Ask most estate agency owners how their business is doing and you’ll get an answer about fee income. Instructions up, exchanges up, a record month in Q2 etc. What you rarely hear first is the profit figure; and almost never, the cash position.
Turnover is the number agents boast about at industry dinners. Profit is the number that keeps the doors open. Cash is the number that decides whether you’re still trading next spring. There have been some high profile profit reports from major estate agency businesses in recent days; none have made great reading and I fully expect the blood on the carpet to increase in the coming weeks.
Estate agency is, structurally, a fixed cost business. Your branch lease, business rates, salaries, portal fees, CRM subscription, PI and other insurance cover, redress scheme membership, CMP, marketing retainers and central overheads land every month whether you exchange on twenty properties or two, whether you do thirty lets or three.
Variable costs are a thin sliver of the Profit and Loss – largely commission and some marketing spend. Fixed cost businesses have brutal operational gearing. Every extra pound of fee income above break-even drops almost entirely to the bottom line. Wonderful on the way up. Savage on the way down, because every pound lost comes straight out of profit too. A 10% dip in revenue doesn’t cause a 10% dip in profit; it can wipe profit out entirely.
Then there’s the timing. A sale agreed today might exchange in twenty weeks; often longer with a chain, a leasehold enquiry or a slow conveyancer. You’ve already paid for the photography, the portal listing, the negotiator’s salary and the office they sit in.
The revenue arrives five months later, if it arrives at all. Fall-through rates north of 25% mean a meaningful share of that work is never paid for. This is how an agency with a fat pipeline and a proud turnover chart runs out of money. Profitable on paper, insolvent in practice. Cash, not revenue, is the constraint.
The good news about a fixed cost business is that small savings compound straight into profit. There’s no volume-driven cost creep eating the benefit. So go through every line. On the income side: what is your average fee, and has it drifted down through discounting? What’s your conversion from valuation to instruction, instruction to sale agreed, sale agreed to exchange?
A two-point improvement in fall-through rate is, in effect, free money. What are you earning from important ancillaries such as conveyancing referrals and mortgage introductions, and are those margins actually measured or just assumed? In lettings there are even more ancillary income opportunities; safety certificates, inventories, contractor fees etc.
On the cost side: portal spend per instruction, cost per valuation by lead source, branch profitability individually rather than blended, staff cost as a percentage of fee income, subscriptions nobody has audited in three years. Half a percentage point here, one percentage point there. Ten of those across the P&L can be transformational and none of them require a single extra instruction.
Three things agents should run monthly: a cash flow forecast looking say thirteen weeks ahead, a pipeline report weighted by realistic exchange or move in probability rather than headline value, and, crucially a branch level P&L.
Turnover may tell you how busy you are but profit tells you whether being busy was worth it. Cash will tell you whether you get to find out!
