Why Lean Into Lean Expense Management?
By definition, real estate in a shift market is a leaner industry; that is, anything that does not directly add value to deal (by moving leads closer to conversion) is dead-weight and should be disposed of, and fast. That’s why the best first step of learning how to sell real estate during COVID-19 is to lean into lean expense management. Minimizing expenses is proving more essential in this shift market than ever, as the industry has been transformed (nearly overnight) in ways that dramatically diminish — and even negate — the value of activities that traditionally have the highest ROI.
applying expense management Now Means Surviving Longer In A Shift Market
To put it bluntly, trying to “revenue” your way through a shift market is, at best, the least reliable method for success; it puts buyers in charge of whether or not you turn a profit. At worst, it’s the plan of attack most-associated with failure to successfully sell real estate in a shift market. That’s because leads lead to revenues, but profiting is impossible if lead generation and conversion are too costly.
Consequently, the best way to sell real estate in a shift market isn’t just to figure out how to sell more houses — it’s to learn to sell more houses with fewer operational expenses and lower conversion costs.
There’s A Name For That: Re-Margining
In real estate, the “leaning up” of your expenses — creating a budget that’s profitable even with the lower revenues you’re actually getting — is called “re-margining” your business. This should become a monthly activity, at which time you work to:
- (Further) lower (and keep lowering) both business and personal expenses until your cash outflow is less than your cash inflow;
- The mindset shift that comes with this is monumental for most real estate agents: let actual revenues lead investment decisions instead of anticipating revenue derived from investments.
- Moreover, this requires adhering to a “cost-plus” basis for expense management; that is, you can’t increase the budget until the revenues earned have paid off and paid back the last set of investments.
- Prepare to go leaner. Though every business has the potential to increase revenues even while (and as a result of) making operations leaner, it’s unlikely that any business will see a decrease in profitability while pursuing a progressively leaner strategy behind-the-scenes. That is, adopting the attitude that the ideal way how to sell real estate during COVID-19 or any other shift market condition is to be leaner will almost always protect your profits as you learn how to sell more houses with less expenses.
- Reinvest in low-ROI and indirectly-additive functions only as/after revenues recover.
About That Third Step: Play Red-Light/Green-Light To Grow Your Budget Safely
“Playing” red-light/green-light with your real estate expense management simply means that you should only permit expenses to increase if a particular investment is actually increasing revenues. If something is not directly, measurably value additive to your efforts to sell real estate during a shift market (not just to sell more houses, but to sell more houses with lower lead generation and conversion costs), then the light isn’t green and you can’t justify greater investment in it.
What’s more, you should diminish or dispose of an investment track in response to red lights — evidence that investments are absolutely not directly causing high-ROI revenues. Now, more than ever, you have to expect every dollar to work for you!
As a reminder: a “shift market” in real estate, as outlined in SHIFT: How Top Real Estate Agents Tackle Tough Times, is a market where the supply and demand for real estate have become imbalanced. That is, there is either more supply than demand or more demand than supply, and the market is in the process of healing and re-balancing itself (usually through rapid, short-term changes in property value in local markets).
Shift markets are inherently tough to navigate — and survive— as a real estate agent because they create power imbalances between buyers and sellers that make continuing with business-as-usual impossible. Top agents find ways to shift with the market. This is how.