with Greg Paterson CEO, REEF
Success in any business requires a sound appreciation of the cost pressures that impact upon the ‘bottom line’. In agency practice the major individual cost pressures relate to the employment of staff.
Do you know what impact the engagement of a salesperson will have on an agency’s bottom line? At what point will the sales representative start to ‘add value’ to the agency? The results may surprise you!
When you employ a real estate sales representative (other than a salesperson engaged on a commission-only basis), there are a number of direct recurrent costs that must be met. These minimum costs are:
1. Salary (including 4 weeks annual leave)1 -$33,500.00 2. Annual Leave Loading2 -$450.00 3. Car Allowance (top rate) -$10,200.00 4. Mobile Phone Allowance3 -$600.00 5. Superannuation (9%) -$3,000.00 6. Long Service Leave4 -$560.00 7. Workers Compensation5 -$170.00 8. Payroll Tax (if applicable)6 -$2,050.00 TOTAL: (Annual)7 - $50,500.00 Month)8 - $4,210.00
IMPORTANT NOTES: 1 The salary figure is based on the legal minimum weekly wage of $643.00. It assumes that over a 52 week period, the salesperson takes 4 weeks annual leave. 2 Calculated on 4 weeks leave at 17.5% 3 The Mobile Phone Allowance assumes an employer payment of $50 per month though this amount is negotiable. 4 Long Service Leave is a contingency provision and as such will not be payable in all circumstances. 5 Calculated at the 2011-12 premium rate of 0.46%. 6 Payroll Tax is not applicable to all agencies. 7 The minimum direct costs of employing a real estate salesperson over a 12 month period is shown to be approximately $50,500.00 8 The minimum direct costs of employing a real estate salesperson each month is approximately $4,210.00
If the employment costs in an agency differ from those in the above table, (for example where you pay a higher rate of pay) the agency should re-calculate total costs using its individual figures.
Before we can say a sales representative is ‘adding value’ to the agency, consideration must be given to the additional indirect costs of employment. These are central expenses that an agency must confront to enhance its operation.
As anyone who operates a real estate business will affirm, invariably the list of indirect expenses is quite extensive. While it is preferable to prepare a thorough and accurate assessment of these costs to calculate a salesperson's "break-even-point", it is often more convenient to simply use a standard percentage for this purpose.
It is commonly regarded that direct labour costs account for approximately 35% of the total costs of employing a sales representative. On this basis, we can conclude that the employee costs an agency a minimum of $12,000.00 a month (or $144,000.00 per year). These figures represent the salesperson's "desk cost" or "break even point" . Importantly it should be stated, the 35% figure will vary depending on the operational circumstances of individual agencies.
Once the agency accepts the accuracy of the calculation of its break-even point, it can properly presume that unless the sales representative generates net sales commission in excess of at least $144,000 a year (recognising that this figure will vary according to individual business circumstances) careful consideration will need to be given to whether or not the employment relationship should be continued.