Building Your Business Plan for the New Year…
The following article written by Matt Jones was originally published in Broker Agent News on December 31, 2005. It is copied here in its entirety as it was originally published. While non-commercial use of this copyrighted material is encouraged, unauthorized, commercial use is strictly prohibited.
Okay, it’s that time again. The old year is over, and it’s time to start thinking about the future. How are you going to do this next year? How much money are you going to make? How many transactions will you do? Will you take some time off? Purchase any large assets? Build a team? Start your own company?
Let’s face it: this is the time when we begin thinking about those things. But for many of us, thinking is all we’ll ever do. Most agents feel as if they’re at the mercy of whatever business happens their way. Their “planning” is more like dreaming. And because they lack a sense of control over their circumstances, they don’t spend a lot of time building a business plan.
But what if you really could plan your business? What if you could map out a specific plan? And what if you could then hold yourself accountable to that blueprint and, at the end of the year, look back and see that you’d accomplished most of what you’d planned? What if you could decide that you’d build your business a certain way and then actually be able to do it just as you’d intended?
Sound too good to be true? Well, it’s not! That’s exactly how I do it, and it could be exactly how you build your business as well. Let me explain.
I don’t rely on good fortune to build my business. I’m not a passenger, so to speak. Instead, I’m the driver, and, as such, I decide where I’m going, how fast I’m going to drive, how soon I’ll arrive there, who’ll be going with me, and where I’ll stop along the way. And although you may not be able to foresee such a possibility for yourself, if you’ll follow along with me, you’ll learn that you can be the driver of your own business. No longer will you be dependent upon luck, or the market, or the broker, or your circle of influence, or any other external factors. You can actually take control of your business and make your own success.
But I know that talk is cheap, so allow me to give you some specifics. About this same time last year, I sat down and created my plan for 2005. I planned to become the largest company in our market. I planned to build our team to 46 REALTORS®. I planned to have the largest market share in our market. I planned to start a training center for agents.
So the year is over. How did we do? Pretty well, I think. First the good news: we did become the largest company in town, we built our team to 60 agents, and we opened a training center for agents. The bad news is that we weren’t able to become the largest in market share. Oh, well. But during this first full year in business, we rose from number 386 to the top 20. And for the last quarter, we’re in the top 10 and gaining ground rapidly. Next year we can become number one in market share!
My purpose here is not to brag about our accomplishments. We’ve done well, but then we’ve been blessed with some really great people. No, the fact is that, when I entered the real estate industry less than four years ago, I immediately began using the same type of planning to build from a single-agent practice to where I am now. And the planning is what I’ll share with you in this article. Before we dive in, though, I want to make sure you understand that this success story can easily be yours. You really can control your real estate destiny! You can take your business as far as you want! All you need is a good plan and a willingness to stick to it in the face of numerous distractions.
Step One: It All Starts With Vision
Before you can begin any journey, it’s important to know where you’re going. Simple as that. Someone once said that, if you don’t know where you’re going, any direction will do. Well, I prefer to choose my destination. And having chosen where I’m going, I can then set out to build a systematic, step-by-step plan of how I’ll get there.
Without a destination, how will you know when you arrive? You won’t. If you don’t have a plan, any result will do. If you don’t have an objective, any outcome will do. You must have a destination — a finish line — a finite, measurable, clearly defined objective. Why? Because, without one, you’re only cheating yourself. Don’t be afraid of failing! This past year I failed to reach one of my objectives. But did I really fail? You be the judge.
Okay, so what else? Well, I believe in the principle of vision. In order to achieve something, you have to see it first — in the sense, not of seeing a physical reality, but of seeing the end result in your mind’s eye. And I’m not talking about some mind-over-matter scheme of somehow psyching yourself into super-achievement. What I’m referring to is the simple principle that anything you create (in this case, your business) will be given life once you can see it clearly in your mind. The more clearly you see it, the likelier you are to achieve it.
Steven Covey, author of Seven Habits of Highly Effective People, discusses the vision principle when he says, “Begin with the end in mind.” Napoleon Hill, in his famous book Think and Grow Rich, notes that, around the turn of the last century, dozens of industrialists used this same principle to become some of the richest and most powerful men of their day. To begin with vision is crucial — no, essential! – if you expect to have any real success.
In Psycho-Cybernetics, a classic from the 1960s, Dr. Maxwell Maltz explains the vision principle from a psychological perspective. First, he says, there’s the importance of seeing a thing. Whereas the rational mind has filters of logic and reason, the subconscious mind accepts the messages it receives without question. So learn to speak directly to your subconscious mind. It’ll believe you!
