4 Principles to Building a Profitable Real Estate Team (Part 2)

Welcome back to the Business Freedom Podcast where we talk about the good, bad, ugly of building a real estate team. Lars Hedinburg, founder of Real Estate B School and co founder of High Performance Real Estate advisors in Charlotte, North Carolina and been at this for 12 years in terms of building a team. And Real Estate B School has been around for six years and most of my time is spent talking to team leaders about their biggest struggles. And that is why we're in the midst of a four part series that I'm calling Building a Profitable Real Estate Team. So there's a key word in there and I wonder if you can guess what the word is. Like I said, I spend a lot of times with folks that are doing 1, 2, 3, 4, 5 million GCI and they're so focused on top line growth that they forget that top line growth is more ego sometimes. And I understand that's a broad generalization. A lot of times top line growth is ego and we're not paying attention to bottom line growth. So there is a path to building a super profitable, highly leveraged real estate team where everything doesn't revolve around the team leader. And that's what we stand for at Real Estate B School. And that's what this four part is about. If you missed part one, we talked about beginning with the end in mind in terms of just knowing where you're going, drawing a line in the sand and saying, from this point forward, the next three years are going to look like this. And I'm going to take these steps intentionally. Even if they're hard, they're often, what's the expression? This journey isn't necessarily complex. It's pretty simple. It's just not easy. And so even if it's going to be hard, you're going to draw this line in the sand and you're going to begin with the end of mind. Three years from now, you will have a certain thing and it will be more leveraged, more systems driven, more profitable, less dependent on you, more fulfilling in all areas of your life than you have today. And that's what part one was. If you missed it, you need to go back and consume every bit of it. Part two is stick to the model. And so that assumes that you know what the model is. And when I talk about model, I'm talking about your financial model, your budget model, your economic model, the hard lines you draw around what is acceptable in terms of spending in the key areas of the business. And so profit is a choice. It's not this monumental event that happens One day. And a lot of folks that are quote unquote reinvesting back into the business, they're kidding themselves. They're just not holding their people or their expenses accountable. So know and stick to the model. And there's a few points I want to cover here. I want to go through the economic model that I've followed for 10 years or so that we teach in real estate B school. I want to cover value based commission splits. And a lot of folks don't really understand, you know, what is possible in terms of if you build this thing the right way. You don't. You're offering the value you provide to sales agents, to agents that join your team is not just the split. And I see, man, probably more than 80% of teams, the only value they provide is it's some leads. A loose, is a loose word, a loose structure in cadence and splits. And so there are a whole bunch of drivers and we have eight types of compensation that you'll receive when you join our team. Most teams only have two. It's commission splits and it's what else? Commission splits and leads. And that's it. So you really need to sort of dig into the value. So the first thing I want to cover is that there's building to do before you throw a bunch of agents into the mix. So I forget the movie, build it and they will come. And the way I want you to picture or think about your real estate team is that it is a team just like a basketball team, just like a baseball team, just like a football team. And there are different positions on that team. I see a lot of team leaders just throwing a bunch of agents at leads and just hoping that something good comes out of it. Without setting up your lead management and follow up systems, your sales processes for buyer consultations, your appointment setting processes, your new agent training, your agent achievement system when they're onboarded to the team, even how to recruit and select agents that join your team. It's not beginning with the end in mind for sure. And you're not building the thing before you're throwing people into it. That's the biggest failure point in terms of building a profitable real estate team. It's that it's not built first. There's no foundation whatsoever with systems and the things that your agents need to do and your operations need to do to serve your clients, buyers and sellers at a high level, but also for operations to serve sales at a high level and for the systems around all of it to be built. So there's some building that needs to be done before you can really add salespeople into the mix. And then you only have as many positions as you have on the team. You know, I come into contact with team leaders that just think that throwing more money at Zillow and throwing more bodies at the Zillow leads, that that's their definition of building a team. And is it is really, I want to say the worst idea ever. And these aren't bad people. It's just not a sustainable business. And it's like you sort of get hooked on the drug of the lead versus just build a system that serves buyers and sellers and that system is going to take care of itself and that's going to generate repeat and referral business. So that's point number one is to build it first. Slow down, look at the business. In real estate B school we have four key drivers a