Retain Commission: Reduce Costs and Increase Profit Margins

As a real estate agent, commissions are your lifeline. Getting a deal done isn’t easy in today’s market, so when you do get to the closing table, you need to capitalize on each opportunity.

Though a 2.5% or 3% commission might seem like a nice payday, those numbers don’t account for all your expenses. First, your broker is owed a cut of your commission, which can reduce your profit margin from as much as 30%, 40%, or even 50% of your gross commission earnings. Then, you need to pay taxes, which can be as much as 37% of your income for federal taxes, up to 13.3% for state income tax, and in some cities, an additional city wage tax.

Now that you’ve paid your broker and Uncle Sam, you can use the remaining money from your commission to live your life, save for the future, and focus on growing your business. But, by the time you get there, your commissions have dwindled to a mere fraction of the 2.5% or 3% of the home you sold. To get the most out of your business, use these tips to reduce transaction costs and increase profit margins to retain more of your commissions. 

Lower your cost per lead

Lowering your cost per lead can help you drum up more business and increase profitability. While there’s no right or wrong way to generate leads, higher acquisition costs lead to lower profit margins. Some agents pay for leads or spend thousands of dollars each month on pay-per-click advertising, with others focusing on direct mail or even billboard advertising. 

If you’re spending a lot of money acquiring new leads, you may want to consider exploring more cost-effective lead generation strategies. For example, if you aren’t leveraging social media, you might benefit from regularly posting content. Another way to find new leads at little or no cost to you is by consistently engaging with past clients and asking for referrals. Besides building stronger relationships with your clients, repeat business is one of the best ways to maximize profit and retain more of your commission. Even if your past clients aren’t buying or selling right now, referring you to someone who is looking to transact can be just as valuable. 

Leverage technology

There are hundreds of tech tools real estate agents can use to improve business processes. Utilizing the right technologies can save you time, level up your business workflows, and make it easy to improve communication with your prospects and clients. Here’s a list of software tools you can use to help reduce your costs and accomplish more:

• Digital signing
• Customer Relationship Management (CRM)
• Virtual staging
• Online and/or automated scheduling
• Website chatbots
• Email marketing (e.g., Constant Contact, Mailchimp, HubSpot, etc.)
• Graphic design platforms (Canva, Adobe Express, etc.)

Negotiate lower vendor fees

As an agent, you’ve probably reduced your fee to get a deal done. So, if you want to retain more of your commission, it’s time to negotiate lower vendor fees for your own benefit.

To successfully negotiate vendor fees, it might be as simple as asking. In other cases, you may want to reference the costs of the vendor’s competition, which some companies will match or even beat. Another trick for negotiating vendor pricing is opting into a longer-term contract or putting down a sizable deposit for future services. Like real estate agents, vendors may be more willing to negotiate for a loyal customer offering repeat business.

Enlist the help of virtual assistants 

Virtual assistants (VAs) can help with many of your business’s needs, from transaction coordination to administrative tasks, marketing, and more. Since VAs usually charge by the hour and set their own rates, you should be able to find a VA to fit just about any budget and take on any job. Hiring a virtual assistant is a flexible solution that can streamline your business and buy back valuable time you can use to pursue higher-value activities, like attending listing appointments.

Claim your tax-deductible business expenses

Itemizing applicable deductions on your federal taxes can save you thousands of dollars per year. As a self-employed, independent contractor, you can write off most of your business-related expenses, like your phone bill, mileage, MLS dues, advertising, and more. With accounting software and expense trackers, managing your finances and documenting your tax write-offs is easier than ever. For more hands-on help with your taxes, speak to a qualified tax professional about tax-deductible business expenses.

Conclusion

To keep more of your hard-earned commission, you need to focus on increasing your profit margins by reducing costs and saving time. Sometimes, reducing your expenses can be as easy as shopping around or negotiating with existing vendors. You should also leverage technology and virtual assistants to streamline your business processes, save time and grow your pipeline. Finally, make sure you claim any deductions and credits on your taxes, and of course, continue to engage meaningfully with your existing and past client base all year round.