The 4 Economic Models That Matter When Scaling Your Real Estate Business

Warning. Behind this screen you're going to see a spreadsheet. And my warning is to not check out. When I drop my picture into the corner and I show you the economic models behind a brokerage, a traditional team, the way we structure our agents to help scale so they can get out a lot of the monotony in the business and make a whole lot more money in a whole lot less time. You just gotta do the work. This is really only for serious agents that want to scale and do it in a way where growth is different than scaling. So growth is, I just want to sell some more homes. And you're gonna have to put in more hours, most likely. And you will hit a cap at. You know, I've had agents come into our world selling a lot of homes, you know, 30, 40, 50 homes a year, but they're working 60, 70, 80 plus hours a week doing it. And so I am all about elegance and ease. So I wanna teach you how to structure yourself from an economic model standpoint or at least understand what growth could look like. So, so that you understand really what's going on in the real estate industry from the brokerage standpoint, from the traditional teams, how they run and from how we coach our agents to grow and scale. So take a deep breath. Most agents do not love spreadsheets. I love spreadsheets. It's just the way that I was wired. I'm not going to spend a lot of time here on the traditional brokerage model, having done this business coaching, which is a different sort of slant to a lot of the traditional coaching in the real estate space. But having served 2000 plus agents and team leaders as their coach, their business coach, and probably have spoken to five times that many, and I probably reviewed over a thousand profit and loss statements, P and ls, from single agents to small teams to larger teams. I'll meet with a brokerage owner that has a hundred agents and they're losing money and there's, they have a lot of pride wrapped up, I mean a healthy level of pride, you know, to bring in 100 agents. Like we have a hundred agents and we're losing money. So the business has no underlying value, all the work, and they only make money on their own production, you know, so they have this sort of facade of a business. And this is like 99% of the time, you know, anywhere from 25 to 100 plus agents. There's just no margin in those businesses. So on this example here, if you took a, let's say $10 million of top line Meaning what does that roughly translate to? How many homes? So like a thousand homes sold. That'd probably be a hundred agents. 100 agents each selling 10 homes, which is way above the average. The average is like six or seven homes per agent. But 100 agents selling 10 homes each is 1,000 homes times a 10,000 average commission. Check. I think the math on that check, the math on that is 10 million top line. These are dollars in thousands. And this should be royalty. Typically they're going to pay a royalty and they're going to pay out a majority of, you know, blended average, probably 85 on the buy side, 85% on the listing side. So of the 10 million, there's only 9.1 million left, or 900,000 of real revenue, as we call it. Real revenues after you pay for your cost of sales. It's a concept out of Mike Michalowicz's work. Profit first and then they may have 4% on management and admin staff, maybe a little bit on lead gen and some overhead. This shows a negative. But even if we, you know, played with the numbers here, that's probably more accurate. Even if we play with the numbers here, we only had 9% on operating expenses. We, we have a zero margin business. And this is, I'm not sugarcoating that you may never think about launching a brokerage, but just even understanding that there are small brokerages out there that are doing $10 million of top line revenue and they're making no money. And the owners or the owner is only making money in their personal production. So let's take a traditional team and this is, you know, in this example, they're doing 1.5 million top line revenue. So that at a $10,000 commission check, that would be 150. So 75%, let's say, of the listing side. Let's say this team leader in the traditional team here, and this is not what we teach, by the way. We don't condone this traditional brokerage and we don't condone the traditional team. But I want to give you an idea of the insanity that's going on. So let's say in this example it's 50, 50 split listing and buyers. So 750,000 GCI from each one you, you know, paying probably more than 2%. But let's say they pay their listing agents 40%, their buyer agents 60%. They're doing over 500,000 of GCI themselves. And let's say in a traditional team they are overspending, probably not 15%. But I would say for sure, you know, 10% on management and admin and easily 20% on a whole bunch of leads that don't perform. And they're overspending even I see some teams more than this. Our model calls for 10% and a whole lot lower. And then overhead, you know, all the other stuff, rent and whatnot, is about 12%. So in this example, their real revenue after they pay their agents, you know, 600,000, they have 900,000 left, they're spending 630 on operating expenses here and then they have 270 left. You might say 270 is not bad to take home. 270. But in this example, and this is all the time, pretty much a traditional team is not set up with the right economic model. So the team owner did 563,000 of GCI and the business only netted 270. You know, in this model, if you did, let's see if it does. Yeah, if you put it as the team owner steps out of production, it's a marginally break even business. Right. I've had team leaders come in where they were doing 6 million top line and a million of their own production and only making 600,000 net profit. So they're a shortfall of 400,000 if they were to take themselves out of production. So in this case they have to do a bunch of production, 50, 60 deals in this example in order to make decent money. Right. So the next example, if you're in production, so as you scale a team, let's say in this example, you know, we've got distinct stages of growth to get to a million, we have the hundred thousand which is, you know, the struggle, survive phase two, 5500amillion and then we go 1 million 5, 2 million, 3 million. Let's say in this example it's a 750,000. We teach, we do teach to a heavy listing. We definitely want to be heavy weighted on listings. In this example, typically the team leader will do all the listing side production at this stage. Not work evenings, not work weekends and all that good stuff. So out of the 750, you know, they'll have the brokerage fees, they'll pay their listing agents, they're not paying their listing agents anything because they're doing all the listing production and then they'll pay their, you know, we blend out at 40% or so because our systems are so strong in terms of getting agents so productive that it's not necessarily the split. So a 20 and a 40 here would probably be Pretty, pretty close. And then we teach a 101010 and typically it's not going to be 10% admin. 