sustainable, profitable, systems driven real estate team. It's attract, convert, deliver and once you figure those three out, then you can scale. So attract is all about database marketing, listing marketing, buyer marketing. Convert is about lead management and follow up. It's about the appointment, setting, process and consultations, right? Buyer and seller consultations, delivery, there's buyer client servicing, listing client servicing, and I'm talking world class client servicing and then transaction coordination. And when we talk about scale, most team leaders go to scale without having the other three drivers running smoothly without them. Scale is all about creating your future. That three year picture that we talked about in the first part of the series, it is about knowing your numbers, right? Becoming the CFO of your business. Not just in a lagging, you know, to see what's in the bank account or to see your books two or three or four weeks or four times a year or once a year when you do taxes. I'm talking about the leading indicators in the business. And we'll talk about that in part three of this series. And then the third part of the scale driver is to grow your team and how do you attract real talent, how do you onboard them properly and all that great stuff. So that's a framework that I'll constantly go back to attract, convert, deliver and scale. So builder first, that's point one. Point two is what's the value? And it fits, it dovetails into part one. But what's the value that you provide and how do you pay your agents accordingly? And I call this value based commission splits. Fortunately, I've been following value based commission splits since I started a team back in 2009. I hired my first agent and the goal Here is to pay your agents what they're worth with respect to a given transaction. So our agents get paid differently on the list side versus the buy side. Our average gross margin, so what the team takes on the listing side is about 82%. And on the buy side we take about 70, maybe 65 to 70%, maybe about 70%. Overall, our gross margins are about 72 to 73%. That's after we pay our brokerage and that's after we pay inside sales and outside sales, our showing agents, our buyer's agents, our lead agents and all of that. Even we pay bonuses to our agents in training as well. So you have to know the value. Lost my train of thought a little bit. Value based commission split. So agents will get paid more on a deal that they bring to the table than a deal that we set for them. Or it's a lead that we generated, or it's a platform like, you know, expireds or mojo, or it's something that we've provided for the agent. And the goal here is just for you to realize that it's not about the commission splits, it's having a conversation. Hey, if I can show you a clear path to a six figure net income where you take on none of the risk, Mr. Or Mrs. New agent that thinks they can sell 50 homes a year even though nobody in any market really actually does that, you're having this conversation. It's not about the splits, it's about the value you provide. And your goal as a team leader is to provide more value than any other team in your market or the entire country. Right? So there's an internal aspect of this world class service, right? You want to be able to build something that's legitimately going to make the job of your salespeople easier. And by making it easier, they can sell more homes and split becomes irrelevant because you're going to show them a path to seven figures very, very easily. So value based commission splits and you as a team leader really truly understanding your value. And it really does break down in attract, convert and deliver those three key drivers. And getting those right, getting those operating as independent systems, independent of you tinkering with them all the time. And so that's really, really key. So part three, three I kind of got into a little bit here is the economic model itself. You need to determine your own economic model. So in real estate B school, we have an economic model that we follow. It is based on ultimately the team leader being completely out of production. And so these numbers will be a whole lot Higher. If the team leaders in production, a lot of times I see a team leader say, yeah, we're really profitable. We did 25% profit last year. You know, we did a million and a half of gci. It was me and, you know, four other agents. And you dig in a little bit. So let's say that were true. Let's say it was a million GCI and yeah, you know, I'm profitable 25% or even 30%, let's say. So, okay, so your profit before taxes and owner's compensation was 300,000. And how much of the million GCI did you do yourself? I did just over 50% myself. Okay, so you took 200 of your 500 to accommodate for all the inefficiencies in the rest of your. Like how does that math even come close to working? And so the economic model I'm going to go through assumes that you've set it up properly from a splits perspective. From the value provide. All the systems you provide to your agents, you're not looking to take advantage of any agent. You're just looking to provide so much value that they can do more than they can produce at a higher level on your team than any other team. And it's more enjoyable. There's a high level culture, all that good stuff. So the economic model is this. Roughly a third. A third, A third. I'm gonna keep it really simple. For the purposes of this podcast, a third should go to your brokerage and all of your agents, inside agents, outside agents, which are buyer agents, listing agents, and showing agents. There's four types of salespeople that we have on our team. Inside sales, buyer agents, listing agents, and showing agents. All of that are cost and sales, plus