A real estate business can be an amazing opportunity for achieving financial freedom and personal fulfillment – but only for those who understand and figure out what they need to do to run a successful business.
It’s very common for agents to build a business that never grows past the point of providing a modest income.
And despite their best efforts, they never seem to reach the next level in their business.
Too often I hear agents complain about being overwhelmed.
About there being too many options.
And acknowledging their lack of focus.
The point of this article is to help you transition from confusion to clarity.
I’ll share with you how focusing on a limited number of areas in your business, and making very small improvements, will enable you to double your income.
Start by thinking small
I know. Most real estate trainers and coaches teach you to think big, to set big goals.
But I want you to think small.
Here’s proof that it works.
When Sir David Brailsford became the head of the British Cycling team in 2002, the team had almost no track record of success, having won only a single gold medal in its 76-year history.
But that wouldn’t last long under his leadership.
At the 2008 Olympics in Beijing, the British team won 7 out of 10 gold medals in track cycling.
They repeated that feat in London four years later.
Well, it wasn’t by setting big, hairy audacious goals as most trainers would have you believe.
Sir David, a former professional cycler, applied the theory of marginal gains to cycling by taking every action that goes into racing on a bicycle and seeking to improve each area by only 1%.
He wasn’t interested in perfection. Only progression.
If enough items were subject to a very small improvement, the compound effect, over time, would be enough to turn the team into champions.
You can use the same approach to grow your business.
Applying marginal gains to your business
You don’t have to have an MBA from some fancy business school to benefit from the theory of marginal gains.
You just have to know, like the gold-medal winning British cycling team, that it works and how to use it.
Think about the components that make up you real estate business.
It’s leads and conversion rates. It’s listings and average sales prices. It’s commissions and how those commissions are divided.
Each of these can be measured.
And keep in mind the old business axiom, “what gets measured, gets managed”.
Once you know how to manage them, you can improve them. And those small incremental improvements will compound over time – in your favor.
We want to focus on improving each of these by a mere 1% per month.
Not perfection, just progression.
To understand this better, take a look at the following spreadsheet;
Let’s assume that you are currently generating 30 leads per year, as indicated in Line 1 of the spreadsheet.
At a current conversion rate of 50%, you generate 15 appointments and you are able to convert 75% of those appointments, resulting in 11 listings as shown on line 5.
You successfully sell 80% of your listings for a total of 9 sales.
At an average price of $300,000, you have sold a total of $2,700,000 as shown on line 9.
Assuming a 3% commission, your sales activity generated total revenue to your broker of $81,000.
Based on your production, you are on a 65% split and receive $52,650 for your efforts.
Now, assume that you could break each of the activities in this spreadsheet down and find ways to improve your results by only 1% per month.
For example, instead of averaging 30 leads per year, you would now generate a total of 34 leads.
That’s only one new lead per quarter.
Seems completely achievable, right?
Let’s see how those small improvements would impact your income in the following spreadsheet.
As you can see from the spreadsheet above, the incremental improvements for each of these areas was small – totaling 12% for the year, or 1% per month.
Yet the impact to the total agent income was substantial – more than doubling the income before the changes were made.
If you’re one of those agents who has difficulty knowing what to focus on to grow your business, here’s your wake-up call.
The key is that measuring, managing and improving your key marketing and production numbers, even by an incremental amount, can result in a massive increase in your income.
How to achieve incremental gains
To implement a marginal gains strategy in your business, the first thing I recommend is that you write the formula from the spreadsheet on a whiteboard or somewhere else in your office where you will see it every day.
Include each of your current numbers.
- Annual leads
- Conversion rate of leads to appointments
- Conversion rate of appointments to listings taken
- Conversion rate of listings taken to listings sold
- Your average list price
- Your average commission rate
- Your commission split with your broker
Then, begin to identify ways to optimize these numbers.
Let’s look at how you can achieve incremental gains in each of these areas.
Increasing your annual leads
Leads are the lifeblood of your real estate business.
Increasing the number of leads your business generates is also one of the easiest ways to increase your income. And spending the time, and money, to improve your lead generation is one of the best investments you can make.
You should first determine how much a new client is worth to your business and how much you are willing to spend to acquire new clients.
The person who spends the most to acquire a customer wins.Dan Kennedy, Legendary Marketer
Your marketing budget should not be viewed as an expense, but rather an investment.
Just as you invest in stocks, mutual funds or other investments where you expect a return, your marketing should provide a return in excess of the actual cost.
Consider this; If I told you I would sell you $10 bills for $2, how many would you buy?
Would you give me $20, $40 or $100 and say that’s all you can afford?
Or would you leave and come back with bags of money?
When you learn to create lead generation campaigns that are measurable and trackable, you no longer look at your efforts as an expense. You can do this because you know that for every dollar spent on lead generation, you can expect a return greater than that dollar.
