CJ Thanks for bringing this to the surface.  This should be an eye-opener for everyone out there that thinks this is an easy money career with low overhead. HA HA!!!

The important part is to know how much you are spending and how effective it is.  $3000 per month might be over the top for an agent who only closes a few deals per month but for an agent who produces 5 or more per month, that number is not bad.  I would spend $3000 per month to make 25 to thirty thousand.

as always, it's not what you make by what you keep that matters. My goal is to get 10 times return on the cost of doing business each year. This past year, I was at about 8 times, so I have some more work to do

For me to spend $3000 a month would be very hard and wasteful. I could spend that much if I had an assistant. Probally more. Jeff is right on with his comment.

That is oh so true!  This is the time to evaluate our cost of doing business.  It is important to track our advertising to be certain that the advertising that we are paying is producing business.

Real Estate is truly the example of "It TAKES money to MAKE money!"

$3000 a month is not that much to run a business.  I am sure that many do not realize how much their expenses really are.

No one can say what specific dollar amount is "right or wrong". It's best to look at the percentage of your gross. If you're earning 300K GCI annually, $3,000 is a great number. Likewise, if you're only earning 30K, well...then $3k per month puts you in the red...

-Colleen

We spend quite a bit...we do not advertise ourselves but do spend quite a bit on listings. We get website and referral listings and buyers so that cuts down on the promotion expense.

I think $3000 is reasonable expense to be in business.

But I figure my costs/overhead include my desk fees and shared costs like L&I or E&O, mailing and prinitng, my cell phone, vehicle expenses including insurance and fuel, any advertising (website, print, postcards). Then there are networking luncheons, education, subscriptions & memberships, and RPAC. Plus there are planned or unplanned incidentals like a clock or pens or paperclips, a new computer or new phone or pda.

$3000 really is my basic estimate, any time someone asks about the cost to be in this business. And it holds pretty true across the board for the past few years. Except this year when I have cut out much or most of the print advertising. But that will only save me about $400 to $500.

One thing to note: since I started collecting 100% of my commissions, I find it easier to track all my costs than when I was on a split. For some reason, that amount I paid my broker was "out of sight, out of mind" and I would forget to include it in my numbers.

Over the top is relative to the amount of business you do. $3000 sounds reasonable to me if you sell 5 or more houses a month. Good post. More wannabe agents should see this one.

Good post and timely.

I don't have to join multiple MLSs in my market because we have a regional MLS.  However, I'm in two states and that alone requires two Board fees of about $1,300, plus a small board for convenience for another $400.  That's $1700 just in board fees.

My primary costs are server, domain costs and time.  Time on my computer and at my phone generating business for my broker partners.  That's my business.  The costs do, indeed, creep up on you. 

But, hey, it beats working for a living.

C J, I am lucky to have found a broker/partner who I was able to negotiate at the beginning to pick up some of the costs that you mentioned above.

Apart from all the regular dues in our area which you are pretty familiar with I have a consistent newsletter that costs me about $250/month.

I am a firm believer in that it takes money to make money.  To get a business off the ground it costs money.  Sure a established agent spends less than an agent that is new in the business.  It costs a lot of money to get up and running.

I have a feeling expenses probably do average $3000/month, but it probably is dispersed differently throughout the year.  You may go months without spending that much, and then be hit with dues and fees, and bills all at once...truly is scary when you look at the big picture.

It does cost money to get started but it can be done without spending a tremendous amount.  Business cards, hitting the streets to meet people and follow up.  Go out and meet with accountants, divorce lawyers, title agents, etc and ask for a chance to earn their referral business. 

Lead with revenue, have a budget and stick to it. Don't go out and blow money on buying leads or don't waste money on the things that don't help you gain top of mind awareness (newspapers and color magazines)

I have tracked my realtor expenses for the past two years. For my 2008 budgeting business plan goal setting. I have added a forecast-ed average amount spent per line expense. I will be interested at the end of 2008 how my accurate my budget forecast is.

