The problem is that they committed to the WHY but not the HOW. In the movie The Secret they say, “Don’t worry about the how. “ They encourage you to focus on the why and the universe will deliver. I agree that focusing on the why gets the ball rolling, but I also believe YOU have to take action. Here’s where it gets even more complicated. Some of us, like me, wake up with “fire in our belly”. We can’t wait to conquer. Our favorite word is Domination! We are the massive implementers in the world. We are the ones that take action. For us, there is no need for someone to light our fire to get us moving. We just move. But, here’s the rub. Many people wired like me, move and move and move and don’t get anywhere. Why? They spin their wheels because they don’t know how to get to where they want to go. However, give these types of people a plan and watch out!!
Then, there is the other type of personality. These people are more laid back. They are the take-it-easy planners who love to plan, but they find it a challenge to implement their plans. They procrastinate. This person is most likely to plan for tomorrow while only dealing with today. They put out fires, but they rarely time block to work ON their lives or their business. They spend too much time working IN the business. This type of person has the plan but struggles with seeing it through.
Maybe you are the person in the middle. You want it all. You have a plan. You do some things, but you never truly commit to seeing it through.
The point is that none of us are truly, “naturally” wired to plan, drive hard, commit, and implement in all areas of our lives. So, achieving all we want is difficult.
It’s at this point that I propose we combine the Law of Attraction with the Power of atTRACKtion.
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You wake up, and you want to drive your family to Disneyland. You’ve never been there. Everyone piles into the car with their suitcases packed, twinkling eyes full of visions of magic and hearts full of dreams ready for an adventure. You buckle everyone in, pat them on the heads, smile and climb into the driver’s seat ready to lead your family to the vacation of your lives. You turn the key in the ignition, back out of the driveway, and position your automobile forward, ready to step on the gas. Then, you realize, you don’t have a map. No Map, No GPS, No SIRI. Seriously, you have no clue how to get to Disneyland. Your motivation is high. You WANT to get there. You are clear on how this benefits your family. They all look at you with puppy dog eyes waiting for their dreams to come true, but you are stuck. Until you find answers, until you find the HOW, you can’t find a way. So, you need a map.
Real Estate is the same way. You need a map.
When I joined Keller Williams in 2010, I was lost. I didn’t understand the methodology of real estate profits. I knew I wanted a team but didn’t understand how to compensate independent contractors in the world of real estate. I knew I needed to lead generate. I was clear that I needed leads, contacts, appointments, listings, and closings. I didn’t know how to get there.
Luckily, there were those people who had gone before me. I had models. I started with MREA, The Millionaire Real Estate Agent by Gary Keller, Dave Jenks, and Jay Papasan. (Here is the leadership bound edition)
(By the way, I can arrange to get you a free book if you’re interested in speaking with a Keller Williams Team Leader about opportunities with the company.)
I began by learning the Mindset, the Models, and the Math.
MREA explains that there are 8 Goal Categories of a Millionaire Real Estate Agent. Don’t get caught up in the “Millionaire” part. The book is based on the interviews of agents across the nation that had profited a million dollars in real estate. Yes, that’s about 2.4 Million in sales volume, right? The principals and math formulas add up regardless of your level. The only thing that won’t add up is when you hear something like a “salary” amount that is based on that 2.4 Million Dollar producer.
3. Contracts Written
4. Contracts Closed
6. People (Trust me on this one. As you build; this one takes the top position.)
7. Systems and Tools
8. Personal Education (Turned out to be a much higher percentage in my studies than originally budgeted for in MREA.)
Next, once I understood the overall categories I needed to pay attention to, I started learning and creating my models.
In MREA, there are 4 models discussed:
The Economic Model
The Budget Model
The Organizational Model
The Lead Generation Model
Today, I want to focus on the Economic Model and touch on the Lead Generation Model. I plan to come back and build the others later.
The Economic Model is the formula for how your business works and makes money. This formula is the math that directly equates to your success. When you do the math and know that this math achieves your goals, you commit to the math and do the activities required to see this formula realized. Soon, the realization of your dreams follows.
The Economic Model, as stated in the MREA (Leadership book page 129) does three things for you:
1.) Shows you where you make money. (commissions and earnings)
2.) Details where your money was spent. (expenses)
3.) Shows you what you make. (bottom line, in-pocket earnings)
This is where I give you a link to the best gift Keller Williams ever gave us in the form of a PDF – The MREA Business Plan!
I went to the office store and got a big, black, three-ring binder, hole-punched the printed packet, loaded the slots inside the binder with pencils and erasers, and went to work.
It was a mess, and it took me years to get right. It’s OK to be a mess in the beginning. Start. That’s all you need to do today; start. You will grow as your business does. Tracking is a skill, and you can learn it no matter how you think you are with numbers, spreadsheets, and formulas. Trust me. If I can do this, so can you. I now run all my companies on Google Doc Workbooks made up of these formulas (on steroids).
