Do You Need A Written Business Plan?
A long time ago I heard Tom Hopkins say that “if it isn’t worth writing down, it isn’t worth doing”.
So, do you need a written business plan to be successful in Real Estate? In a word “yes” and most agents do not have one or anything close.
Agents push back on the “written” part and “business plan” sounds too serious. If it helps, think of it as goal setting and budgeting on an annual basis or however you need to reframe the concept so that you have a comprehensive plan.
What I find immensely valuable about the written part of the plan is it provides a framework for me throughout the year. I print it out. I refresh and update it and I use my plan to set my budget. It becomes a living document that evolves over time. It also becomes a record of what works and what doesn’t. And I review it once a week. Truthfully I even have a spreadsheet to track my action actions, my goals, my closings and open escrows and everything else associated with my business. But that’s just me and I’m not asking you to go that far. But I am strongly recommending that you have a plan.
WHAT SHOULD BE IN YOUR PLAN?
Your Goals
How you PLAN to get there
Whether it is business planning or gaol setting meetings, I have been literally astounded that when I ask agents how much business they plan to do the next year, the most common responses I hear, after some dead silences, are:
“as much as possible”
“I don’t know”
I then ask them if they have a personal budget for themselves or their family (usually no)and then I ask if they know how much their monthly expenses are to which the answer is also usually no.
So now I can get started.
Your target for commission revenue (after company split) should be 2.5-3X what it costs you to live. Let’s take a simple example.
Mortgage or Rent $6,000
Car Payment $750
Health Insurance $500
Utilities, gas, subscriptions $250
Food and Entertainment $500
I’m most likely leaving a lot out like clothes, travel, student loans, saving etc but you get the drift and this is just an example.
My quick math says that the above adds up to $8K per month. Now let’s say that your split with your firm is 80/20 and for simplicity sake you have no other desk fees or other transaction fees.
To gross $24K a month (3X your nut) on an 80/20 split you need to generate $30K in gross commissions. If the average commission rate in your area is 3% that’s $1,000,000 in sales. More likely the average commission is 2.5% so you would need to generate $1.2M in sales.
The next step is to determine either your current or anticipated sales price and then the number of transactions needed to attain the gross sales goal
If by total coincidence your average sales price is $1.2M then one deal a month or 12 deals a year is what your goal is. But if the average is $600K you need to do 24 deals.
Other considerations are whether you partner with someone, or are on a team, or have a higher or lower split. The first item on your plan then becomes:
Set an annual goal for gross revenue and sales transactions to achieve that revenue.
A fair question to ask is why am I recommending 2.5-3X your expenses.
You will be paying taxes on your earnings. And as a 1099 contractor you are paying a lot more in payroll taxes than a W2 employee. It would not be an exaggeration to say that you may wind up paying up to 30-40% of your 1099 wages in state and local taxes. Another part of the planning exercise is to ask your accountant how much you would owe based on your filing status if you made the amount of money in your plan.
For this example, let’s say that you make $24K a month (after split). Let’s take 40% off the top for taxes. That leaves you with $14,400 against your financial needs of $8,000.
But you will also have other business related expenses whether those are marketing listings, paying for leads, MLS and board dues, etc. I always budget 20% of my gross for these other expenses but admittedly I spend a lot.Another 20% out of that $24K is $4,800 leaving you with $9,600 which is not much of a cushion which is why you need to have some savings.
Everything above is a framework to use in competing the first step: setting an annual goal for gross revenue and sales transactions to achieve that revenue.
Your job is to modify the framework to HONESTLY fit your circumstances. Come up with real numbers that reflect your finances and not what your broker, manager or coach “thinks” you should do or the hype some recruiter told you.
Now that you’ve set your goals for revenue and transactions we get to the meat of things as in how of you generate the business. Again when I ask this question of agents, the most common response is “I don’t know”. But maybe that’s to be expected because if they did know they wouldn’t be coming to a coach.
Here’s what you don’t want in your plan:
“My roommate from college just won the lottery and wants to buy a $20M property all cash”
That was my attempt at humor - well actually to see if you’e read this far.
Other than the apocryphal college roommate your plan should include specific revenue streams and what / how much activity in each you need to do in order to achieve your goals.
Let’s take the agent who says they will get business from Open Houses. The questions then become:
How many Open Houses will you do?
How many real leads do you expect to get from each OH?
What will your conversion rate be?
How long will it take to turn those leads into sales?
You may have read elsewhere that the first 5 years I was in residential sales I did 50 weekends of Open Houses a year. That’s 500 Opens. Well maybe a missed day or two but it was pretty close to 500. I became really good at talking to people at Open Houses and actually got a lot of business. Some of those people are still clients today. (These days I may only do 15-20 days a year.)
