX, or, go all in with content marketing, SEO, social media, blogging, advertising and lead generation. You’re either first or you don’t care if you’re last.
- Spend as little as possible on non-revenue producing tools (i.e., CRM, email marketing software, social media tools, etc.). Do your research because there are usually free options that will work just fine.
- Get your favorite phone! Sure, the iPhone 7 costs $1,000. Who cares — if it makes you faster, smarter, better and happier.
Revise your sales forecast and budget it every quarter
Sales forecasts and budgets should not be done once a year. They should be done once a quarter.
Today’s world moves fast and you need your strategy to adjust.
Also, by doing it quarterly, you’ll more quickly learn:
- The major levers to increase revenue
- The major levers to increase profit
You need to spend money to make money
“I’m a cold caller. I’m a door-knocker. I’m a referral-based agent. I don’t need to spend money to make money.”
Compared to people who build their business on print marketing, online advertising and lead generation, you’re right.
However, if you compare yourself to your peers who build their business the same way you do, the person who spends more money, makes more money, guaranteed.
If you’re a cold caller, spend money on your phone, headset, computer, scripts, health and list-making to do more calls.
If you’re a door-knocker, spend money on your health, shoes and car to knock on more doors. Invest in appearance and items of value to be better at door-knocking.
If you’re a referral-based agent, spend money on your current database to get more referrals. Invest in building your database to get even more referrals.
Play to your strengths
If you’re not tech-savvy, don’t use lots of technology, software and digital marketing systems to build your business.
Sixty percent of homeowners pick their agent based on relationships and referrals, so go all in with easy to use, low-tech business management systems, and build your business by talking to people through the phone and face to face.
The worst thing you can do is get sucked into space you don’t feel confident in, and waste time figuring stuff out when you can keep things simple and hustle the old-school way.
If you don’t actually like people, that’s OK. There’s lots of ways to make money in real estate. Go all in with digital marketing, lead generation, email marketing and maybe look at working with investors. The worst thing you can do is kid yourself and believe you’re personable, when you’re actually not.