Posts Tagged ‘Business Planning’

Protecting Your Commission – Part 1

Posted October 6th, 2009

          I hear the same challenges from real estate professionals regardless of the market – they continue to face the age old objection about commissions. For the new agents in the industry, it should be noted that this problem has been decades in the making. The problem is not an issue with the public, though they ask us to negotiate our commission, but it is more so with the agents who do not feel they are worthy of a 5, 6 or 7% commission. This problem can be fixed if everyone would take a moment to analyze their profitability and understand their costs of doing business. I am not suggesting that you charge a specific commission rate, but rather that you choose a commission rate based on your forecasted revenues and expenses.

The reduction of 1% in your commission rate is a 15-20% drop in your gross revenue and more importantly, a drop of up to 33% in your net pay!! The cost to sell a house is the same at 6% as it is at 4%, the difference is pure profit. Most agents don’t realize the net impact of this drop or how it affects their take home income.

I often see agents cut their commission as a form of survival when they lack the skills to communicate their unique value proposition. They lack the skills and the training, so to compete they have to give away a piece of their paycheck to convince the public to do business with them. It is sad to watch them trade away their worth as a professional, and I don’t think they realize they are alienating the rest of the industry in the process. If these agents would take the time to understand the repercussions of their actions, maybe they would take the time to create a value proposition and the ability to communicate it effectively.

For the record, I want to state that not protecting your income demonstrates an inability to negotiate on many different levels, including the inability to negotiate on behalf of clients. If we are not careful, our boutique quality approach that many clients have enjoyed from their real estate professionals over the years will be replaced with a big box model designed to reduce us to order takers, and in the process, we will be working harder for less money.

Real estate is an unusual business – the salesperson takes on all the risk and their entire income is predicated on them closing sales. With salespeople getting a larger portion of the commission these days, they also assume more expenses which raises their risk. Whenever someone has risk, the return has to be in direct balance to make the risk tolerable. The problem is, many salespeople today have assumed the risk but in their lack of wisdom, they have also reduced their return so their business model doesn’t make sense.

It is easy to focus on the problem, but much more difficult to address the solution. In the next few issues I will supply you with some scripts for handling commission challenges. If you know someone in the industry who lacks the skills to protect their paycheck, or maybe has not thought about analyzing their profitability, please feel free to forward this issue to them and ask them to sign up for my free monthly subscription so they will receive the commission dialogues to set them on the right path. It is my mission over the next few issues to address this problem so salespeople will be equipped to deal with commission objections head on.

I wish you great success this month.

Chris Leader
President, Leader’s Edge Training

Please pass this information along to anyone in your contact management system who you think would benefit from reading it.

Mortgage Business Planning

Posted January 7th, 2009

Business Planning for 2009

As 2008 winds down it is time to review the past year and look forward to the year ahead. Some of you will be setting New Year’s resolutions. Instead, I turn to my business plan to design what my 2009 will look like. I learned a number of years ago not to leave anything to chance – to create a business by design rather than hope. Regardless of what stage you are at in your career, if you don’t set goals, put a plan in place to achieve them, and review your progress often to make adjustments along the way, you are doomed to repeat the same mistakes over and over again. Unfortunately, many mortgage professionals sway in whatever direction the market moves them instead of building a business by design. Even if they see the value in writing out a plan, most professionals are overwhelmed by the process because they don’t know the proper steps. As a result, they never achieve their full potential.

A business plan will help you determine how much you need to earn in 2009, it will help you focus on the expenses it will take to sustain and grow your business, and it will help you determine which activities you need to focus on each and every day to achieve your desired income. Business planning gives us the opportunity to compare results with forecasted expectations, allowing us enough time to adjust production activities or expense items to ensure we stay profitable – in essence, creating a business by design.

There are three essential steps to business planning:

1. Create Your Budget:

Look forward to 2009 and itemize all of your expected expenses for business, personal, retirement and investments. Calculate your expenses separately for each month because just as our revenue is cyclical, so are our expenses. You won’t know your exact expenses, but take your best guess and always overestimate – it is better to think you have to earn a little more each month to cover your expenses and you’ll never be caught short. Once you know exactly what you plan to spend in the upcoming year, you’ll know exactly how much you need to earn so you are no longer picking an income goal out of the sky.

2. Create Your Business Plan:

Begin with your yearly income goal from your budget and add 15% as a cushion for emergencies – it is better to aim too high than too low.
Divide your goal by your average commission to figure out how many mortgages you need to close this year.
Next, you need to look at how many client appointments it will take you to get that many approved mortgages signed. No-one is perfect, so if you get 2 approvals for every 4 appointments you go on then divide the approved mortgages you require by .50 to know how many appointments you need to go on.
Last, you need to figure out how many new prospecting contacts you need to make in order to get a client appointment. Depending on the quality of prospecting you are doing, this could vary from 25:1 to 3:1. The higher quality prospecting you do, the fewer new people you need to contact to get an appointment. Use an average figure based on your past experience and multiply the number of appointments you need to go on by the number of contacts you need to make for each appointment. This will let you know how many prospecting contacts you will need to make this year. Divide that by the number of work days in the year and you will know how many new contacts you need to make every day to achieve your income goal.

3. Monitor Your Performance:

Every month you need to review your actual revenue and expenses to see if they are higher or lower than expected. If your actual income is higher than expected, that’s great, don’t slow down, and put money away to get you through the slower cycles in your business. If your revenues are lower than expected, review your business plan to make sure you are making the number of daily contacts you committed to. Next you need to look at your expenses. If they are higher than expected, find out exactly where you are overspending and if the increase is temporary or permanent. What affect will the increase have on your annual expenses? Do you need to adjust your budget? If expenses are lower than expected, that’s great, just make sure you are not under-spending in critical areas like marketing which will hurt your business in the long run.

The goals you set for 2009 should be an inspiration and a challenge to keep you motivated, but if you set your goals unrealistically high they will overwhelm you and be a de-motivator. Your plan needs to be specific and clear to give you enough direction, and it should be computerized to allow you to make changes quickly. Once you know the number of contacts you need to make each day to meet your goal, put an action plan in place for how you are going to make those contacts (sending letters to your target market, phone prospecting, hosting seminars, handing out business cards, forming strategic alliances, joining networking groups, etc.).

The opportunities are endless to find new business. Build reminders of these activities into your daily calendar to hold yourself accountable.

If you are interested in purchasing an easy-to-use, computerized Business Plan that you can customize year after year, please visit our product store.

Happy New Year,

Chris Leader,
President, Leader’s Edge Training

Business Planning

Posted January 6th, 2009

As 2008 winds down it is time to review the past year and look forward to the year ahead. Some of you will be setting New Year’s resolutions. Instead, I turn to my business plan to design what my 2009 will look like. I learned a number of years ago not to leave anything to chance – to create a business by design rather than hope. (more…)