4 September 2008

5 Ways to Cut Costs…and Still Profit

Posted by Nicolai Kolding

Today I was invited to speak on a panel at the RISMedia Leadership Conference.  The topic was “5 Ways Where You Can Cut Costs-and Profit.” My five suggestions were:

1)  Index Commission Plans.  This is about properly resetting the thresholds at which higher commissions are paid out so that the schedule is aligned with inflation.  This idea also works with desk fees or other fees so you should apply it there, too.  For a detailed explanation, see my indexing post from earlier this year.

2)  Control Advertising Costs.  Although this is by no means a new idea, we as an industry are still behind the curve moving our advertising from print to online.  As a broker/owner, you need to aggressively push this issue.  Every manager should analyze (a) their advertising spend as a percentage of their company dollar (and split that further to analyze various kinds of advertising spends) along with (b) the number of closings by source (print, online).  From that you can calculate your advertising cost per closing, by source.

3)  Control Paper Costs.  Whether it’s printers, copiers, or faxes, brokerages need to actively control these costs or they can run amok.  There are programs available that can help you monitor and limit copy and print usage in an effective and cost-efficient way (see Print-Limit or PaperCut).  Many will save costs by simply eliminating banner ads when web pages are printed.  For faxes, make frequent use of readily-available and commonly-used tools like eFax or myfax.

4)  Mitigate Fraud.  Most companies barely consider this a possibility but it could be a very real cost.  Some studies would suggest that up to 3{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} of all real estate brokerages have some form of internal fraud going on and the median average cost per fraud is upwards of $200,000.  A few simple steps could help safeguard your company from this very real possibility (see my fraud post from earlier this year for more on this).

5)  Reduce Space.  I have blogged about this over and over but I don’t think this can be repeated enough.  Question every last square foot of space you have and ask yourself if it is being used in the best manner possible.  Take advantage of every opportunity to reduce your footprint.  Try this exercise:  calculate what your production per square foot is (simply take your company dollar or EBITDA and divide it by your square footage) and compare it to estimates of your competitors (you can probably get very close just by looking up closed sales volume through your board, extrapolating their GCI based on your market knowledge of their rates, estimating their splits – again based on what you know – and then estimating their office size).  Although it’s an inexact measurement, you may still see something interesting when you do this.

The advantage of implementing these ideas is that they’re relatively easy and provide measurable results.  Plus, I think that positioning your company for the future includes shifting advertising dollars to online sources, eliminating faxes and excessive printing, and limiting your footprint.

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