There are two sides of the coin in managing Profit. The sales side of the coin and the financial operations side of the coin. Both sides of the coin need to be addressed to create a profitable business. The problem has always been that we focus too much of our attention on the sales side of the coin and not enough on the financial operations side.
The sales side of the coin involves 4 of the 5 main core strategies of any brokerage:
- Recruiting – very important
- Retention and Loyalty
The financial operations side of the coin gets neglected the most. It includes financial operations strategies for the brokerage, including:
- Compensation model
- Cash flow
- Business planning
- Improving processes
- Reviewing your numbers – Key Performance Indicators (KPI) score carding
We may think that recruiting for instance is the most important strategy to implement however if we hire the wrong agents with low productivity and on the wrong compensation program, we will recruit ourselves to bankruptcy. Notice that recruiting is on the sales side of the coin, while the compensation model is on the financial operations side.
This is why both sides of the coin need to be addressed, not one at the expense of the other.
What you measure gets improved - This was recognized by the management theorist, Peter Drucker.
When you think of the term, Key Performance Indicators, (KPI’s) you think in terms of what drives performance for your brokerage. There are a number of indicators that we ought to measure that drive performance.
- Agent count
- Agent attrition
- Net Agent growth
- Gross Profit
- Net Profit
From my experience, more than 90% of brokers I have spoken to and have worked with did not have a clear understanding of Gross Profit and did not know how to find it. The fact is that most income statements are not set up properly set up to indicate what I feel is the most important number in our business, Gross Profit. We will talk more about that in the following sessions.
If nothing else, recognize that the Sales side of the coin is focused on how you make money, whereas the Financial Operation side of the coin is focused on how you make PROFIT.