10% on legion, 10% on overhead, it's going to be less than that. But let's take the 30% there. In this example, you know the owner is taking home 367,000 so less than their own production. But they have bought back significant chunk of time. So I would argue on the 367 they're probably working maybe 2000 hours a year. So their take home pay is $180 per hour if you've ever heard me talk about the business Freedom Index. So that's the in production and so this is a great lifestyle, great income. You know, you could say well what if they just got to 500,000, you know, and they didn't hire any admin and they didn't do Legion and they didn't have overhead. So you're working in this scenario if you do 500,000 less or do 500 versus 750 and you don't have a buyer agent and you trim your expenses, you're not making any more money and you're doing all the admin yourself. So you're working with way more hours, probably working 3,000 hours a year. So you're at 183. 45 divided by 3,000 is roughly $100 per hour. And the example that I did it was 367 divided by probably 2000 hours, $180 per hour. So similar take home but you're working 50% more. Right. So that's the dynamic we want to explore as you consider bringing on your first admin. Bringing on and this is not a complicated business, you know, a million dol. Since we have the million dollar Agent method, this is a million dollar business. Probably not going to do. You're still going to be super heavy on the actually you're still going to do 100% of listings. Will you spend a hundred thousand? Probably won't spend 100,000 on an admin. We get lead spend way under and then typically at this stage you're not going to carry a lot of overhead. So 22% or so, even 20% on opex is probably where you'll end up. So in this scenario. So the million dollar agent method where you're working a 40 hour work week has you taking home probably close to $600,000. So just think about that. You're working a 40 hour work week, 2,000 hours per year, making almost $600,000 take home. And you have the ability to take time away from the business because you've got one or two junior agents on your team that could service your business as you check out. So you're probably taking home 590, working, you know, 40 hours per week, maybe 45, not working evenings and weekends. And you've got backup and can take legit four to five weeks of actual vacation. Right. So that is something to get excited about. Let's say at 1.5 million you will be able to step out of production. So if we leave everything the same, you'll probably have a little more expensive120. So even though these percentages are the same, they increase. So the 80 for admin goes up to 120 here, the 80 for legion, you spend a little bit more on Legion and the overhead goes up. So even though the percentages are the same, you're spending, you're going from 200 to 300 opex, which is probably pretty accurate. So in this scenario you go from 590 to 705. But you could say, oh, Lars, but we went from a million to million five. Where's all that money? You are now 100% out of production. So at this point you're probably still leading and managing, but you're out of the day to day transactional work. So you've now stepped down from 2000 hours, probably 40 hours a week to 30 hours a week or 1500 hours. So if you take 705, I'm going to do some quick math for you here. I hope this is valuable. I know this isn't for everyone, but for those of you that are, you know, making a run at this and you want to build something, scale something out divided by 1500. So 705 divided by 1500 is $470 per hour. If you've heard me talk about my journey, it was like my third full year I did $250 per hour. My fourth, I did 500, then a thousand, two thousand and four thousand. This was the game that I was playing. I was just buying back my time building systems and buying back my time. So hopefully this makes sense. Does this make sense from opening your mind to what's possible? When you think about real estate like a business and not a practice, traditional methods will enslave you. You will hit a point in your journey where you just don't have any more hours in the day. And as a result of that, the stress increases. You're not even making that good money because you're doing the 80% of tasks that are administrative in nature and you'll be lucky if you're making 50, 60, $70 per hour when it's all said and done. Most agents are making less than $50 per hour because 80% of their time are spent doing the things that they could hire someone to do for a whole lot less than that. If you missed my video on, you know, just using the showing homes as an example, I sold 33 homes the year I did 66 transactions. It was 33 listings. It was when I was phasing out of production, I was ramping up a listing agent to take my place. But I still sold 66 homes and 33 of them were buyers and I didn't show any homes. Just because I own the client doesn't mean I need to show them homes. And most people are like, how could you not show homes? That's literally the job of real estate agent. When you're playing the game of building a business, you just make different decisions. That's why I wanted to show these economic models and what's possible. Because some of you have been playing the game of being a real estate agent for long enough and now it's time to pivot into the game of business builder. And what does it look like to get on this trajectory to the million dollar agen 2000 plus agents and team leaders have been through our world over a decade doing this. My only motivation is to help people not only make more money, most importantly, have time to enjoy it and spend time on the things that actually matter, which is not selling another home. And if you know you need to have an honest conversation about where your business is and what's possible, what's holding you back from making the kind of money that you want, enjoying the kind of lifestyle that you've dreamed of. Go to milliondollaragentmethod.com There is no hard sell in our process. Watch that 7 minute video. If it resonates with you, book in a conversation, a strategy session with our team. We can help you get there. And we only work together for 13 weeks. So it's a very intentional implementation program. So go to milliondollaragentmethod.com Much love, much respect. We'll see on the next video.