Assume you wanted to earn $100,000 in the next year. Let’s take a look at the following calculations to see how much you could afford to spend acquiring leads if you wanted a 5-to-1 return on your advertising spend.
A 5-to-1 return equals a 500% return on every dollar spent to generate leads.
Considering that most people are willing to accept a 6-8% annual return on their investments, a 500% return on your marketing spend represents an enormous opportunity.
Let’s consider the following assumptions;
- Your average sale is $300,000
- The average commission rate paid to your broker is 3%
- Your commission split with your broker is 65%.
- 70% of your appointments result in listings.
- 60% of your leads result in appointments.
- For every 100 people who see your ad, 2 will respond – a 2% conversion rate.
Given these assumptions, and that you want to earn a 5-to-1 return on your advertising dollars, and earn $100,000 in the coming year, you could afford to spend $491.40 to generate each lead.
Your cost per ad view over the course of the year would be $9.83, or $0.82 per contact, per month.
So if you sent a monthly postcard to 2,035 households, at a cost per postcard mailing of $0.82, you would spend $20,000 in 12 months.
If you achieved a 2% response rate, you would generate 40 leads.
By converting 60% of those leads to appointments, you would set 24 appointments.
And by converting 70% of those appointments to listings, and those listings to sales, you would achieve 17 sales.
At an average sales price of $300,000, you generated total sales volume of just over $5 million.
And at your current 65% split, you would have earned $100,000 – or 5 times your marketing spend.
When you know how much you can afford to spend to acquire leads, you are able to evaluate opportunities for reaching your target audience based on the expected cost of the marketing channel compared to the potential response rates.
If you’re willing to accept a lower return on your ad budget, such as a 2-to-1 return, you can afford to spend more to generate leads.
The key is creating a lead generation strategy that returns a higher income than the cost to generate those leads.
Once you have created this lead generation machine, you can continue to feed it money – knowing that it will return much more in income than it consumes.
You can start small, identify what works, and then commit larger sums of money to your campaigns to reach more homeowners.
I suggest that you start by evaluating where you are currently generating leads. Here are several questions to ask yourself regarding your current lead generation efforts;
Are you currently tracking where your leads are coming from so that you can reallocate your time and money to those areas that are producing leads and eliminate those activities that are not producing leads?
If you know which sources of leads are productive, are those sources scalable? Can you put more money and effort into those sources to generate even more leads – or are there better opportunities available?
Are you advertising regularly – or are you engaging in “random acts of marketing” where you only promote your services when you find yourself without listings or buyer clients?
Do your ads target a particular group, such as a niche market? If not, you can learn more about identifying a profitable niche where you can focus your efforts for greater results.
Improving your conversion rate of leads to appointments
The next step in achieving incremental gains in your business is to focus on converting a higher percentage of leads to in-person appointments.
There are several ways you can accomplish this;
- Using a lead generation strategy that educates your target audience. You can create ebooks that help your target audience understand the process of selling their home and positions you as an authority.
- Using a pre-listing presentation. A well-designed pre-listing presentation can be used as a lead generation tool just like the ebooks mentioned above. By providing educational content, as well as your track record of results, your presentation can be used to pre-sell your services.
- Leveraging testimonials. One of the most effective tactics I used in my career was to provide leads with copies of testimonials that reflected how I’d helped homeowners in a similar situation to the prospect. If the prospect had an expired listing, I would provide 3-4 testimonials from past clients explaining how I had helped them achieve a sale where other agents had failed.
Again, the key is to look for any small improvement in how you market your services so that you can achieve on-going incremental improvements that make it easier for you to convert leads to appointments.
Increasing your conversion rate of appointments to listings taken
Increasing your conversion rate of appointments to listings is easier when you follow the steps outlined in increasing your conversion rate of leads to appointments.
When you use content that educates the homeowner and presents your proven track record, along with well-written testimonials, it makes it much easier to convert appointments to signed, salable listings.
Other ways you can achieve incremental improvements include;
- Improving your objection-handling skills.
- Improving your pricing strategy. For example, I never provided a CMA in my entire career.
Because I knew if the seller didn’t like my number, even if it was correct, it would make it difficult to convert them to a client.
So I tested a variety of strategies and settled on either having a pre-listing appraisal or using a technique where the seller established the price based on information I provided them.
The result was that I converted a much higher percentage of my appointments to signed listings.
- Using a pre-listing presentation to pre-sell your services so that you remove, or reduce, the opportunity for objections during your presentation.
If converting appointments to signed listings is an area you know you need to improve upon, I suggest mapping out every step of the process – to the extent it can’t be broken down any further.
Then, look at where in that string of events you are experiencing resistance from homeowners and identify ways to overcome those challenges.
Increasing your conversion rate of listings taken to listings sold
Closing a higher percentage of your listings will enable you to earn more commissions with less work.
