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Running a Successful Real Estate Business Part Un: Kill Overhead

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The Series

In reading the title, you are probably thinking that I am about to go all Deepak Chopra on you and unleash some infomercial guru wisdom. But I am no guru, nor am I trying to be.  I am just an avid student of good business. While in the presence of a successful enterprise, be it a small restaurant, a Mom and Pop print shop or a multi national corporation, I often find myself wondering about what makes them tick. In between CNBC specials on Walmart, Coke or Home Depot, I ponder whether there is a  set of principles that they all follow to one degree or another. What I am about to share with you are lessons being learned as we speak in running our own real estate business. And since AgentGenius hosts some of the brightest minds in the real estate landscape, my hope is that in our discussion, my own education in the art of running a business on all cylinders can be furthered as well.

RASREB Series Part 1: It’s what you keep

Most keys to success in any business are very simple, bordering on obvious. So much so that they are often followed with the obligatory “duh”. But as simple as they are, you’d be surprised how many pros do not (can not, will not) follow them. Instead they will do everything in their power to complicate things just so they don’t ever have to cross that ever dreaded line to actually do something. The first key to running a successful real estate business goes a little something like this:

In the real estate business, it’s not what you make, it’s what you keep. Kill all the overhead that’s not necessary to run your business and you will see it flourish and last.

Overhead is the ultimate double edged sword in any business. If kept slim and under control, it gives your revenues room to breathe and grow but if not, it can become cancerous and lead to the eventual demise of the business. When business is good, revenue wise, overhead operates under the radar and goes mostly unnoticed as the business owner is concentrated on counting all the cash coming in. So all the excessive rent space, useless money pits that are some marketing campaigns, and admin employees that are working full time for Facebook are rationalized by the money windfall into the company’s coffers. But when the times get tough and business slows, the business owner gets in a cost cutting mood but it’s often too late as the business bleeds money on a monthly basis.

Get it together

Enough with the generalities – What can you specifically do in 2010 to get your overhead under control?

Rent

I know I’m going to raise some eyebrows with this one, but since that’s never stopped me before, here I go. In my opinion, 80-90% of actively practicing real estate agents pay way too much for rent to the tune of 40-50%. They say it has to do with “what their clients” expect of them but that’s pure BS. Most of the clients agents do business with don’t even see the office of the agent. You typically meet Buyers at the property you are going to show them and Sellers at their home. It’s not about the clients’ expectation – it’s about their expectation of themselves. That’s how overhead typically gets rationalized through entitlement mentality: I deserve to have a ______ or I’ve earned the right to drive a ______. The quickest way to put 5-10 grand in your pocket in 2010 is to take a long hard look at your office needs – step outside of yourself for a second and view the situation as a businessperson. Do you really need 2000 SF or could 1200 SF do the job just right? Are you really getting any walk-in traffic in that high rent area or could you move out a little farther and cut your monthly rent significantly? On the flip side, I am not a believer in swapping for a home office. The economics of it make a lot of sense but the logistics doesn’t. As you become more and more successful, you work with more and more people and your probability of running into a weirdo grows. So, keep business and home separate if you can help it.

Marketing

This is a tough one, since we are constantly bombarded with new and improved ways to market ourselves and our companies. The urge to try the latest and greatest all the time is real and quite frankly, we wouldn’t have found some of the greatest products we leverage today if we hadn’t taken a chance on them first. But that does not mean that you string nonperforming tools and services along every month just because some work and some don’t. Cutting your overhead is about eliminating waste. Give products just enough time to prove themselves but remember that you don’t owe them any loyalty if they don’t respond with performance.  One disturbing phenomenon I have noticed in real estate is what I call “defensive spending”.  When posed with the question “what do you do to earn your commission”, agents get into a defensive mode that leads to hourly employee thinking. They start offering “marketing services” to Sellers that they know damn well don’t do anything to sell a home but justify it by stating that “although it doesn’t work, Sellers like it”. Newsflash: Wide majority of Sellers, pay for results, not effort. If you spend every waking hour of your day at the Seller’s home trying to sell it but couldn’t, you’re as useless in their eyes as the agent who did nothing and didn’t sell it. Those people that don’t think you are worth the money you earn, will not change their opinion regardless of how much you do. So focus on marketing that produces tangible results and cut what does not work. Depending on what your monthly marketing budget, this could save you from $1200-$5000/year or more.

