Leveraging the Compounding Effect

This week we’re looking back on David Chilton’s book The Wealthy Barber and his compelling story of the effect on your financial world with compounding interest on saving and investing money.

This principle can be implemented into your real estate practice and have the same incredible impact on business growth.

So many of us set income goals every year but how many of us set a gross commission income goal and take the time to break that goal down to small activities and small manageable numbers to hit their gross income goal?

There are only 3 ways in which an agent can grow their real estate business.

1) Increase your client database.

2) Increase your average transaction by implementing transaction fees, higher average sale price, eliminate commission cutting or increase your commission rates.

3) Increase your client frequency with past customers by obtaining personal referrals or selling the client investment properties.

Let me ask you this question… What would it mean to you and your business if you increased your business income just 10% in the customer category and the average commission category?

Let us look at this example…..

  • 12 Customers
  • Average Commission earned $5,000 (all 12 did one transaction one time)
  • You generate $60,000 income

Year 2 with some small adjustments your numbers can look like this…

  • Increase your customers by 10% (now 13.2 customers)
  • Increase your average commission 10% (now $5,500 average commission)
  • Your income will be $72,600 Gross Income.
  • Translates to a 21% increase in your income year over year!

Year 2 with slightly more aggressive increases you would realize this…

  • 30% increase in your customers (now 15.6 customers)
  • 30% increase in your average commission (now $6,500 average commission)
  • 10% increase in the frequency with your clients (frequency of 1.1 times per year per client)
  • A 30% – 30% – 10% increase would result in a gross income next year of $111,540 and would equate to a 85.9% increase in your business income from year one to year two.

After viewing the above 2 examples, seeing a marginal increase in customers, marginal increase in your average commission and a small increase in your client frequency and how it affects the bottom line for your real estate business; does it seem difficult to set a goal of increasing your business income next year only 26%?

Let’s look at a 10 year revenue chart setting a target of increasing 26% each year to your business. Your income will double in the 4th, 7th and 10th year and will take a $50,000 producer and make them a $500,000 producer by the 11th year.

Keep in mind in this example we are ONLY increasing the number of deals and keeping the average commission and frequency with clients the same.

When you are planning your business for next year and setting your financial goals, focus on the 3 ways you can grow your real estate business…

  • Adding clients
  • Increasing average commission earned
  • Getting your client frequency rate higher

Remember, a manageable goal of only 26% increase can help double your income in your 4th, 7th and 10th year and take a $50,000 producer and make them a $500,000 producer in their 11th year.

If you would like help figuring out how to focus on the above three ways to grow your business please feel free to reach out directly.

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