Once more, I suggest mapping out every step you take from the time you list a property until it has closed.
Look for areas where you are experiencing difficulties.
Is it marketing the listing? Getting showings? Maintaining a competitive list price? Are you losing listings because of poor communication? Are deals falling apart, leaving your seller client in frustration?
Then, at every step where you know you are struggling, identify ways to achieve small improvements.
Keep in mind that there are only three factors that influence the sale of a home;
The marketing you do has one job; to increase awareness among potential buyers, and their agents, driving traffic to the front door.
Once the buyer is there, the job of marketing is over.
Now your listing has to compete with every other available home on the balance of Price and Condition.
80% of the buyer’s criteria has already been met by the time they knock on the door.
They know the price, the neighborhood, the schools, the number of bedrooms and baths, the features and amenities.
What they are looking for is validation; could this be the right house for me?
You can control roughly 70% of the remaining 20% through repairs and staging.
Map these steps out and view your current practices with a very critical eye. Is there anything you could do to improve?
Increasing your average sales price
A lot of agents ask me how they can make more money in real estate.
The surest way is to increase your average sales price.
For whatever reason, many agents are intimidated to pursue higher-end listings than they have traditionally sold.
This is a costly mistake that will limit your ability to earn a high income.
In many situations, higher-end homes are actually easier to sell.
First, higher-end homes tend to be in better condition as the homeowner has more money to spend on decorating and maintenance.
Also, for most high-end homeowners, there current home isn’t likely to be their first, so they’ve been through the process before and are more experienced.
So how do you get these magical unicorn listings?
First, have a solid plan for getting the house sold. People want to see that you have a plan and aren’t using their home as a guinea pig.
Second, develop a solid track record at a lower price point. There really isn’t much difference between selling a $300,000 home and selling a $1 million home.
Last, get testimonials. I found that the higher the price, the more the homeowner wanted to see that others had a great experience working with you.
When homeowners see that you have a plan, that it has produced results and others are willing to go on record stating that you were a pleasure to work with and solved their problems, your ability to list higher-end properties will become much easier.
One last note; If you use the approach of incremental improvements, increasing your average listing from $300,000 to $336,000 should be very easy to accomplish.
Combined with several other incremental improvements, you can double your income.
Increasing your average commission rate
Increasing your average commission rate is slightly more difficult that the other improvements you’ll seek to achieve.
As you develop a solid track record of results, especially when those results help your clients outperform the market, you will be in a position to ask for, and receive, a higher commission rate.
Your business is no different than an attorney.
You can hire a newly-minted attorney for $200 per hour – but a seasoned lawyer with a demonstrated track record can easily command $500 to $800 per hour or more.
It all boils down to your experience and the results you deliver.
Another way to increase your average commission rate is to sell more of your listings direct – without another agent.
I sold an average of 57% of my listings with no other agent involved.
But be wary of the laws surrounding dual agency. Undisclosed dual agency has tripped up many agents and cost them far more than the extra commission they earned. Take the time to become well educated about agency laws in your state before trying to “double end” too many deals.
Increasing your commission split with your broker
Another incremental improvement is to increase your total share of the commissions you generate.
There are several ways to accomplish this;
- Many brokerage firms offer a sliding scale commission structure. As you produce more, you get a larger percentage of the commissions. Again, we are looking for small, incremental improvements. If increasing your overall production by 12% per year also serves to increase your commission split by 12%, you have already achieved your goal. If not, see if you can negotiate a better split arrangement.
- There are numerous firms that cap the total commission paid to the firm after you have reached a certain volume of sales. By achieving this cap, you dramatically increase your income by eliminating the brokers participation in any commissions you generate after the cap has been paid.
- Other brokerages offer a limited service arrangement in exchange for paying a monthly desk fee and a very small percentage of your overall commissions.
When selecting a broker, there is more to consider than the amount of commission you will give up.
The image of the brokerage, especially with your target audience, can be even more important.
If you want to pursue high-end luxury listings, a discount brokerage probably won’t have the image that your target audience demands. Nor will your discount brokerage spend the money to produce and distribute the impressive advertising that luxury homeowners often expect.
In evaluating your brokerage relationships, always balance their commission splits with how being affiliated with them will position you to serve your desired target audience.
Growing your real estate business, and your income, doesn’t have to be overwhelming.
You simply need to understand the key performance indicators, or KPI’s, of your business and work towards achieving incremental gains in each area.
By focusing on these limited areas of your business, you are able to ignore the distractions that do not help you achieve the desired gains.
You are able to work with a renewed sense of purpose as you strive to make small, yet important, improvements. The long-term impact to your business will be more consistent leads that are easier to convert to signed listings, improved marketing of your listings, happier clients and increased profitability.
And who wouldn’t like that?