E – R – P

Effectiveness, efficiency and productivity, these are the three elements you need to master in order to succeed. Let’s look at them from a purely financial perspective. This is what I call “The wealth cycle”.

Unfortunately, 9 businesses out of 10 go bankrupt in their first year; that is a sad truth. As well, the vast majority of Real Estate brokers incur losses when they should generate profit, even at the onset. Real estate as taught does not work and has never worked. Sound financial premises are neither taught nor understood.

Let’s analyze a few concepts

Effectiveness

You have invested tremendous assets into your business. Consider the initial cost of the many months of studies, the thousands of dollars incurred for the courses, the certification and licensing. You continue to invest monthly in operating costs as well as working on average more than 200 hours each month. Those are your ASSETS. To invest your time and your money selling Real Estate means you are not investing them elsewhere.

The formula « Sales / Assets = Effectiveness » provides you with an effectiveness ratio. Look at your inventory turnover (properties for sale AND buyers). Are the products moving or staying on the shelves or worse unsellable? Are you able to sell to your buyers in 1 week, 2 weeks or 22 weeks? Do you continually strive to find new listings with little success?

Efficiency

The formula « Profits / Sales = Efficiency » provides you with the level of efficiency for your business. Look at it this way; you can do the right tasks, complete activities (sales) but not make any or enough profits. That is the difference between being effective and efficient. You can turn lots of sales but if there is no money left, it doesn’t work.

Productivity

The formula « OCF / Profits = Productivity » measures the level of productivity of your business. The business must be profitable otherwise it has no reason for existing. It is normal for a start-up to have initial difficulties, but after 1, 3 or 5 years in operation; there should not be any reason why the business is indebted or owes back taxes.

Realize this; you can be highly efficient and fail. You can also be a top salesperson with tremendous results and still end up in the red each year. You can also be effective, efficient but not productive; that is when you owe more money at the end of the year than you did at the beginning.

What changes would you like to bring to your business model?