Staff

Have you ever heard a business owner very proudly state they have X number of people working for him/her? I call that headcount ego and I learned to disregard it from The Millionaire Real Estate Agent. Most of the agents featured in that book didn’t have a huge staff – they just had a very efficient one that new their role and executed it perfectly. During boom times it’s easy to get carried away and overhire. Soon, you have positions overlapping and double the amount of people doing half the work. If you are a soloprenuer and thinking about adding an assistant, do so when it’s absolutely necessary. And don’t add to your staff until both you and your assistant are up to here with work. If you already have staff in place, take a look at the structure of your business and look for ways you can have the same people do more or less people do the same amount of work.

Debt

Last but not least, whatever you do, don’t become an “If only” agent. This is the pro that constantly states: “If only, I could have enough money to do that huge Adwords or Radio or TV campaign”. What eventually follows is debt and behind the corner from there failure resides. Here’s a simple rule of thumb: If your business has not generated enough money to purchase a marketing campaign that would send it to that next level, it’s not ready to handle that next level. The only thing worse than not having any clients, is having lots of them that think  you ‘re an incompetent douche. Take my word for it – Never take on debt to further your business because it will cause the opposite effect more often than not. If you do have business debt, think about a strategy to take care of it and step off the rat wheel.

Thoughts?


Houston Real Estate Rainmaker and Uberproud Father/Husband (not necessarily in that order). When I'm not skinning cats or changing diapers you can find me on Twitter or Facebook. I blog about marketing, social media and real estate. I might not always be in agreement, but you can rest assured I'll be honest. Oh, and I can cook a mean breakfast...

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18 Comments

18 Comments

  1. BawldGuy

    December 4, 2009 at 11:10 am

    Any thoughts? Are ya kiddin’ me? You’ve essentially chronicled my professional learning curve. Though some of what you say doesn’t apply totally to the investment side of the biz, conceptually you’ve hit ground zero.

    Almost all local clients visit my office, as it should be. My office, therefore, must meet a minimum standard of what clients expect. We do that, and with a budget.

    Marketing? OMG have I ever screwed the pooch on there. Mea culpa. But gimme a pass on that one, as I was an Old Schooler doin’ his best to make the transition from 1969 to the 21st century — not to mention while trying to operate in the new virtual world. No kiddin’, I’ve sent over a quarter million over the falls for bupkis results. I speak broken internet-speak now, so I’ve learned where to spend for what results. Still sittin’ in the front of the class though, as I’m barely passin’ with a C- I think. 🙂

    Good stuff, Erion.

  2. Janie Coffey

    December 4, 2009 at 11:15 am

    Great great blog post!
    Last year we chopped our office rent by 2/3! This accomplished 1) less stress, 2) more flexibility, 2) more money for the things that really count (ie marketing and debt reduction). It was the best thing we ever did. I tell everyone I see struggling, that you need to just cut what isn’t necessary for the end result. Kill the fluff. I am glad you pointed it out so clearly! Just in time for 2010 business planning.

    Oh, and Bawldguy, you made a stunning transition!

  3. BawldGuy

    December 4, 2009 at 11:28 am

    Thanks Janie, but you only see the shiny paint and gleaming chrome. 🙂 It’s the power train I’m workin’ on now.

  4. Rob McGuirt

    December 4, 2009 at 1:02 pm

    Good points. I opened my own office, via a virtual “pay as you use” office space. Fully staffed with reception, conference rooms, break area, color copier, etc…. Cut out my former brokerage fees for office space. Went from $1000/mo to $65/mo.

  5. Josh Ferris

    December 5, 2009 at 1:34 am

    Having gone from a traditional office brokerage to a virtual one back to a traditional office again I can say that offices are a huge waste of space. I meet my clients at our office occasionally but more often than not I meet them at the sales office of my builder clients. Great article Erion!

  6. Ken Brand

    December 5, 2009 at 2:03 pm

    WISE counsel, especially the part about, analyze and act as an offense not after fit-as-hit-the-shan, gangrene has set in and it becomes a defensive amputation.

    Great stuff!

  7. JR of Sun City Real Estate

    December 6, 2009 at 10:10 pm

    “don’t become an “If only” agent” This is what greatly struck me in your post. Thanks for all the insights!

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Business Marketing

Restaurant chains are using COVID to masquerade as indie food pop ups

(BUSINESS MARKETING) Applebee’s and Chuck E. Cheese appear on delivery apps under aliases. Is this a shifty marketing scheme or a legitimate practice?

