Why Knowing Your Numbers is Critical to Your Growth (3/4)

What's up, everyone? Welcome back to the Business Freedom Podcast. This is part three of a series, and if you missed the first two, I do recommend going back. They kind of build on each other. The first one was how to scale your business during a crisis. I kind of laid out what we call our scale model, and it comes in three parts. Create your future, know your numbers, and grow your team. This is part three, which is the second area that we focus on within this sort of scale model, and it's to know your numbers. The title of the podcast is why knowing your numbers is critical to your growth. And the subtitle is Especially in a crisis. And I say especially in a crisis is because, you know, a lot of top producing agents and team leaders right now are very irrational in terms of their reaction to what's going on and where they're cutting in their business. And they're doing it because they really don't know their numbers. They don't know the difference between an expense and an investment where something is actually returning in your business. And they're not measuring properly, and they're not. They didn't build a thing on the right model to begin with. And so I want to kind of dig deep into the things that matter most when it comes to knowing your numbers. And this is probably the least sexy of the things that I preach and teach. And it's the one that matters the most. Most real estate team leaders, most top producing agents even, they got to be that way because they're really good at sort of sales, dealing with people. They're usually less strong or their weaknesses lie in the area of numbers and keeping up with books and return on investment and key performance indicators and tracking and calculating net worth and opening spreadsheets. And foundational. The things I'm going to cover today is not this area that they're drawn into. And so it's a real weakness. And I want to break it down in a way where I demystify all of it so that you can be attracted to it, because the score that matters most in business, and I said in business, not in life. You know, we track six different areas in our program, and one of which is your business. But in business, the thing that matters most is the net worth that it generates for you as the owner. And if you're not, if your mind isn't sort of calibrated that way around the business, you need to stop everything you're doing after this podcast episode and do a net worth calculation. It's one of the foundational tools that we have our new members do and we have them do it every month so that they know their net worth and how their business impacts their net worth. It is the ultimate score when it comes to being a business owner. I promise you, I promise you all of your decisions will change when you know the impact that your decisions and business have on your network. Alright, so know your numbers. There's three things I want to go a little bit deeper into than I did on the first part of this four part series of this podcast series. The first one is to determine your economic model. So let me, let me break down what I even mean by economic model. So to use it in my example, you know, I hired my first buyer agent in 2009. That year we did 58 transactions before I hired my first buyer agent. God, not God willing, but God was on my side because I had the wherewithal and I wasn't even, I was saved in 2009. He was still on my side even leading up to my salvation. But I put the right economic model in place. So I knew at that point already after having done 44 transactions in 2008 and I was just new to being a dad and we wanted to have our second child and I was like, this is, there's no way I can do this. There's no way I can be a top producing real estate agent. I knew I had to make the shift to business owner. If I didn't, it was going to be just a bad situation. So I pre determined what that business was going to look like when it was fully built out from an economic model standpoint. Predetermined, all of it. And roughly, here's the rough model that I decided I wanted to do. I was going to be out of production. I wasn't going to work with any buyers or sellers whatsoever. I knew that I wanted this. Not everybody wants this. So your margins could be higher than what I predicted because I knew I wasn't going to be in production. So I said in the future I want to grow the business and get myself out of production. And I want to pay a third to my agents. I want to pay a third to operating expenses and I wanted to have a third to split with the government. So if I could go from 500,000 GCI or let's say the year I did 44 transactions, I probably did probably 44 times seven, eight, I probably did about 300,350 somewhere GCI in there. So I wanted to go from that to, you know, and Even on the 350, I don't think I made. I don't think I made more. $100,000 in terms of what I was spending. And I was just spending on stuff. And I was learning, failing fast and all of that. So I probably took on 125 of the 250 because I wasn't on an economic model at that point. It was just learning fast and failing fast. So I went from 150 that I split or 125 to 150, let's say I split with the government when I was doing 300 or so. 2. I knew I wanted to triple my business and I wanted to take home a third of it. And I didn't want to sell any homes and I wanted to work less than 40 hours a week, no evenings or weekends. So I traded, let's call it 150 for 333, a third of a million. I say I tripled my business. So I went from working 70 hours a week making 150 to working 40 hours a week making over 300. Good trade for me. So, you know, that year I made 150, I probably worked 3,000 hours. 150,000 divided by 3,000 is 50 bucks an hour. The year I netted 333, I worked 2,000 hours. What's 333 divided by 2,000? Well, three divided by 2,000 would be 150, so it's about $160 an hour. I went from $50 an hour to $150 an hour, let's call it in a three year period. That was the trade off I was making by knowing my economic model, knowing that I couldn't do all the production myself, and I still wanted to grow and I needed to have the right economic model in place to do it. More often than not, what I see that someone decides that they can't, what they're doing is not sustainable. They bring on an administrator, they decide they're gonna bring buyer agents on, and they set the whole thing up on an economic model that's not sustainable. And what I mean by that is that they grow this thing from, let's say 300,000 to a million or more. But they did it the wrong way. And they're not spending. They're giving away too much of their commission to their agents and they're providing too much value, which means their operating expenses are too high. Let me break down operating expenses. So you know what I mean. It's the money you spend in three areas. Number