Have you ever known a pathological liar? Have you noticed how he or she could say something once or twice and then, having said it, actually believe it to be the absolute truth? Again, this is the vision principle at work. Since the subconscious mind believes whatever you tell it, it’s important to develop a clear picture of your “success vision” and then to speak that vision to those around you. Your subconscious mind is listening and wants to help you build your business.
While we’re on the subject, I’d like to mention one more thing: it’s important to have as much detail as possible in your vision. Take the time to imagine the perfect real estate practice — your real estate practice. Picture the individuals working with you. Picture the perfect office. Picture the details. See the transactions being closed. Watch your staff execute flawlessly. You’re writing and starring in your own movie! Now watch it clearly, again and again, until you’ve memorized it. The more clearly you can picture your vision, the more help you’ll get from your subconscious mind.
But let me give you some practical examples of vision-driven performance. When I began in real estate, I set several objectives for my first year. I decided that I would list a property a week, and I told the agents in my office what I intended to do. Initially I was struggling, but soon I was ahead of my plan, so I adjusted it to list 100 properties during my first twelve months. You know what? I failed at that new goal. I listed only 74. But in my first calendar year I listed 119 properties. Could I have done it without “seeing” it first? I don’t know. I doubt it. Vision drives us to succeed.
Here’s another example. I was determined to become the top listing agent in our market during my first year. I first saw this vision clearly in my mind, and I used it to drive me until I’d accomplished my objective in less than six months. Could I have become the top listing agent in our market without having that vision? Maybe. I doubt it. But I know one thing for sure: I did accomplish my objective after I’d first seen it in my mind’s eye.
Oh, I could go on and on — but what’s important is that, if you can see it, you can achieve it. And if you can “see” it before anyone else does, that’s even better. For years, Roger Bannister held in his mind a vision of himself running a four-minute mile. Not surprisingly, everyone in his day considered such a goal to be unreachable — everyone except Roger! He continued to train and to pursue that vision — and then one day he broke the four-minute barrier. So you know what happened next? That same year, several other people broke the same barrier. Roger had broken it first because he “saw” it first. But as soon as other runners could see it, they could then achieve it.
And there’s no reason that you can’t do the same thing! Any of us can accomplish greatness if we address the challenge properly. Take some time alone to get a clear picture of the “perfect” real estate practice. Your perfect real estate practice. In the next part I’ll give you the practical steps toward accomplishing your vision, but before I can do that, you’ll have to have a clear picture of what’s ahead for you. Just print out this article, and then set it aside. Go take a few hours to get a realistic concept of where you’d like to see your business in a year. Dream big! Imagine that your goal is already a reality. And take the time to see the details. When you see everything clearly, write it down so that you can refer to it and use it to refresh your mind. I promise you that, if you do this, you’re on your way to making 2006 your best year ever.
Step Two: Reverse-Engineer Your Success
All right, by now I trust that you’ve done your homework and taken the time to get a clear picture of your dream practice. I’m also confident that you have all the details clearly in your mind’s eye and have written them all down to refer to later. Good. Now we’re going to get into the practical steps toward making it all happen. You’ll need a pencil and a piece of paper for this part. And go ahead and get a calculator while you’re at it — we’ll be crunching some numbers. Don’t worry, though! I promise that the math will be easy. But first let’s discuss reverse engineering.
Reverse engineering is the process by which a company disassembles a finished product in a laboratory, carefully documenting all the details so that it can determine how to build a similar product. Maybe you’ve seen the movie Paycheck. (It was about reverse engineering.) Well, the reason I want to start here is that this is the single-best way to build a business plan for your real estate practice. We’ll begin with the end in mind.
Now, because this process will be highly personal, you’ll have to supply your own finished model (i.e. your perfect real estate practice). In order for us to work on this together, however, I’ll show you the steps in an example. Remember — this isn’t meant to be a substitute for your own vision. It’s just an example so that you’ll be able to follow along and know what to do when you do build your own business plan.
Okay, for the purpose of this sample business plan, we’ll assume the following:
Sample Plan for 2006
- Listings taken: 50
- Net income: $100,000
- Present to list rate: 90%
- Your agent split: 70%
- Percentage of listings that sell: 50%
- Average sale in your market: $200,000
- Average GCI (gross commission income) per side: $5500
This is where we want to start. In order to begin our own business plan, we need to disassemble the sample plan. Here’s what I mean.
We need to see what these goals mean in terms of specific details, so let’s start with the listing goal. In this plan you intend to list 50 homes next year, so we’ll break that down. Fifty new listings means giving 56 listing presentations (50 listings divided by 90% present to list rate), or one every week with an extra presentation thrown in every quarter.
It also means that you’ll have to generate about six times that many listing leads, according to the best data available. So how do you go about getting 333 listing leads next year (or 27 listing leads per month, or 6.4 listing leads every week)? Good question. Hold that thought, and we’ll readdress it later in the article.