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chuck e cheese pizza

Restaurants have pivoted hard to stay alive during dine-in shutdowns due to the coronavirus pandemic. Some are selling grocery items like eggs, flour, and yeast (check out the pantry section at the Brewtorium!) while others have created meal kits so families can cook up their restaurant favorites at home.

Meanwhile, a few large chains have been busted for re-branding their kitchens to sell more meals. A reddit user in Philadelphia reported that they ordered pizza from Pasqually’s Pizza & Wings thinking it was a local business they had yet to try, only to learn it shared a kitchen with Chuck E. Cheese. As it turns out, Pasqually is a member of Munch’s Make Believe Band, the terrifying mascot band led by murine bad body Chuck E. Cheese. Pasqually is the confusingly human drummer (and Italian pizza chef?), joined by lead canine guitarist Jasper T. Jowls, sweetheart chicken Helen Henny on the tambourine and vocals, and the dinosaur? Closet monster? D-list muppet? Mr. Munch on the keys.

Though this inter-species band should be disturbing enough for us all to rethink our childhood memories of Chuck E. Cheese (let’s be honest, Disney World should be the only place allowed to have adults parading around in giant mouse costumes) what’s more upsetting is the competition it creates with locally owned restaurants. In West Philadelphia, there is another restaurant called Pasqually’s Pizza.

Chuck E. Cheese is not the only restaurant re-branding to save their hides. Applebee’s has launched a “brand extension” called Neighborhood Wings. Customers can order larger quantities of wings (up to 60!) from Neighborhood Wings, but not Applebee’s. You know, for all of the large parties people have been hosting lately (thanks COVID-19).

This restaurant run-around is further evidence of the noise created by third party delivery apps. GrubHub, Postmates, and others have been criticized for taking huge commissions from already low-margin restaurants, and providing little added value to profitability and industry worker wages. Using these platforms as a means to build shell restaurants for large national chains is just another example of third party apps doing a disservice to both its clients and customers.

Of course, Applebee’s and Chuck E. Cheese are franchises. If one wanted to go out on a limb for these brands, it could be argued that they are indeed ‘local’ businesses if their owners are local franchisees. The third party apps are simply another platform for businesses to gain a competitive edge against one another within a specific customer segment. Furthermore, consumers should hold themselves accountable for their patronage choices and doing their due diligence when investigating new pizza and wings options.

Nonetheless, it behooves all of us in this pandemic to get to know our neighbors, and build relationships with the small businesses that are the lifeblood of a community. Restaurants exist thanks to local customers. Try placing your order directly on their website, or give them a call. I am a restaurant worker, and I truly am happy to take your order.

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Business Marketing

Restaurants might actually lose money through Grubhub and similar services

(BUSINESS MARKETING) Restaurant owners are asking themselves if third-party food delivery apps are nothing more than a good, old-fashioned shakedown.

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grubhub site

If you haven’t seen the GrubHub receipt that has everyone outraged, you probably should. It exposed the food delivery apps for their unreasonably high commissions and excessive charges to the restaurants (on top of the changes to the consumer).

Many people, in an honest attempt to support local restaurants while staying home and safe these days, have started ordering out from their favorite small, local eateries. And they should! This could be the lifeline that allows those restaurants to survive being closed for upwards of a month. However, if they order through a third-party food delivery service, they need to know that a good chunk of their money goes to the service, not the local business. Plus they are paying extra for the service.

It’s a big bummer, to say the least, a bamboozle some might say. Why would restaurants agree to use these services at all, then, if they aren’t beneficial? Well, they initially served the purpose of helping smaller restaurants and food trucks sell to a wider customer base without having to incur the cost and manage the logistics of offering delivery. Not all of the charges are immediately apparent, either, although I am sure they are in the business agreement.

GrubHub, DoorDash, Postmates, UberEats all charge eateries a commission between 15%-30% to even work with them. This is for the most basic level of service. When GrubHub, for example, wants to stimulate more sales, they may offer a deal to consumers. This could be a dollar amount or percentage off of a customer’s order or free delivery.

Everybody loves a deal, so these promotions are effective. They drive more sales, yay. The restaurants, however, incur the full cost of the promotion. You would imagine GrubHub would share that cost, but no, they don’t. If that weren’t unscrupulous enough, GrubHub then charges the business the commission on the full, not discounted, price of the order. Unctuous, right?