But recently we’ve seen lower inventory there are fewer Open Houses available to work (unless you are a part of a big team with lots of listings). And many people who come to OHs these days are kind of do it yourselfers and aren’t interested in working with an agent. That may change over the next few years but it has been the environment for the last few.
You need to go through this exercise for every source of revenue you are going to pursue. If you send postcards, how many? If you work your sphere or get Zillow leads or do Facebook ads, what is the cost and what result do you expect.
I think what you may find is that this is a very humbling experience because for most people it is really hard to come up with numbers that work. (Which is one of the reasons you need a coach.)
It all comes down to the second part of the business plan: define where you will focus on getting revenue and the specific actions and relative costs associated with each funnel.
This brings us to a key fork in the road and a quadrant I have written about elsewhere. Do you plan on focusing on buyers or sellers? Are you working a free model or investing in leads?
The old mantra in Real Estate is “you list - you last”. The reason that was pushed so hard for so long is that Brokerages like to have their signs hangin in yards. It is free advertising for the broker. These days with low inventory it is a great strategy assuming you can get listings. If you don’t, you might starve.
Early in my career I made a decision to split my business 50/50 between buyers and sellers. There were a few reasons for that. First, buyers are often more profitable and quicker to close. I can meet someone today and we can be in escrow tomorrow. With sellers they have to prep the house for sale and lots more. Also you will probably have more costs working with sellers. And those buyers you help, chances are that they will be selling in 6-7 years.
So I’ve always kept my business split about 50/50 by design and that has held true after a few hundred sales.
The second decision is free or paid. Examples of free include Open Houses, door knocking, cold calling and sphere of influence. Paid leads can be Zillow (very expensive), an IDX website for buyers, Seller leads sites or advertising on Facebook or Google.
LEAD GENERATION SOURCES
There’s plenty of examples all over the internet as to how to generate leads. These range from very expensive to free.
Social Media: as in Facebook, Instagram, Twitter. I know agents who have gotten business based on free posts and others who have paid for advertising.
IDX Websites: there are a number of affordable solutions such as Real Geeks, Market Leader which can buyer generate leads and then a lot of expensive solutions. Based on your team size and vendor you can spend anywhere from $500-$2500 per month.
Real Estate Portals such as Zillow. Expensive but there are people using them.
Print. Yes print media in the 21st century. There are places where this still works. By print I am referring to both Real Estate advertising publications - like in LA we have Digs magazine as well as postcards. Expensive and without strong calls to action not very effective. No one cares that you just sold that tear down for $150K over the asking price in 5 minutes. We all have.
Sphere of Influence. This is the ultimate free lead source. You might find though that everyone in your sphere already knows 19 other agents and some are even studying for the license exam themselves.
Here’s the best rule of thumb for your plan:
“Double down on whatever is working and then double down again”
Unless you are just getting started - which I’ll cover later in this post, you have some lead funnel that is working. Analyze your business and see where most of it comes from and then figure out how do double whatever activity or expense brings you that business.
I’M ON A LARGE TEAM - DO I NEED A BUSINESS PLAN?
In a word, “yes”. Parts of your plan may be different than an individual producer but you need a plan to further expand your visibility and brand.
If you are getting enough business from your team your plan may be more focused on personal growth and laying the foundation for you to lead your own team one day.
I’M JUST GETTING STARTED - DO I NEED A BUSINESS PLAN?
In a word, “yes” and probably even more so than someone who already has some sales or is successful.
Part of your plan might be controlling your budget so you don’t spend yourself out if the business. Another part may be getting the knowledge or connections you need next.
When I started my plan was very simple - sell one house in the first 90 days and then re-assess my plan. But you can probably do better than that.
SUMMARY
While it has been overstated to the point of being a platitude, you are running your own business. No business can succeed without a budget and plan and yours is no different.
Many many years ago when I heard Tom Hopkins say “if it isn’t worth writing down, it isn’t worth doing” to tell the truth I didn’t write anything down or have a plan. I was one of those people out there just winging it.
Then a funny things happened. One year in December I took the very difficult step (for me) of writing my goals for the next year down. And I didn’t forget those goals. I focused on them all year. That was my best year income wise up to that point. So the next year I wrote an actual plan containing a lot of the things I’ve shared in this post. And you know what? That became my best year and so on and so on. In fact, I can say (corny as it is) that one of the main drivers in my success has been my planning and following my plan.
Simply put, I planned for success.