Now let’s look at the financial goal. To make $100,000, you must first determine what you need to produce in order to get there. To do that, take $100,000 and divide it by your agency split of 70%, and you have $142,857. But that’s not your target yet. Don’t forget that you should be investing 20% of GCI in customer acquisition or advertising, so what that means is that you need to take $142,857 and divide it by 80% (the amount left of GCI after you invest in your advertising). That number gives you a gross revenue target of $178,571 — the total amount of gross commission income that you must actually generate in order to earn $100,000.
But this is just a nebulous income amount unless we reverse-engineer it. Let’s talk about specifics here. Divide the gross commission income by the average commission, and you have 33 transactions ($178,571 divided by $5500). That’s how many average transactions you need to close. Now let’s take it a little further.
What exactly goes into closing those 33 transactions? Let’s assume that half the listings you take ultimately close. (Every market is different, of course, but let’s use 50% for the purpose of this illustration. You can call your local Board for your market’s number, or you can calculate it from the MLS information.) Anyway — of your total number of listings (50), 25 will ultimately contribute to the total goal of 33 transactions closed for the year. This means that you will need to do only 8 buyer- side transactions (or twice that many if you supply leads to a team and split the revenue with them 50/50).
Okay, let’s now look at the raw ingredients needed to produce all this business. First and most importantly, you need leads. Lots of leads. In fact, you need 24 leads per transaction, or 792 leads for the year. Divide that number by 12, and you can see that you need to produce 66 leads per month (or roughly 3 new leads every business day). To read an article I wrote about how to generate that number of leads without breaking the bank, see “Getting Business to Come to You,” from a December 2005 edition of Broker Agent News.
Assuming that you’ve put a lead capture system in place so as to generate all those inbound leads, the next thing you have to do is convert those leads into deals. The best data says that you should count on ultimately making substantial contact with only about half the leads (after a maximum of six attempts). What that information suggests is that many leads will already be working with other agents, have friends in the business, be referred to someone else, or (for one reason or another) not want to talk with you. The good news is that the other half do want to talk with you!
And here are some more sixes. Of those six leads you contact, you’ll ultimately set up an appointment with one. And you’ll contact that one lead an average of six times as you build that relationship. Ultimately you’ll set up appointments with about one-sixth of all your leads. And half of your appointments should ultimately progress to closings. So let’s do the math together.
Calls to those you never engage: 396 (66 leads times 6 attempts)
Average time spent on a call: 2 minutes
Total calling time: 792 minutes
Calls to those you engage: 396 (66 leads times 6 calls on average)
Average time spent on a call: 20 minutes
Total calling time: 7920 minutes
Total calling time (all calls): 8712 minutes (792 minutes plus 7920 minutes)
Now, if you do the math (8712 minutes divided by 60 is 145 hours per month; divide that by 4.33 weeks in a month), you can see that you’ll be on the phone about 34 hours a week. In other words, it should now be obvious to you that high-volume real estate is very telephone-intensive.
When I was a brand new agent, I built this same kind of business plan. Because of the focus it gave me, I was able to spend a lot of time in my office with my door closed, talking on the phone. Well, many of my fellow agents spoke disparagingly about how I couldn’t (and shouldn’t) do real estate in my office. I told them that I couldn’t do real estate away from my office. I told them that, if I weren’t with a client, showing or listing a home, I would be in the office. There’s too much to do! Real estate has changed. The age of going out all over town to hustle up business is over. Lead generation should be on auto-pilot, allowing you to spend your time actually working those leads you produce.
Now let me ask you a question: wasn’t that easy? Building your own business plan should be easy! First you need to take the time to build your dream — your vision. Then you need to begin to share that vision with those around you. Realize that many of your fellow agents will pooh-pooh your plan, but that’s because it’s easier to find fault with your plan than it is to build plans of their own. So don’t let those around you tell you what to do. Follow your own business plan. And then get a comfortable chair and phone headset. You’re going to need them! High-volume real estate is done on the phone. Finally, consider building a team. To the degree that you can duplicate yourself by adding team members, do it. Having your own team will allow you more freedom and give you the ability to take your business beyond your personal production capacity.
I’ll leave you with a single thought. Many agents talk about building a business plan, but talk is cheap. What would happen if you actually did it? If you actually came up with a plan? Would it increase your production next year? Would it give you more freedom and a better quality of life? Would it take away the stress of racing from deal to deal? If you answered “yes” to any of those questions, I challenge you to break away from the crowd and actually do it. Actually design your game plan! Oh, and feel free to contact me with any questions. After all, if I help you sow your success, I’ll reap success as well.
So will you go for it? I hope so. Let’s make this your best year ever!