Originally posted by Tyler McCracken on 9/27/2009 on www.askthelandlord.com
My uncle Dave just left our home from a weekend visit. He’s a former top executive of an international real estate brokerage firm and still does some consulting with brokerage owners around the country. Of coarse (as you can imagine), we discussed real estate. During this conversation he brought up the much overlooked flaw of focusing on gross sales volume versus unit volume.
Dave brought it up in the context of real estate brokerage firms focusing on gross sales volume of homes closed versus unit (amount of homes) volume closed. The fact that area’s of the country were seeing 30% appreciation (whether it be in a year or over five)… would naturally see organic sales volume growth; however, often masked was the quality of growth and how was unit volume doing?
What is/was often found was that many over looked quality sales… meaning if one sold 50 homes 3 years ago or 2 years ago were they still selling 50 homes a year now (or ideally more)? For tangible reporting of results one should first use an equation that cannot be manipulated by moving factors such as margin.
The flaw was were one used to focus on selling $100k homes -they were now focusing on $200k. Instead of selling 50 homes a years one only needed to sell 25 to maintain the same income. From a lifestyle aspect its good; however, from true quality growth it can put an individual and thus a firm in peril during down times. Thus a certain death to many during our 100 year flood we’re facing today in the world of real estate.
Most (and even myself at times) focused on this great wind at our backs…. Whether your a Realtor, lender, merchandiser (selling short term real estate), or any other business for that matter, the ability to make a greater return from just ONE UNIT of INVENTORY TURN is/was a great factor!!! One had the choice to make far greater returns by keeping the pace of turning as much inventory as possible and create far greater wealth or pare back -thus creating an improved lifestyle with far less work in the equation. While I’m certainly not implying that less work (thus more time for family and friends) is bad, I’m pointing out that it makes one vulnerable when one’s business system is set up on a slower turning business cycle especially when it under goes the stress of a downturn.
My focus has always been on unit volume turn…. This keeps me honest when I’m searching for tangible year over year goals. Let this thought soak in for a minute.
Remember my mantra! With regards to rentals you’ll hear me state: “Slow The Turn”…. with a merchandising its “crank it out”…..
Keep your focus on reliable results.