A major and difficult element of a team is finding the perfect balance between sales as well as revenue and expenses to make a fair net profit. A majority of the team’s gains and balance sheets of loss are not well-balanced. The main issue facing most Lead Agents is a lack of financial control and understanding of the most important numbers to be tracked to ensure control and your net profits.
Many Agents do not have a quick check to assess what they’re doing in their businesses. They don’t have a set of numbers that will show the health and success of their company. It is important to realize that selling is a game of margins. The margin is determined by the expenditure of time, resources, and capital that is expected to yield income and satisfaction. It is essential to have a means we can employ to evaluate the margins efficiently and quickly. The reason I came up with the seven critical numbers that are part of the practice of a real estate agent was due to the fact that so many agents struggle to manage their business and their time and control their finances with the result of a controlled level of living.
1. Hourly rate
It’s the amount you earn for every hour you invest in the real estate business. Add the number of hours you spend in a day and divide the number of days you work one week, and then multiply that by the number of weeks that you work during the course of a year. The result will be a total of between 1,500 and 4000 hours. Let me provide you with a hint that 4,000 hours is an unwise number. However, I’ve observed it. Divide the gross commissions you earn by your total hours. This is the hourly rate or the hourly rate. Make sure you use gross commissions prior to expenses or splits in the company. In terms of business, gross commission income is comparable to the gross amount of sales or revenue. You should use the word “gross” because you are the one who creates that amount of income for your company.
2. Average commission check
We should be aware of our average commission amount or the average amount of sales earnings. To create a solid business plan and create sales projections, we must be mindful of your average commission. If we wish to determine our sales margins or even revenues versus expenses on a per-transaction basis, it is important to be aware of our average commission checks. If you ask any good restaurant owner about the typical amount of money spent on the menu, they’ll be able to inform you. Casinos in Las Vegas know what the average customer pays when they visit Vegas to play at the tables. The goal of the casinos is to create events and promotions that draw more people to see them. The gross commission amount is then split up by the number of units that you have closed. You must ensure that you represent both the seller and buyer in a transaction; you take that transaction as two.
3. Average sales price
The price for sales average will reveal which two or three areas of the market that you earn the most revenue from. For instance, if you have a low average commission, the chances are you’re working at the entry or the lower-middle price range. This can show which areas you’re currently spending most of your time in or where you are investing the largest marketing dollars. When you’ve determined the number by calculating the gross volume of sales (again taking the sales volume twice if you represent both the buyer and seller) and then dividing it by the number of transactions that you make, you will get the average price for sales. When you know the average price for sales and know your average sales price, you can decide to shift it up or down based on market conditions and also the amount of return on your investment that you want. This will show how efficient you are in proving your worth to your client if you divide your average selling price by the average commission to determine what you are charging on average in exchange for the services you provide. It’s a quick and simple method to determine how effective you’re doing in protecting the fee you charge. If the percentage of your payment is less than what you would like and you want to increase it, implement corrective measures. Many Agents find out later that they’re giving their fees away in the majority of transactions.
4. Cost per transaction
This is a key aspect of an agent’s work, and more than 90% of Agents do not know about the exact number. The cost per transaction average will reveal how efficient the business proprietor is and the amount of net profit you should anticipate. To calculate this, consider all the costs associated with your business, i.e., your cell phone marketing signs, advertising gasoline, vehicle insurance, car insurance or business, even health (it’s an expense that can be deducted), and your Assistant’s salary or any other legitimate business expense and add them all together. Divide your total costs by the number of units you use. This will result in a fee per transaction. Your price per transaction will drop when your sales expand. When you meet with any McDonald’s franchise owner around the world and they will be able to explain to you the cost to create the Big Mac. They’ll tell you right upright to the cent. This is the person who runs the business.
5. Marketing cost per transaction
We’d like to ensure that the number isn’t overly excessive. It’s not possible to spend more than two hundred dollars to expose properties that aren’t worth the money and still earn a fair profit. How much do you invest in advertising and marketing divided by the number of units you’re closing. A listing agent will have more in this category than an Agent who is primarily working with buyers.
6. Time spent per transaction
What are you spending in time in each transaction? I’m convinced that a real estate Agent is a dual-purpose person when it comes to their business. The first hat can be described as “Lead Salesperson”- that is, the hourly rate at which you are expected to earn. This is what you make per hour. Also, you are the “CEO” or owner of the business. The person who owns the company is entitled to a profit for their efforts. The money earned is what’s left after all is paid, including an hourly wage. You’ll live and pay the hourly rate. In essence, it’s your earnings. Wealth and financial freedom come from the money you earn.
7. Net profit per transaction is the goal
I believe that you should set an idea of what you can earn in the average for each transaction you make. It isn’t feasible to leave these profits to chance. My target was $1,500. The amount would be higher today due to the average sales price hike. If I didn’t make $1,500 in a single transaction, I suggested the possibility to another Agent. Perhaps the buyer desired to price their home too high, and this would result in a rise in the cost of marketing for each transaction, the number of days I had to be in the market, and my time spent talking to the client week after week about lowering their prices. All of these factors could reduce my net.
The client could be a very high-maintenance kind of customer. They are looking for excessive calling, reporting, or customer care. The expectations are absurd. It would also add to the amount of time I invest in each transaction, which would reduce my net profits. I will only earn about $1500 net dollars in profits. I must determine will my 3 hours of work result in an increase in net income somewhere another place? If I refer the prospect to me, I am confident that I can earn the 25% referral fee of $975 in 10 to 20 hours of time with a minimal amount of other costs. With a great demand or even a difficult client, I’m better off referring than representing.
Dirk Zeller is a sought author, speaker, and CEO of Real Estate Champions. His company has trained more than 350,000 agents worldwide every year via seminars, live shows, online courses, training for self-study, and newsletters. The Real Estate community has accepted and praised his six top-selling books: The First Year of Real Estate The Success of a Real Estate Agent For Dummies(r), The Champion Real Estate Agent, The Champion Real Estate Team, Telephone Sales for Dummies(r) Effective time management for Dummies(r) and more than 300 printed articles.
Real Estate Champions is a leading coaching business. The training program covers a broad spectrum from novice agents to experienced ones, as well as people interested in the field of real estate marketing or investment in real estate.