Blog / Time Management
Saying goodbye to the RDO as management beckons
BY GREG PATERSON, CEO, REEF
“I’m only receiving 40% of the sales commission..."
Your sales figures continue to impress. Each month you are receiving a handsome commission cheque that is helping maintain that comfortable lifestyle that you enjoy so much. It’s hard work but the financial rewards are worth it!
Suddenly, one day, the ‘thought bubble’ explodes in your mind – “I’m only receiving 40% of the sales commission I generate. If I didn’t have to share this with my Principal, I’d have an even better lifestyle!” You convince yourself that the 60:40 commission split is so unjust! So the idea of moving into agency ownership is born.
Whilst ambition is to be applauded, it can be a fatal misconception that agency ownership is a passport to either professional or financial success. The first big question that any agent considering opening or buying into a real estate business should be asking is this – “on what has my success as a real estate professional been built?”
Yes, it may be you are a charismatic identity within your marketplace - it may be your honesty and skill as a dedicated real estate professional that separates you from the rest; or possibly it’s your persistence to get results for your clients through hard work. All these factors will, of course, have a role to play in the success of most real estate practitioners. Importantly however, success is often fostered around the environment in which the practitioner operates. The reputation of the agency, as well as the infrastructure and systems provided by agency Principals, is central to the success of both the business and its employees. So, before you take the plunge to uncouple the ‘employment train’, think carefully about how you will continue to flourish as a real estate professional, when these central features are no longer hitched to your wagon!
As a new agency owner, you will be confronted with responsibilities and challenges never before faced – responsibilities and challenges that cannot be avoided, abrogated or delegated and that inevitably come with being a business owner. There is the constant barrage of paperwork, trying to deliver high quality services at increasingly competitive prices, managing cash flow to ensure your business can survive and implementing new business practices because of regulatory change. As an agency owner, you should be working more ‘on the business’ rather than ‘in the business’. The risk of business failure will be the constant companion of the agency owner who is either undercapitalised or unable to cope with the myriad of responsibilities that accompany ownership.
With the agency doors open, so too is your cheque book. Costs associated with communication, technology, advertising, printing, interest, insurances, rent, professional fees and office maintenance will seem never ending.
You then bring on-board your first employee. In this regard, the new owner quickly acknowledges that “wages” (including commissions and allowances) can account for between 40-50% of an agency’s total operating expenses. Consideration must also be had for the various employee ‘on-costs’ such as occupational superannuation contributions, workers compensation insurance (and in some cases, payroll tax liability), professional indemnity insurance. There are obligations relating to work, health and safety, performance management and minimum employment standards. It’s a minefield for the experienced agency owner yet alone for the uninitiated!
Suddenly that ‘thought bubble’ is once again enlivened, only this time questioning how you can recapture that comfortable lifestyle that was sacrificed when your name went on the sign outside the agency you bought! In this new world, your 60% share of the sale commission (commission now generated by your ‘gun’ salesperson), could be dramatically reduced to less than 10% after factoring in the costs of doing business.
With all this in mind and with your business plan under your arm, the next stop will be a visit to your bank manager to plead a case for funds so you can buy that agency that caught your attention…. while remembering the days when you were able to actually retain 40% of the sales commission!
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