B-SCHOOL COACHING CALL: How to Structure Compensation to Maximize Your Profits

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Transcript:

If your team isn't set up this way right now, and you've got a small team, I know it's pretty scary to think of, "What's going to happen when I rip the Band-Aid off and put this is place?" There's definitely a way to finesse your way through this, but you've got to be able to get it done. And part of that is how much you're providing agents.

You should be working on taking as much of that lower dollar productive activity off your agents' plates as possible. I have clients that don't have any admin - so it's them doing deals and a few agents doing deals at 60%, and they don't have an admin. If you're going to change it on them you need to be able to show value without having a mutiny situation of your hands.

My Compensation Structure

This is how we pay. We do 10% off the top. 1% off that 10% does go to RE/MAX - that's the way we've got it set up. So it's 30/40/50/60. The 30% is for a seller who has to buy or personal SOI. 40% is the next tier on the buyer side. It's for when someone other than the agent set up the showing appointment or the new buyer consult for the agent to go on. So the agent still has to meet with the client, they still have to build rapport, they still have the lock down the relationship.

The assumption in the lowest split is that the relationship is locked down. One step up is that the opportunity to meet somebody was set up by someone different than them, but the relationship isn't locked down. So they need to lock down the relationship.In the next tier which is 50%, they've got to both generate the appointment and lock down the relationship. And the highest pay they could have is where they lock down the relationship.

When you explain it that way, it's really easy to understand. Especially when you put numbers behind it. Say, "Listen, I know it's easy to pick on this lowest split, but I can make an argument that even on a $150,000 transaction, the lowest split will be getting paid $1250, but it's someone that's gonna buy a home. Even at 20 hours in a deal, it's still $60+ per hour, but it's likely less than 20 hours. So it's still about $100-$120/hour they're getting paid on a lower price point in my market.

Some of you are in the $100,000 to $110,00 range. I've got clients at lower price points. Even on those, it's a $3,000 commission check, and although they're only earning $800 on it, it's still good money. $800 for 15-20 hours is $40-$60/hour.

Increasing Your Gross Margin

That's not how regular industries talk. "What value are you bringing to the table?" In my market, getting paid $100,000 to do the job of a buyer agent is good pay. You're not behind a desk, you're not working a corporate job. You've got flexibility in your schedule to a certain extent. You could do that working $40 hours a week on my team.

And if my agents make $100,000 I make $150,000 on the buy side. Most agents when the agent is making $100,000 the team is making $60,000-75,000, which is not good.

On the listing side, we just have two splits. One is team, and one is them bringing the business. 10% off the top runs out at 22.5% and 31.5%.

The whole point of having this conversation is, even if you're still in production, is for you to know your margins on each side of the business. You may not have the same split structure, but as long as you can get to close to a 60% gross margin on the buy side (paying out 40%), and on the listing side it should be a 75% gross margin to you, that's going to give you the type of margins you need.

Having that structure in place, especially before you exit the listing side, is one of the bigger hurdles you'll have to jump over to get the structure and foundation right moving forward.