I’m going to start you with the MREA Basic Economic Model. This step is the part a lot of people find challenging. But, it’s SO important. I’ll show you the formula, but I’ll break it down for you. Load the MREA Business Plan and follow the instructions to prepare best. In addition, Keller Williams teaches a course called Agent Financials. Agent Financials is a must-take course if it comes to your area or you can get on a plane!
I would love to see you put a time frame on top. Create a real goal with a definite completion date. If you are beginning this on January 1, 2015, then that’s your start date. The completion date would be December 31, 2015. You could do this by the quarter if you wanted to break it into a smaller digestible bite, but doing the year is suggested in Business Planning 101.
This model is based on having a 40% profitability. If you have not hired agents and have a lower cost of sale, your numbers may differ. Adjust the formula where needed. If your cost of sale is only 10% and your expenses are 30%, you may work towards a 60% profitability at your level.
Choose your Top number. The Net Income should be how much money you want to make pretax. How much do you want to put IN YOUR POCKET before taxes? Next, add up your Cost of Sales and your Operating Expenses.
MREA suggests 29.2% as costs of sale (This is the cost of doing business: money to your brokerage or franchise fees and how much you pay agents on your team.) If you don’t have a team, your cost of sale will be what you pay your brokerage in fees. Do not include your desk or office space. That is an occupancy fee that is listed in your expenses.
Example: You pay your brokerage $20,000 a year, and your total commission is $200,000. That’s a cost of sale of 10%. You have no other agents working for you. You have no real estate agent referrals projected and do not see another cost of doing business. Everything else is an “expense”. You can adjust this model to show 10% COS instead of 29.2%. If you’re like me, a 7th level agent who doesn’t produce, and you have a significant amount of (25%) agent referrals, you may have a 40% cost of sale. If you don’t know what yours is, you may have to use the standards and adjust after you spend a year tracking. It will change as you grow if you intend to build.
Now, everything else is expenses: salaries, licenses, fuel, phone, occupancy, accounting/legal, and so on. MREA figures this to be about 29.2% of your total GCI.
The Fundamental Formula based on MREA guidelines is: GCI = Net Income ÷ .416
(((For easy math, I’m going to use LOW numbers. I also want you to wrap your brain around how easy it is to do $100,000 NET and then scale up from there. If you want a million in GCI, that’s great. Change up the numbers. This is a guide.)))
If you want to have a net income of $100,000, your goal GCI will be $100,000 divided by .416 which is $240,384.62
Now, you are not an agent who has yet built a team, and you just want to do the basics. You can do the math backward and say: I want to earn $100,000.
Let’s start with $150,000 and see where that gets me. (I like to use a calculator and spreadsheet while I play with the numbers.)
I earn $150,000 in GCI (Gross Closed Income)
I have a 10% cost of sale = $15,000
I’ll trust the math and say 30% is expenses = $45,000
That means $60,000 is OUT, and that leaves me with $150,000 – $60,000 = $90,000.
I either say yes, that’s good or up my GCI.
Now, I earn $160,000 in GCI
Have $16,000 in COS
and $48,000 in expenses
Leaving me with: $96,000.
To get to your $100,000, you now know:
You need to earn $170,000 in GCI
and will have $17,000 in COS
and will have $51,000 in Expenses
Leaving you with: $102,000 in GCI. (I like to shoot over rather than under.)
You now have your numbers for the top and your projected GCI goal of $170,000, which will earn you $102,000 in pretax income. Remember, if you have agents, that COS will change.
I’m showing you the math this way because it’s an easier way to wrap your head around what the numbers mean. I like to play with the numbers directly rather than a hard set formula I don’t understand.
Next, you have to decide how many buyers and how many sellers you will work next year. For the sake of math and probability, let’s say 50/50. Starting with that bottom line on the formula sheet, how much Gross Revenue from Sellers and Buyers would you earn? It would be $170,000 (from your GCI total) divided by 2.
$85,000 in GCI then from Buyers
$85,000 in GCI then from Sellers
Next, take your average commission and multiply it by the Gross Revenue.
Example: $85,000 divided by .03 =$2,833,333.33
Now, $2,833,333.33 becomes your total Seller Sold Volume
Take that number and divide it by your Average Sales Price. For today’s math, let’s say $200,000.
Now, 14.167 is how many seller homes you need to Close. (Stay with me on the “off” numbers. We can round later.)
Now, IF you are tracking, which I’m going to show you once we are done with the model, then you would know your conversion rate from the listing appointment to the listing close. MREA suggested 65 in their model, but I’m going to say you are REALLY good at what you do and give you a 75% conversion rate from listing taken to listing closed. Remember, you have to allow for fall out. You won’t close every listing. Not every house is going to sell. (Of course, if you priced it to sell; it would!)
So, 75% / 14.167 = 18.89
You now know that you need 18.89 Listings TAKEN to achieve 14.167 listings CLOSED.
Plug in those numbers on your sheet, and we will move forward to appointments.
The next conversion rate you need to know is how many appointments do you convert? You might say, “Oh, I’m good, I convert 90%.” And, I’d laugh and say, “Prove it.” Maybe you can. If you are tracking, you sure could, right? I’m going to say 80% for the sake of today’s math. For every ten appointments, you list eight. You would have an 80% conversion rate from appointment to listing taken.