 If anyone would like  sample excel spreadsheets for Realtor expense tracking and personal expenses tracking drop me a line. Have a prosperous new year in 2008.

$400 PER LISTING?  Yikes!  I don't spend anywhere near that to sell mine!  Of course, my broker goes in on a lot of my advertising and I don't pay for color copies from my office!  Sure I have gas and time, but $400 per listing?  No way would I spend that unless it was for a high end home that required that amount of money...

I read somewhere where the average cost per listing is $1700.00   Don't know how that came about.

I couldn't spend $3000/month right now if I tried...  But, I'm not as active as I want to be.  I'll probably hit that type of cost later in '08.  But, it isn't the amount, but rather the percentage that we need to be mindful of.  

hmmm.. I spend well over $3000 per month, but I have two assistants and the expense is worth the ability to have a life outside of real estate. As for listings, I don't skimp. I prefer to have professionals take photos and produce high quality color fliers, mail out postcards to my sphere and to houses in the neighborhood, etc. I feel like that is the way to go. 

Interesting how the comments ran the gambit from those who agreed to those that thought it was too much to those that thought it was too little to spend.  Reminds me of a little girl and three bears I once read about somewhere (:   It certainly does depend on how much business you are doing, and where you are doing it too.  There is also the consideration of the average commission earned to consider as well. 

Hi CJ, it is very important to track your expenses, many think they are making more than they really are.  Nice post...congrats on your feature.

Great post.  It is getting pretty expensive to be a lender as well.  I have spent over $400 just on licensing in the last 2 months.  The key is not to focus on the dollar amounts, but to figure out your rate of return for the dollars you spend.

Real Estate is an expensive business.  That's why I'm on AR--it's a great way to drive traffic to your website without paying-per-click.

     To just evaluate one years gross and net is short sighted.  You may have invested heavily in technology, eduation or recovered from open heart surgery, got your daugter thru rehab and survive a divorce all this year.  It's the variables in your life and cycle of investment plus how many others brokers are in the same corral AND market conditions.  Like the weather, you have little control on the outside forces, but budgeting for the every day cost is just a small part of the iceberg.  The industry is changing, developming, becoming more sophiscated like the buyers and sellers we deal with.  Blogs, podcasts, learning HTML, making videos with the new beret and brownie hawkeye you got from Santa. Look at the car industry...just selling so many units a year was the simple goal a few years back.  Then the profit margin became smaller, so outside car sale thinking came into play. In that arena, it became let's finance the car sale, high return, short term, car for collateral and the customer has to have a ride.  Let's also look at Mr Goodwrench and make sure the repairs, warranty work, detailing is done here at the dealership. Car dealers have super websites, incentives and market a different product but a product none the less like us.  Fortunately, you can not travel 200 miles from your hometown to buy that ranch with the in ground pool where as Mr Car Buyer can and will for an extra pinstripe, mudflaps and matching rugs. Thank goodness for the fixed aspect of our business.

Wishing You HAPPY HOLIDAYS and Best Wishes for A GREAT YEAR 2008.

Tommy   New York Certified Home Inspector Long Island NY Nassau/Suffolk/Queens Home Inspections

It always takes money to make money-- so spending on marketing and all the associated fees is just part of what one must do. All the best for a great 2008.

Great post.  We almost joined a good franchise that would have cost us (2) combined in excess of 3k month for a 95% split.  While tempting, it made as much sense to invest the 3k monthly into our own business, with latitude on monthly costs.  With that said, spending an amount less than you indicate monthly would be challenging-good estimate.  Hard costs (rent,MLS, postage, materials) may run half that- the other half is discretionary, but needed. 

CJ you are absolutley right. I don't think $3000 is too much at all. You have to speculate to accumulate.

As has been said, it's not what you make, but what you keep.  For years a friend did probably twice in annual volume that we do... but when we compared our bottom lines, we found out we weren't that far apart.  All things considered.  We actually took home a larger proportional share than she did.  It's about working smarter, not harder.  Our total monthly expenses run about $2,700. 

