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Interview with Ray White Rural’s Profit Executive David Simpson and CEO Stephen Nell

ByLyndsey Douglas

Each year Ray White produces a document called the ‘Profit Book’ using the P&Ls from a large cross-section of businesses across the company.

We produce one looking specifically at country offices, those operating in rural and regional areas, and it provides an interesting template for healthy decision making for our business owners.

I sat down with our favourite Scot in the office, the Ray White Rural Profit leader Dave Simpson to get his observations from this year’s report.

Stephen Nell: What were the ballooning expenses we see in country businesses that can be curbed?

Dave Simpson: Our country businesses office costs as a percentage of revenue have remained consistent year on year at 26% as costs grew in line with revenue. However, if we look at actual dollar increase in office costs has been a $52k or 13% growth on average per office. With such an increase, the impact to your bottom line can be significant and highlights the importance in understanding and measuring your cost base on a regular basis to avoid costs ballooning.

As I look more closely, a number of these increases could have been minimised. Travel costs have almost doubled, printing and postage has increased some 30% and software subscriptions or licenses are up a further 27%.  My advice to business owners is to consider whether these expenses are driving revenue and prioritise spend using return on investment and renegotiating contracts. Know what you need and don’t need in order to get the best returns.

Stephen Nell: What are some of the commonalities amongst the more profitable businesses?

David Simpson: Scale, productivity, maturity and diversification! There are four levers in any real estate business that you pull on to be profitable.

  1. Producers – recruitment and retention. The best way to grow your business is through people. Once your have set overheads, profit is directly linked to the number of productive operators you have in your business.
  2. Productivity – days on market, auction versus private treaty, PM gross losses and fees. The longer the days on market, the less profitable you will be. Consider converting stock from private treaty to auction as average days on market is significantly lower.
  3. Cost of sales – consider agent performance, commission %, PM staffing levels vs asset growth and VPA management.
  4. Desk costs – don’t overspend where you don’t need to be. What expenses will give you the best return and are assisting in driving revenue? There is always cost ‘fat’!

Our most profitable businesses are those with a balanced revenue stream where there is a strong Sales team and well established and efficient PM team. Livestock businesses have some of the highest profit margins across the business and this is where diversification pays off. There is no doubt that a business like this takes time which is why some of our most profitable businesses are the more mature offices.

Stephen Nell: What role does growth and expansion play in this market?

David Simpson: Scale and diversification is how you grow your business in this market. There is only so much revenue one person can generate! You don’t necessarily need a unicorn; what you need is profitable people. Agents who write circa $200k in GCI would be expected to generate a return of approximately 20% for the office. That is $40k profit to you as a business owner. You have 5 of these agents, that is $200k. In addition, our offices who have diversified into Livestock have seen strong returns.

Stephen Nell: How can principals track performance?

David Simpson: As a starting point, business owners need to be using Pulse (insight.raywhite.com) on a regular basis. This is the best way to view real-time statistics on office performance. Everytime I visit an office, it is one of the first things I review with the Principal. Reach out to your key rural representative if you need some assistance on how to best use this tool.

After that, I would consider either producer or department tracking through your Accounting system. Our preferred product is Xero as it is simple to set up tracking categories in order to provide in depth profitability analysis at a more granular detail.

Utilise the systems and tools you have available to allow you to make the best informed decisions.

Stephen Nell: How have country offices fared against their city counterparts in this softened market?

David Simpson: It may be surprising, but our Country offices actually outperform the majority of the network. Average pre drawings profit margin across the network is 25% compared to our Country offices of 29% as a result of lower overheads and diversification. As we look ahead, to improve or maintain margins in a sluggish market there may need to be a ‘think differently’ approach in a few parts of the business, namely:

  1. Recruitment / retention – who is and can be profitable for your business
  2. Vendor management – auction v private treaty being a key factor
  3. Office costs –  curb spending by prioritising those costs that drive revenue.

To get a copy of the Country Profit Book, email your state manager.

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