one, marketing, and advertising, number two people, administrative staff, and number three, all other overhead. So roughly 33% on operating expenses, 33% in your salespeople and including what you pay your broker. And that's the economic model that I picked early on and I pretty much run by it. And our business is pretty darn close to that right now. We're a little bit higher in our gross margin, which is what's left over after we pay our broker and agents is a little bit higher than 67%. We're running at about 70%. We spend a little bit more than 33% on operating expenses. And we're running a two and a half to $3 million business today. And so same economic model that I pre decided all the way back in 2009 when I hired my first buyer agent. So determine your economic model. Begin with the end in mind. You may be one of our new teams came in. They're about $5 million team, 5 million in GCI. The team leader sells more. GCI does more business in terms of GCI than his team makes in profit. That is very typical. So what I mean is that let's say this $5 million business, net 750, 15%. Okay, that wouldn't be so bad if the team leader didn't do 750,000 of production himself personally, right? That is not beginning with the end in mind. That is not pre deciding your economic model ahead of time. I could run a $3 million business at a 33% profit with no owner, you know, no production from ownership and make more money than that team makes at way more gci, way more risk and overhead and overspending in the wrong economic model. So more stress for the owner, less time, more time in the business and less money. So the whole time money stress equation comes back into play. So that's determining your economic model. Number two is foundational financial tools. And this is pretty basic. It's are you generating meaningful financials? So financials on a monthly basis and are you tracking the key performance indicators in your business? Leading and lagging indicators. So you're producing financials. Are you tracking the numbers that matter? And then how are you moving money around in the business? And that kind of leads into our third part, achieve financial freedom. But for now it's tracking track KPIs and bookkeeping when foundational financial tools. Are you doing those things? If you're not, you've got to start doing those things. We track by function, even marketing, recruiting, operations and our general team, we track leading and lagging indicators. Alright, so and then generating books like are you generating books for your business on a monthly basis that are meaningful and they're set up for you to understand them? And last part here is tracking your marketing roi. Return on investment. Is every lead that comes in associated with a lead source code that you can track from lead generated to appointment, set to appointment, met to appointment, signed to client, signed to, under contract to closing. Right. We know by lead source how much it costs us to pay for the lead, how much to pay for the appointment to be set, for it to be met, for it to be signed and for it to be closed. So we know our numbers. So when a crisis or shift comes, comes our way, we're able to sort of slice and dice and take away the things that aren't as high a return on investment. So that's the third part there. The last part of knowing your numbers is achieving financial freedom. Do you have a way of moving money around in the business so that it ends up improving your personal net worth? And are you even tracking your net worth? On the 10th of every month I track my net worth and I see if it's gone up or down with respect to last month, three months and six months. So I look one month ago, three months ago and six months ago to see if my net worth is up or down. The probably the most important thing you can track as a business owner is your net worth. It will absolutely impact the decisions you make in your business. And the only point of owning a business is the major drivers because you don't want to work for someone else. You know there's a bigger opportunity financially and to have time freedom. If you do it on your own and if you're not tracking net worth, you have no chance of actually achieving the thing that you want most from even owning the business. So achieving financial freedom. I use a system called Profit First. It's a book by Mike Michalowicz. I don't get overly excited about sports players or by like music singers or anything like that. But I had the chance to meet Mike Michalowicz at an event and I just love the guy. I think his mission is to end entrepreneurial poverty. I think that's it. Every entrepreneur basically is poverty stricken. They don't set their business up right from the ability to achieve financial freedom. And that system is what I use. Twice a month I move money around the business. Once a quarter I take a distribution and so I'm guaranteed the profits or I determine, I pre decide what my profit is going to Be not take what's left over. Most business owners just take what's left over. So that's achieving financial freedom. So that's knowing your numbers. You can't be in business without really focusing on becoming the cfo, the chief financial officer of your business. And a CFO is the person in a business who's responsible for providing meaningful data that the owner of the business can make decisions on. So are you really, really, really, really being a true CFO in your business? And none of these systems are hard to learn or hard to implement. You just have to commit to doing them. So if you're at the point, especially with this conversation around knowing your numbers, if I lost you and you know you need what I just said, everything I went through, and you're running a great business, you know, maybe a small team or even a medium or a large team, or maybe you're a top producing agent and you're hiring an administrator, you're struggling. The only thing I can offer you is conversation. And it's a timely conversation given what's going on right now in the market. Just go to realestatebschool.com realestatebschool.com the B is for business. We are business school for real estate agents that want to make the shift from agent to owner. So go to realestatebschool.com either hit the Apply now button or request a business growth strategy session. And there's also a bunch of free resources you can grab. Over there on the main page, you can grab the Market Shift toolkit, which is pretty cool. It's a free resource. I put together to 12 of our very best trainings that are applicable right now during what's going on, the crisis that we're in right now. So head over to real estate realestatebschool.com jump on a call. It will be with me or one of my business coaches and we'll dig into your business, where you are now, where you want to go, and what's holding you back. We'll see you over there.