CJ, everything that is spent on the business is an investment in the business.  I look at the total cost of doing business.  Let's say you spend $100,000 on the business and you CLOSE 100 transactions - it "costs" $1000 per transaction.

CJ, Great discussion. I've always said, "It's not what you make, it's what you keep" and any fixed amount for expenses is not as useful as a %. I'd love to hear what others feel is a good % of Gross vs. Net!!! 

I have been in a couple of coaching programs and find that Top Producers spend about 10-12% just on marketing and advertising.

I use the millionaire real estate agent budget model for my budget.  It really works well at any level of production and helps to put me in the right direction.  This is a free download at www.millionairesystems.com

I do agree that these expenses should be a percentage and not a fixed expense since our production does fluxuate at times up and down.

It's getting so expensive out there. You have to be shrewd in picking the best possible marketing techniques to get the best return.

This is why I truly appreciate our discussions on AR.  Suggestions, opinions, even critics, all have genuine points of views that benefit us all.  Look at some of these great comments by David Matney, Jeff Payne, Joeann Fosland.  Each had a different idea that will help us to figure this out on an individual basis.  

In response to Joeann's quation my experience is that 20% of my gross goes to expenses and about 30% goes to the government.  So even as an independent broker I am on a 50/50 split.  New agents take note here that you need to put away a substantial amount of your earnings to pay Uncle Sam.  I know many agents that direct their escrow companies to take out 20% of each check and send it directly to the IRS.  This is like the 401K automatic deduction in a regular pay check.  If you never receive it you don't miss it. 

This is enlightening.  I figure I spend above this when I figure everything out, but each year I try to calculate the percentage.  17% is my goal.  I don't remember how I came up with that number, but each year I try to get a little closer to it.

CJ,

 Great points. The costs of doing business in our business certainly vary depending on where in the country you are as well and most importantly, how much business we are doing. The more business we do, while certain costs remain fixed, others will increase in response to us doing more business and those are the marketing costs assocaited with taking a listing and getting it sold. I cannot say whether $3,000 a month in expenses is high for the number varies for each of us based on our income and production levels. Once established, 10-15% (depending on association dues, MLS, etc) is probably a good number to use.

I found your post very timely, my wife just figured out my average cost of business in Real Estate is just over $ 3000 per month just for the basic operations including desk fees since I am with a 95/5 company. As business grows so do the costs which only makes sense. I would love to say I spend $ 15,000 per month , that would mean I would be earning close to 1 mil per year. 

One thing I am going to do this year is keep track of all of my expenditures down to the penny. I think I may be letting more money go that hasn't been accounted for and deducted.

Happy New Year!

David Green

This has been a great post CJ.  The amount we "invest" each month should have a the return that we expect.

David:  You bring up a great point.  How many of us actually keep an accurate accounting?  Many agents simply hand over their books to the CPA at the end of each year.  Back to the original title of the post the TRUE cost of doing business.

Jeff: I ageee but we have both fixed and variable expenses.  I was looking back the other day at my first year in real estate.  Gas was around $1.43 a gallon, my car payment was half of what it is today, my house payment was $1,600 a month, my utility bills were around $100.00 per month, my food bill was about $300.00 per month, my advertising bill has doubled, my telecom bills have trippled, and my rent on my office is now three times what it was then too.  Low and behold all of these amounts had now doubled or trippled.  Then I looked back at my average sale price of a home which was $130,000. My average now about $170,000.  Here's the catch.  Not one of my clients has allowed me to raise my rates to support the increased cost of doing business or the incease in the cost of living. As a matter of fact most ask me to work for less than I did almost 20 years ago.

Anyone seeking to enter real estate needs realistic figures like these as an eye-opener.  So many "hidden" expenses that the public doesn't know about -- no wonder they think we are overcharging. Thanks for showing a glimpse of the true picture.

There is an article on budgeting in the latest issue of Realtor Magazine that addresses some of this as well!!!