18.89 divided by 80% = 23.611
I would now round UP and adjust the math because it makes me crazy to deal with broken numbers. After all, how can you go on 23.61 appointments, right? I always round up and leave room for error, never down hoping to work up to the projected number.
I would say, “Okay, no matter what happens this year. No matter what – I have to go on 24 listing appointments.” Assuming I had the same math on the buyer side (which you shouldn’t as conversions will be different as you track), I would know that I also need 24 buyer appointments.
That’s 48 appointments a year. That’s two appointments a month to meet my $100,000 in my pocket goal!!
WOW!!! Not so hard right?
If you didn’t know that, you wouldn’t know how to track.
Lead Generation Model:
Now here is where the Lead Generation Model comes in.
I know that I need 48 appointments to achieve $100,000 in my pocket (pretax). I have to know how many contacts that takes.
You can do more work on the Lead Generation Model using the PDF I referenced in this post, but I’ll break down the general idea for you. Your conversion rates for each lead source will not be the same. You will not convert the same percentage of web lead registrations that you will for sphere of influence leads (friends and family). You need to build your lead generation model around conversion rates. In the beginning, you will be guessing if you have not been tracking. Over time, as you track, you will plug in proven numbers, and next year’s business plan (economic model) will be a breeze for you!
Step 1: Create a Buyer Sheet and a Seller Sheet. You’ll want to track buyer sources and seller sources on their own as they will also be different. The odds of me converting a seller web lead I get online are MUCH higher than my buyer leads. I convert 3.5% of my buyer “registrants” and 48% of my seller leads based on 2014 data. So, I would not want to group them in one bucket.
In the next column, list the amount you want to guess (or list your proven numbers if you know them) for conversion. From the moment the “lead” or contact comes in, what % of those will convert to an appointment? Remember, we are not tracking lead to closing converting for this model. We are tracking from the moment you see the phone number or email to the moment you get an appointment. You could do this from source to closing, but I want you to focus on appointments right now so that you know what activity must happen to achieve your net.
In the next column, leave a space for the math. In the 4th column, as shown in the graph, list the total number of appointments you believe you will get from each source. Make sure that if you have divided your business plan into 50% buyers and sellers that you remember only to total this up to listing appointments. According to our sample math to get to the $170,000 in GCI and $100,000 net, we need 24 listing appointments.
Next, Divide your number of projected appointments by your conversion rate for that line, and you’ll get the total number of leads required for that source to achieve your appointment goal.
Example: Line one is Open Houses. We figured we would have two appointments from open houses. With a 10% conversion rate (counting from all people who walk through the open house and register), we need TWENTY actual contacts that we talk to after the open house that convert to two appointments. It’s a Lead to Contact to Appointment formula in a few of these cases.
If I talk to 40 Expired Listings and convert 5% of them, I would have two appointments per year for expired listings.
Clearly, I’m making up conversion rates and total numbers here, but the formula works. You just have to adjust it to your needs.
Finally, let’s talk about tracking these numbers. Tracking was a major challenge for me in the beginning. As I began to build, it got harder and harder. If you start the discipline when it’s just you, adding on tracking for team members will be less challenging. Implementing a new tracking system when you have a large team takes more work. I finally realized I had to involve my administrative team to chase the numbers we needed to make the math add up. This year, 2015, we have the science and will know every single number. In 2014, we did everything except appointment conversion for our agents. This year, that final piece gets added.
The easiest way for me is Google Documents. I can use one sheet in a cloud. Everyone can get to this sheer from anywhere to report their numbers, look up their average commission, and track their appointments for the year. The marketing team can check lead volume and measure from this same sheet.
It’s this simple to start:
1.) You list every lead. Mark it as a buyer or seller, and credit the source.
2.) Now that you have every lead, logging an appointment next to that name will be easy once the appointment is made.
3.) Log in contracts and closings, including sales volume and GCI
Once you get to the advanced numbers, you’ll be able to tie these into measuring conversion rates from lead to appointment, appointment to close, lead to close and so on. If you are great at Excel, you can program these formulas and the reporting. If not, you can do it manually with a calculator and add in the total numbers, or you can hire someone to help you complete the math.
What you will want in the beginning is to focus on your appointments and your leads. If you are hitting those numbers, the rest of the reporting will become valuable as you grow your business. If you are not hitting your appointment numbers and lead generation numbers, the rest won’t matter. Worry about tracking and hitting those lead numbers and appointment numbers…
THEN, look at:
- Average sales price per buy side and per sell side.
- Average commission per buy side and per sell side.
- Conversion from lead source to appointment per side.
- Conversion from lead source to close per side.
- Conversion from Appointment to close (both sides).
- Average commission per source (per side if you want to drill down that far).
- Average days on market per listing.
- Average list to close ratio.
- Average buyer contract to close time.
- All of these averages broken down into team members.
There are more. But, I’m betting this gets you rolling!!!