what you pay your broker. Roughly a third needs to go to that. Assuming you're out of production. If you're throwing a bunch of production, you know yourself personally, it's easy to hit that number. It's, it's sort of hard to hit it. It's not sort of hard. It's. It's pretty hard. It takes a lot of work and setting systems up properly to be able to hit a third payout. And we're doing about 28% right now, so we're 5% better than, than this model calls for. But roughly a third brokerage and your agents. And that assumes really a 50 to 60% list side because we pay less than the listing side. And so you've got to keep that in mind. This, this, this does. If you have a heavy Zillow, realtor.com pay per click buyer, home search, lead business and you're 70 to 80% buyers. Your business is couldn't be more on a shaky foundation. We've got to shift those dollars and those activities, the time spent doing that over onto the listing side of the business. So that's number one. A third goes to those and then a third goes to three categories. Number one is all your lead gen and marketing and advertising. Number two is your administrative personnel. So all of the salaries you pay in your team outside of your salespeople, excluding yourself. And then number three is any other overhead, your rent, your phone system, whatever else you can think of. Roughly 11%. 11%. 11%. So 11% on lead gen marketing, advertising, 11% on admin, payroll charges, those types of things and 11% on overhead that sort of fluctuates. That 10 to 12% is the range for each of those three buckets. That'll fluctuate as you grow different phases. As you hire that next admin, it may spike up a little bit, but your production catches up. So it's a whole leading with revenue and you know there's lots of things you need to focus on there. But roughly your goal, fully leveraged, completely out of production. We have people doing a lot more than this, a lot more than 33% profit where you know, we've had folks go from 80, 90 sides working 70 hours a week taking home 250,000 to 250 sides working 30 hours a week taking home 600,000. Now the margins may have been percent margins may have been higher when this person actually in this instance it wasn't. But we're not interested in like hey, if you could do 500,000 GCI yourself personally and you could take home 350 of it, that's a 70% profit before taxes and owners comp. But you're working seven days a week, that's a 60 to 70 plus hour a week job. Our goal is to take that 350 net, turn it into 700 net, but do it on 1.4 million, 1.5 million and go down from 70 hours to 30 hours stress through the roof to non existent stress. And so that's the journey that we're talking about here. It all starts with making a decision on what your economic model is and then taking the steps, some of which may be painful, to move from where you are today to get to where you need to be. If you built your team on a failed or an unproven economic model, you will always be either marginally Profitable or you will be stuck in production and marginally profitable. I'm talking single digit or maybe even no profit. And you're doing all this work for nothing. And I know guys that have done, you know, seven plus million of GCI in the last three years that have nothing to show for it. No increase in net worth, in fact a decrease in net worth. They're still working 50 to 60 hours a week and it's because they haven't set their business up on the right economic model. And this is my passion. And so getting through something like this, if you're a team leader and this is, you don't want to hear this because you might have set the thing up the wrong way. There is a process to shift from where you are today to get to where you need to get to to have a healthy, sustainable, profitable, systems driven business where everyone loves working there. You're not, this isn't taking advantage of folks. You need to have a profitable business so your business can be around so you don't lose your health, you don't lose your spouse, you don't lose the ability to hang out with your kids. Right? So we need to sort of take action. And if this is hitting you in that way and it's uncomfortable, you've got to reach out to me. I will personally get on a conversation, a 45 minute conversation about where you're at, what's working, what's not working, where you think you, what you've been working for and what might be missing and what are some of the obstacles and also what are the strengths that you bring to the table. So go to realestatebschool.com, grab a business growth strategy session. I'm also offering a pilot program from time to time that you may qualify for where I work with you for free for 30 days. So just submit. We just need a few bits of information on your business and we will. We meaning me. I will get on the phone with you, we'll just do a zoom meeting and we'll talk about your business. So there is nothing else I have to sell you except a conversation that's free and there's absolutely no obligation that'll be valuable no matter what. So that's part two. Know and stick to the model. Part one was begin with the end in mind. Part three. This four part series is stop chasing growth for growth sake. Your ego is too big. Let's cut it down. Let's start to focus on profit and not GCI growth. And then part four is the world is changing how will you respond? We've responded. We've changed everything we do in the last two years to respond to all the different types of shifts that are happening right now. And we'll go through that in part four. So much love and respect. If that was you that I was talking about, that's really uncomfortable. Make sure you go to realestatebschool.com and grab a business growth strategy session. We'll talk to you then. Bye. Bye.