Real Estate Agent Profitability

Let’s simplify down to the five numbers you need to know to build a profitable real estate business.

Background in Real Estate

As a former high-producing agent and team leader from Minnesota, Andy Mulholland is a prime example of what it looks like to have a great business and struggle with profitability. By his experience, he was “office rich and home broke”. He had a Real Estate business that had him on stage at speaking engagements, but left him frustrated at home. With a small team of two agents and two admin employees, he was selling over 100 homes per year, yet going backward $200k each year. 

What he learned will turn Real Estate salespeople into Real Estate Business Owners, and our goal as always is to help you create a business and a life of success and significance! 

Common Mistakes Real Estate Agents Make

How do you feel about your financial statement? Most Real Estate Agents don’t track numbers at all, or at minimum keep track for purpose of decreasing tax liability. In reality, your “books” are a report card for the health of your business! If you find yourself frustrated by overly complicated statements, consider simplifying your tracking to the five numbers that follow. 

Simple Number One: True Total Revenue 

Commonly, Real Estate Agents and CPAs alike consider revenue to be the total amount of income remaining after paying the brokerage. This is the first place to consider a shift in your mindset to gear toward better profitability: track your top-line revenue before paying anyone out.

Brokerages and partners bring value, and we need to consider what that value costs as part of the cost of a healthy business. 

Additionally, you’ll want to separate from this number any income from profit-sharing or revenue-sharing programs within the brokerage. Depending on the size of your team and the profit-share you have for your business you may need separate books, but at least itemize it as “other income”, and shouldn’t be factored into the health of your business. 

Simple Number 2: Cost of Goods Sold

Going back to the numbers you factored into total revenue above, now consider the “cost of goods sold”, also known as the cost of services provided, or the costs paid out to broker splits and fees (may also include sales agent, showing agent, etc). If this number is too high, it can be difficult to have enough left over to live life on.

Simple Number 3: Gross Profit

This is the typical starting place, as described in Simple Number 1. This is the amount you get when you take total revenue minus the cost of goods sold. This could also be called “Real Revenue”. 

Simple Number 4: Operating Expenses

1. Lead generation and marketing
2. People expenses (staff, showing agent, etc)
3. Overhead (anything else you spend money on)

Simple Number 5: Net Profit 

If you know these numbers and have kept them simple enough to track and understand, you will have a net that funds the life you desire. You’ll first want to have a clear vision of that life, and use these numbers to review your trajectory each month, quarter and year. 

There are industry norms and recommendations for how to split up the numbers across a healthy business, but the key is to get clear on the model you want to build. Create a clear vision of the life you want, and choose the model that is consistent with that outcome. For example, Andy’s vision was total freedom on the foundation of his spiritual life, and he chose to operate on a model that supports ⅓ of his business in each category: cost of goods, expenses and profit. Having “30-35% net profit, selling 0 houses personally gives him and his family true total freedom”. 

His advice to us: always challenge the status quo! Let us help you by reaching out or using the related resource links below or go to his website directly at: Simple-Numbers.com

Go PROFIT bigger!