Eview Chief Executive Officer Manos Findikakis explains why increased volume doesn’t automatically create higher profit, with many other business elements required for success.
The quote “volume is vanity, profit is sanity” is one of my favourites, as I first came across it in early in my entrepreneurial career and it has stayed with me ever since.
It has guided me to make the right strategic decisions in each of our businesses at startup, growth and exit phases.
When you understand the concept and apply the correct formula, it provides you with a solid framework and blueprint to achieve your business, profit and lifestyle goals.
The statement “volume is vanity, profit is sanity” very much applies in real estate, equally in sales and property management.
As an industry, we celebrate success and achievement as a measure of Gross Commission Income (GCI) and the number of property managements on our books.
Most make the assumption that the higher the volume, the more success you will likely enjoy. Profit, heaven forbid, is rarely, if ever, spoken about.
The reality is, more often than not, the increased volume does not necessarily and automatically translate to increased profits.
Running a real estate operation has high, if not very high, gross profit margins.
However expenditure, if not kept in check, can dramatically eat into those margins and result in reduced, and at times negative, profit.
To find balance in the volume profit equation each business owner must identify the ‘profit centres’ within each business.
For example, in a traditional agency setup, the three main profit centre’s include:
The business owner/selling principal
The principal’s capacity to generate sales. This is the highest profit generator.
When in the startup phase, nothing compares to the significant and immediate profit that selling principals can achieve.
The sales team
Building a sales team is extremely rewarding but definitely not easy. It’s something aspiring business owners quickly come to realise.
When it comes to business strategy, every salesperson is and should be viewed as a profit centre. Not in direct reference to splits, but rather in gross profit contribution.
Outside of cultural fit, principals should not take a ‘one size fits all’ approach and need to make allowances for the gross profit each agent contributes to the business and overall profit.
The property management division
I love rent rolls. They can be the financial backbone of the agency practice.
The benefits of recurring income is significant, but its value must be measured against the investment of resources and, more importantly, time and effort.
In the early stages, there is little to no profit in a small rent roll and it can become a distraction that will impact profit.
We advise and encourage new starts to place their rent roll aspirations on hold for at least six to 12 months and allow for a complete focus on generating immediate and significant revenue via property sales.
Use the opportunity to build cash reserves and thereafter invest in acquiring and/or building a rent roll.
A further benefit of applying the ‘vanity vs sanity’ strategy is that of winning back time.
When a business owner takes a pragmatic point of view on owning a business, that is, they are in business to make money, but not be a slave to the business, a number of things will happen.
There is an increased focus on efficiency, an increased focus on working with the ‘right’ clients and an increased focus on protecting and reducing the investment of the principals’ time away from their families.
It’s finding and creating that perfect balance between profit, time and not allowing ego to get in the way of the journey.
Wanting to be at the top of the leaderboard is admirable, but it should not be at the expense of the extraordinary lifestyle that real estate business ownership can and does provide.
Wishing you every success in your real estate career.