Co founder of Reap Dashboard Mr Chris Mercer says, The impact of both the slowdown in sales volume and increase in business costs is here to stay and highlights the fine line between profit and loss. Its time to change tactics and real estate agency business owners that get them right will win in 2023.
Co founder of REAP Dashboard, Mr Chris Mercer told The Real Estate Conversation, “as predicted in REAP20's previous webinar, the Income from sales and director divisions of REAP20 have dropped from the peak of the covid boom, by a combined 11.9%.”
“While Property Management has continued to build, with more managements, rising rents and low vacancies. Underneath these results the cost of making this income and running an agency continues to climb, with gross margin dropping again, and fixed overheads reaching a high.”
Chris Mercer continued, “This result for REAP20, reminds me of a golf terminology called a two shot swing, referring to a moment where one golfer birdies a hole while another golfer bogeys a hole, causing a 2 shot swing in the Leaderboard. So how did this happen in the REAP20 Index?”
It occurred with Income dropping in both sales and directors divisions (-7,7%) September22 v June22, and at the same time Fixed Overheads for the same divisions grew by (4.4%) combined with sales support roles being maintained causing Gross Margin to drop to a record low of 23%. What was the impact, lower income higher costs, meant the sales division had an operating loss for the 12 months ending September 2022, a LOSS! This is the first time an annual operating loss has been recorded, and it raises a question, what are business owners trying to achieve, what's their plan, Mr Mercer added.
Business coaches and mentors often ask, do you have a business or a job? The current results suggest all owners a in a position of having a job. Why, because it could be argued the net profit from Director Income is less than they would make if they were agents, and they are still required to subsidise their agent's division to keep them viable. Not all businesses are in this position but for all businesses this exercise should be reviewed, and decisions made. Decisions about the companies' tactics going forward. It is also apparent that agent numbers, deals numbers and commission per deal are down, so growth does not look to return in the near future for the DEC2022 period. What changes in tactics are made by businesses will determine the futures of the next generation of business models operating in Australia.
Turning to Property management now, and it is having a radical period of transformation, and all operators are reeling from staff turnover, flow on costs of recruitment and an inflationary and interest period not seen in decades.
Businesses are seeing revenue rises in management fees, and lettings much quicker than in the past, but it’s the staffing challenges hitting harder. Property Management is a division where managing numerous small tweaks is at the heart of protecting the bottom line, and its resilience in a slowing sales market is again being demonstrated with a 3.0% increase in Total Income, but a increase in Fixed Overheads of 9%, resulting in a -3% drop in Operating Profit, or a $1M drop in dollar terms. The time for scrutiny of the Property Management divisions business plan execution and corresponding required changes in tactics is now.
I look forward to sharing our insights at my Live Webinar, said Mr Mercer.
When: Tuesday 7 February 10:30am AEDT
How to Register: Registration link here
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