Inman

Why focusing on profitability is the wrong approach

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This article is a follow up to reading Kelly’s Hager’s great article on profitability.

I highly recommend reading it because you’ll learn (or be reminded) that:

  • Focusing on the process, instead of the outcome, is beneficial toward reaching your goal.
  • The work you do today sets up your career and income in the future.
  • If you want to reach a goal, you must think backward and reverse engineer how to get there.
  • Good strategic planning takes time.

Now, as an entrepreneur who’s built three profitable brands, I see two errors that are common among many business owners and professionals, not just real estate agents.

First, you do not make more money by spending less. You might keep more money by spending less, but you absolutely do not make more.

This is slightly semantic — however, if you are saying this in your mind, you are feeding yourself a wrong message. Therefore, I won’t go into detail on this concept.

Second, and this was a key learning I had in all three of my businesses: Profit is not always the most important metric. In fact, you should have zero profit sometimes.

[Tweet “Profit is not always the most important metric. In fact, you should have zero profit sometimes.”]

Now, profitability will eventually be the most critical number for your business. However, there are three times when it’s not:

  1. When you’re starting out in real estate
  2. When you have no pipeline of future deals
  3. When the market is bad

So what is the most critical number? Top line revenue (a.k.a. gross commission income).

Why? When you’re starting out, top line revenue sets you up for success and profitability in the future.

This is the first thing they teach you at 500 startups — the No. 1 accelerator in the world that’s produced three unicorns (billion dollar companies), 50 centaurs ($100 millon-plus companies), and 300 multi-million dollar companies.

How does this relate to real estate?

  1. More revenue equals more clients, which equals more repeat and referral business in the future.
  2. To grow your revenue quickly, you need to grow your network and sphere of influence quickly. And this network and sphere of influence will allow you to serve your clients better, which increases repeat and referral business. These networks and sphere of influence will also help you weather the storms that come with a down market.
  3. Speed is power, and it’s not an ego thing. Speed is a profitability thing. When you take massive action and get more deals, your confidence goes up and your abilities to prospect, follow up and close will go up. When you consistently take massive action, people notice, and your brand becomes associated with words like excellence, hard work and reliability. And this all leads to the most profit-producing thought in a homeowner’s mind — trust.

[Tweet ” More revenue = more clients = more repeats and referrals in the future.”]

Growing your revenue is not an ego thing, it is a profitability thing

Speed will kill your fears of competition or market dynamics. Speed will create success, and success breeds more success.

And who needs to have success?

  1. New real estate agents
  2. Agents in a slump
  3. Agents in a down market

[Tweet “Speed creates your story, and your story is crucial for your success.”]

Business is not a marathon. Whoever has said that to you lied or is very confused. Business is a series of sprints.

Today, the best marathoners in the world sprint to get better at the marathon. They don’t just run lots of marathons. The best marathoners in the world figured out that lifting heavy weight in powerful bursts increased their race pace.

Endurance is not the problem in real estate. It’s being in the top 5 percent to have a career and lifestyle that you and your family can benefit from.

So, if you’re in either of those three situations above, don’t listen to the agent whose gross commission income (GCI) is over six figures — because he or she does need to focus on profitability.

In fact, here is the strategy.

Focus on top line revenue until you reach at least half of your GCI goal, if not 75 percent or 100 percent.

Then switch to focusing on profitability.

Because those are the two goals in business: revenue or profit.

In the end, it is how much money you keep, not how much money you make. However, to reach your profit goal, you need to focus on revenue first.

[Tweet “Focus on top line revenue til you reach at least 50% of your GCI, then focus on profitability.”]

Grant Findlay-Shirras is the CEO of Parkbench.com and the Local Leader Real Estate Marketing System. Follow Grant on Instagram and Twitter @GrantFSofficial.

Email Grant Findlay-Shirras.