How to Set Up the Best Agent Compensation Model

I want to start with the first part of kind of getting this thing right from a financial standpoint. And it comes down to when you make the decision to build leverage into your business, right? Through administrative people and through outside sales agents and potentially inside sales agents through marketing and technology. Right. All those are leverage points. And in your business, when you make that decision, you have to have some kind of model that you're following. So agent compensation, the models around this, it is the thing that I see wrong with all real estate teams. It's the first decision you have to make in your real estate business, how you're going to compensate agents on your team as you scale your business. And the challenge is that when you're sort of your production is lower, you don't feel like you have that much to give to someone. So you don't fully understand how it's possible to pay out such low splits. But you've got to get over that very quickly and you've got to find people that are willing to work within your value proposition. That's a whole, I debated going into what that looks like. That's a whole separate topic. It's more along the lines of recruiting. But you've got to understand that that first decision is going to dictate how much money you have left over to cover your expenses. So if you take the most dramatic example, right, a broker, just a straight up brokerage like a ReMax or Keller Williams. And so in that model, their margins, like their business model, is a third, 450 agents, a third cap. So if you know Keller Williams, capping is about 2.7 million of volume in a market. A third cap, a third they hope will cap, and a third will never cap. And that's just sort of a typical, that's what real estate agents make. Like most people aren't going to sell 2.7 million worth of real estate in most markets. And 2.7 is what, 3% of that is like 75, 80 grand before expenses, right? So at a Keller Williams office, If you sell 3 million, you bring in 90,000, top line, you're giving away 23,000 of it. And granted, if you sell more, it's a less lower percentage. But that's the fundamental thing that's wrong with the model is that brokers don't have very good profit margins. So switch it over to what our profit margins are. Our target is it's really 70% and I'm pushing harder to get to that 70%. We're at about 66, 67% gross margin. So gross commission income, less agent compensation. And you've got to make a commitment to review your financials every month. Mine are ready by the 10th of the month for the month prior. And I set time aside where I review my financials. If there's anything that looks a little weird, you know, anything that just doesn't look right. And I want to let you guys know that what, what I have here, we have people in our group and in boardroom that are even more aggressive with their splits. It's all about value proposition, right? So whatever you think a buyer agent is worth is what you should design your compensation around. You know, to me it's a 30 to $50 an hour position. And as long as you have enough opportunity and you provide the structure, the accountability and the framework for them to achieve that level, you're gonna be able to fill people in that position. Cause there aren't many 60 to $100,000 positions in most markets. We can consistently and predictably get someone earning six figures. That's not a normal thing in most markets. Okay. You know, you've gotta track buyer and seller commission separately along with buyer and listing agent splits. That goes back to the chart of accounts. Buyer business gross margin Is in the 55 to 60%. That's gross margin, how much you keep. So you want to pay out between 40 and 45%. Right now I'm running at 45%. I want it to be less. I want to pay out less to my agents. They're still making the kind of money. So when people hear me say that, be like, oh, you want to pay your agents less? No, no, I just want to pay them a lower percentage. So my model tightens up more. Like my model is solid, even though I'm on, you know, the upper end of these ranges. But for all of you, I want you to know that what I do, I want you to challenge you even do a little bit better than what I do. Listing business gross margin, 75 to 80% or 20 to 25% payout to listing agents. No, no salary there. We're going to set like 600 listing appointments this year. And we've got the listing presentation, we've got the pre list packets that go out, we've got the brownies that go out. We've got the structure in the office to make sure they're making their weekly calls and the 30 day market reviews. Like we've just got so much dialed in because of the leverage of the marketing that we can pay less, even less than we do now. But the way I have it set up now, the economic model works, so it's not hurting me. But I want you all to have an awareness around just these numbers and what you need to know. So the overall gross margin target is 65 to 70%. I want to get up to 70% gross commission income, less agent compensation. I want that to be at 70%.