Brokerage Models, Consumerism, Internet, Management Principles, REALonomics, Technology in RE
REALonomical: an Economic Mentality
August 5, 2008 by REALonomics · Leave a Comment
Brokerage economics is undergoing a massive reordering. The way Brokerage firms make money is changing faster than our ability to absorb and adapt to the demands of the New Real Estate Economy.
To be “REALonomical” actually means something. REALonomical enterprises recognize the facts surrounding their business models and how those facts play out in real world situations, producing predictable and sustainable ROI. REALonomical is a brokerage mind set and it has something to do with how we model the financial aspects of a company in light of the Third Economic Wave; The Consumer-Centric Era.
It was Once a Simple World
During the First and Second Economic Waves of the real estate industry the model math was fairly simple and easy to interpret. From this interpretation we developed strange economic terms we called “desk cost” and “per person productivity” (ppp). Such economic models delivered notions of profitability because we could run formulas for operating our “offices” and hypothetically project our margins. Our simple formulas appeared as:
Gross Commission Income (GCI) – Cost of Sale (COS) = Gross Company Dollar (GCD). From the GCD, expenses were paid and profit, if any, was realized.
It was a simple world then. Broker/Owners understood how to create profit. Physical space was a huge part of the formula and for many years “cyber” was something we read about in Batman comic books.
Too much of the real estate industry is still living in the former model while being confronted with the transformative power of the cyber model.
This is Now, Not Then
Today’s Broker/Owner faces declining GCI on a per transaction basis, increased COS, less GCD and much higher fixed operating cost. In addition, Broker/Owners generally speaking, have more competition, higher demand for technology solutions, rapidly changing markets and of course, the consumer and his/her/their insatiable appetite for online information, especially property information.
All of this demands a REALonomical mind set on the part of Broker/Owners. It’s an economic mentality that makes and breaks a contemporary brokerage firm. Becoming REALonomical involves:
- having the correct playing pieces on the board, i.e., understanding what the real estate market is today, not yesterday;
- having the contemporary tools to create direct relationships with consumers;
- pointing the business execution strategy in the right direction;
- setting the business into motion every day so that it produces daily net, net ROI profit
That’s right; the REALonomical mentality focuses the business on daily profitability. REALonomical isn’t meant to be just a clever word; it’s a business mentality that is a lot like the game of tennis; good players always win one point at a time. It’s the single point focus that makes all the difference. It’s essentially the mental toughness required to stay focused on the economics of the brokerage…EVERY DAY!
In tomorrow’s brokerage madness, the winners are going to be those who become REALonomical today; those who win one day at a time, one set at a time and one match at a time. We aren’t playing games, we are playing points.
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