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CompensationMaster Newsletter Article, June 2006 "Most
people who own a real estate business have a sales background. They very rarely
have had training in management and cost control. They realize this to their
detriment when the market tightens," says Frank Maloney, director of Century 21
Realty One - Menai. Maloney's firm is located in New South Wales, Australia,
where CompensationMaster recently opened an office.
The market in Menai has been tightening for some time, according
to Maloney. "In the industry as a whole, sales volume has decreased by about 40%
over the past three years. I believe we have lost over 50% of the people who
were involved in real estate."
Despite the market turndown, Maloney says, "We've been able to
hold our own quite well, mainly because our emphasis has been on marketing and
we've had a good sales team who have been able to get the marketing paid for by
our customers."
Maloney expects the market to lift again, so he is focused on
recruiting--attracting good, experienced sales people as well as individuals who
are new to the industry—so they will be prepared when the market turns around.
He explains, "I knew that the New South Wales payment system is
not working the way it should. Plus our notion of pay everyone the same rate was
antiquated. You should know what your true costs are. You can then gear systems
to pay according to your competition and what will be profitable rather than
doing everything by the seat of your pants."
"We heard about CompensationMaster at the Century 21 head
office. They introduced us to Bradley Cocks, who runs the Oceania division of
CompensationMaster. Brad came in and talked about the uniqueness of the company
and what they had done with other firms in North America," says Maloney.
Maloney was impressed with what he heard about
CompensationMaster. It sounded like they might be able to provide him with
answers to some questions he had been trying to resolve:
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How do you devise a system that pays people fairly for when
they get better and better at what they do?
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How do you make the payment curve go up and still be
profitable?
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How do you change efficiency levels by placing the
responsibility of cost control back on your own sales people?
He decided to work with CompensationMaster to redesign his
company's compensation structure. Century 21 Realty One - Menai provided a
profit-and-loss statement for the previous year to CompensationMaster. "CompensationMaster
completely dissected our costing," states Maloney. "We separated real estate
sales from the property management side and looked at what it actually costs to
run the office. From that knowledge base we were able to build in a profit
margin as a cost, which is important. I hadn't been doing that before."
CompensationMaster worked with Century 21 Realty One - Menai to
design three plans, each of which addressed a different scenario, including one
for current sales staff, one for new people coming into the industry and one for
people new to the company who have been working at another real estate office.
Instead of a salary, which is standard in his market, Maloney now compensates
sales people entirely on commission, with splits that range from 35% up to 80%.
With all three plans, the sales people are responsible for all
their marketing and listing costs. Unless they collect marketing money from
their customers, those costs are deducted from their share. "They do collect a
fair bit of it from their customers," says Maloney. "When it comes out of your
own pocket you become a lot more careful."
Century 21 Realty One - Menai introduced the new plans in
February. "The sales people are changing over one by one," says Maloney. "The
others have watched the first person make the change and realized it's not all
draconian. They have seen his efficiency level changing and that has made them
more determined to do it themselves."
"The changeover brings about a 30% increase in productivity,"
Maloney continues. "I have good people, but I'm still seeing the productivity
increasing. It allows people to open up on income more than they would be able
to do on the old plan and they are rewarded for working smarter, not harder."
The next step for Century 21 Realty One – Menai is to expand its
territory. "We're bounded by two rivers geographically, with 9200 properties in
our area," explains Maloney. "But I have the belief that our area is capable of
supporting one master office, which would allow us to spread the fixed overhead
over a larger volume."
"Once you understand your costs, you're better informed about
the way you run the rest of your business," explains Maloney. "We've been able
to use a third party to illustrate that we needed change and do it in a
non-threatening manner. We wanted to set up a system that allows our sales
people to earn more the better they get. It truly is an open-ended system."
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