Sure, restaurants have to opt in for these specials and other promotions the third-party apps are marketing, so they know there’s a fee. Yet, if they don’t opt in, they won’t appear as an option for the deal in the app. It’s deceptive, feels like a bit of extortion to me. All of these delivery apps have some sort of similar way to rack up fees. For a mom-and-pop food truck or restaurant, the commissions and fees soon eat away at the already small profit margins restaurants usually have.

It’s simply wrong, so wrong. But wait, there’s more! Another nasty, duplicitous practice GrubHub (specifically GrubHub) has implemented, with Yelp’s help, is to hijack the restaurant’s phone number on Yelp. This means if you look up your favorite restaurant on Yelp, and call in an order from the Yelp platform, your call will actually go to GrubHub instead. And get this–they charge the restaurant even if you pick up the order yourself, not only for delivery.

These third-party companies have even started buying up domain names similar to the restaurants to further fool patrons into ordering through them. They also have added restaurants to their platforms, even if the restaurants haven’t agreed to work with them. They seem willing to do anything to get a cut of restaurants’ hard earned dough (and ours). Loathsome! How are these scams even legal?

It happened to me recently. I kept trying to order for pickup at the restaurant, but somehow the order kept going through GrubHub. Bamboozled!

RVB bamboozled

This boils my blood and breaks my heart for these restaurants. In my other life, I am a blogger for a hyperlocal blog whose sole purpose is to highlight, celebrate, and promote local everything. I’m also the internal marketing chair for the Austin Food Blogger Alliance, where we work with local restaurants, distilleries, breweries, and such to promote them and help raise their visibility in the community.

I only bring this up, because I’ve sat with these restaurant and food truck owners, listened to their stories, seen the fire in their eyes as they talk about their recipes. They’ve regaled me with stories of how they got started, what inspires them, and when they had their first successful day. It’s delightful to see the intensity of their enthusiasm for sharing good food with people and how much of themselves they put into their restaurants.

In the original post that lifted the curtain on this shady practice, the Chicago Pizza Boss food truck owner Giuseppe Badalamenti, says the money he got from his GrubHub orders was “almost enough to pay for the food.” Badalamenti had participated in some promotions, which admittedly reduced his cut dramatically, yet the whole premise came as a shock to customers who have been spending their dollars to keep these local businesses afloat. Then here comes the third-party apps, poking a hole in the floaties.

It comes across as downright predatory. Thousands of people have sworn off these apps in favor of calling the restaurant directly for pickup if you are able. This way, you ensure the business you want to support gets the full bill amount. You can get the restaurant’s number directly from Google Maps or the business’s social media or website. This is the best way to help your favorite places stay in business.

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Business Marketing

TikToks new augmented reality ads seeks new audiences

(BUSINESS MARKETING) TikTok product developers hustle to roll out a new augmented reality brand effect to compete with Snapchat and Instagram.

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augmented TikTok

TikTok is getting ready to launch a new ad feature to level the playing field with Snapchat and Instagram. The unofficially named “AR brand effect” will allow TikTok users to incorporate augmented reality brand advertisements in their videos. The ads will create visual effects that interact with the filmmakers’ physical environment as if it exists in real life. The ads will include music that can be played over the film.

TikTok also offers an ad product called Brand Effect, a 2D advertisement filter that users can add to their videos. The in-house product development team at TikTok created this feature for a reported cost of $100,000 according to Digiday.

Snapchat already has its AR brand experiences called the Sponsored Lens and Word Lens, which allow brands to create augmented reality filters to advertise via Snapchat’s users and their interactions with friends.

Snapchat charges anywhere from $50 to $500,000 for augmented reality advertisements. The lower tier starts with a 10-second ad between videos that users can choose to “swipe up” and interact with. The higher tiers get advertisers a day-long spot with a Sponsored Lens.

Though the efficacy of this advertising strategy appears to be hit-or-miss, the creative opportunities for advertising to a wide audience is attractive enough to keep this product development relevant. TikTok and its Chinese counterpart Douyin clocked in two billion downloads in the month of March. Its users skew young with 41% between the ages of 16 and 24, and its global following boasts 800 million users worldwide.

TikTok is moving with adept agility to roll out new products to keep its increasingly large user base engaged. “They are doing it a lot quicker [than competitor social media platforms],” media agency Starcom told Digiday. “Their ability to scale and move forward is frightening, really. If they get it right they’re going to be a huge player in the next six months to a year.”

TikTok is also working on new ad products that allow advertisers to connect with prominent influencers. With the future of stay-at-home orders looking to turn into an interminable cycle, it will be telling to understand how these advertising strategies will effect e-commerce and digital brand experiences.

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