Ten Steps to Real Estate Success (Step 9)

What if I offered you a choice between two options.  Option 1 you earn $1,000 every day, starting July 1, for the entire month.  Option 2 you earn one penny on July 1st, and double your earnings every day for the entire month.  Which one would you choose?

If you chose Option 1, at the end of the month you would have earned $31,000.  Not a bad month!  For most of us, Option 1 is the easy money.  The sure money.  The safe money.  On the other hand, if you chose Option 2, at the end of the month you would have earned $10,737,418.24!  Clearly, a much better choice (unless, of course, you’ve taken a vow of poverty)!

Option 1 is simple addition, while Option 2 is multiplication.  And that’s the power of multiplication.  “But,” you may ask, “What does that have to do with my real estate business?”  I say it has everything to do with it.  I think it is the difference between making a living and making a killing.  It’s the difference between running a business and your business running you.

In this next to the last installment of the series, Ten Steps to Real Estate Success, I’m going to show you exactly why the principle of multiplication is so important when building your real estate practice.  But before we get into the actual points, I’d like you to look at the following daily comparison chart.

Date Addition Multiplication
July 1st $1,000.00 $0.01
July 2nd $2,000.00 $0.02
July 3rd $3,000.00 $0.04
July 4th $4,000.00 $0.08
July 5th $5,000.00 $0.16
July 6th $6,000.00 $0.32
July 7th $7,000.00 $0.64
July 8th $8,000.00 $1.28
July 9th $9,000.00 $2.56
July 10th $10,000.00 $5.12
July 11th $11,000.00 $10.24
July 12th $12,000.00 $20.48
July 13th $13,000.00 $40.96
July 14th $14,000.00 $81.92
July 15th $15,000.00 $163.84
July 16th $16,000.00 $327.68
July 17th $17,000.00 $655.36
July 18th $18,000.00 $1,310.72
July 19th $19,000.00 $2,621.44
July 20th $20,000.00 $5,242.88
July 21st $21,000.00 $10,485.76
July 22nd $22,000.00 $20,971.52
July 23rd $23,000.00 $41,943.04
July 24th $24,000.00 $83,886.08
July 25th $25,000.00 $167,772.16
July 26th $26,000.00 $335,544.32
July 27th $27,000.00 $671,088.64
July 28th $28,000.00 $1,342,177.28
July 29th $29,000.00 $2,684,354.56
July 30th $30,000.00 $5,368,709.12
July 31st $31,000.00 $10,737,418.24

Now, that you’ve looked at the chart, let’s talk about a few observations.  I believe that within them are some keys to success in real estate through the principle of multiplication.

Addition always looks like it’s a better pay-off. If you will notice, we were 60% through the month before multiplication had a single better day.  On July 19, the score was Addition: 18; Multiplication: 1.  Addition always looks better on the surface.  Many agents get on that treadmill, and slowly start increasing their income, one transaction per month, then two, then three, then another.  Soon they are making a lot of money.  Another transaction, and more money.  And another, and another, and another.

Have you ever noticed that top producing agents always seem to be racing to complete the next transaction?  Then the next?  No time to focus on building their business… just transaction after transaction until they can’t possibly do another deal.  Pretty soon, details start fading into the blur and that agent reaches maximum capacity.  Quantity over quality.  Burn out is right around the corner.  That’s addition.

With multiplication, the work gets easier, not harder.  Quality goes up, not down.  Quantity goes up, but it does so gradually.  That brings me to the next principle.

Multiplication always builds slowly. Look at the chart.  It was the 23rd before multiplication actually overtook addition.  That’s almost 3/4 of the month!  If you build your business using a multiplication strategy, you will be leaving money on the table for a long time.  Believe me, it is frustrating watching those “addition” agents passing your income level while you build your “multiplication” engine.

“Addition” agents keep producing until they reach their personal capacity (normally about one transaction per week).  Then, for them to push beyond that ceiling, they generally have to hire one or more assistants. Of course, the primary function of these assistants is to handle the administrative load associated with a high-volume practice, or put out fires after the fact, or both.

This type of structure is a very common model in real estate, even though all it does is increase the agent’s production by twenty to thirty percent.  With this model, there’s an absolute ceiling in the sixty-to-seventy-deal range; and as more assistants are added, the costs and the chaos almost invariably increase. There’s also a high turnover with assistants, and assistants still have to be paid whether or not any deals have closed.

Contrast that model with a “multiplication” agent that’s also generating more business than he can produce.  Instead of hiring assistants, he recruits another licensed agent to work some of the overflow. This second agent typically works on a split with the original agent.  Before long, another is hired, and another, and another.  Instead of hiring assistants, the multiplication agent is building a real team.  Multiplication as opposed to addition.

In this type of team structure, the team is able to grow to about four or five agents before management responsibilities begin to overwhelm the team leader. Depending on the team split arrangement, this first income ceiling is about twice what the rainmaker was able to earn before starting the team.  But, while that’s good, there’s still a critical step needed to go to the next level.

To make that next step, an agent has to quit being a producing agent on the team and become a full-time team leader.  Because income is typically reduced by as much as fifty percent during that interim period (remember, no personal production), most top producers don’t want to make this critical step.  They don’t want to sacrifice any revenue, even short-term.

But, if you’re willing to forego immediate gratification, you’ll soon discover that the size of your team will be limited only by the amount of business that you’re able to generate.  Here is where the real money-machine begins!  And the only boundaries are the size of your market and your dream.

After multiplication kicks in, there is no comparison. Look at the chart again.  After multiplication overtook addition (on the 23rd), multiplication made more every single day than addition did for the entire month.  After that critical tipping point, it was never even close!

Take the time to build the right structure and be patient while it matures.  Once it finally does mature, there will simply be no comparison.  Waiting through that first 22 days is a killer, but do it anyway!  The payoff is huge!

Let me share a couple of personal illustrations with you to drive my point home.  I have someone on my development team named Jim Little.  Jim has been a top broker and agent and is one of my favorite developers.  He’s very conscientious and very methodical.  He is currently recruiting a team of 10-20 managing brokers to open FavoriteAgent.com offices in the Dallas metropolitan area.  Jim also has a history of top earnings, so waiting while building, is very frustrating to him as well.

He and I were talking on the phone today about how tough it is to forego immediate “good income” while building for future “great income”.  I shared with him about this multiplication principle and we laughed about how tough it is not taking the “easy money” instead of waiting on the big money.  But, we decided it was worth the wait.

Here’s another illustration.  I have a top producing agent in my real estate brokerage who I’d place among the very top agents in the entire world.  His name is Kevin Grullon and he’s been in real estate full-time for about three years.  He and his wife Shawn (She used to be my personal assistant until she got engaged to Kevin!) will probably make $750,000 this year.  Oh, and our market has an average sale price of only $153,438 and is suffering one of the worst years in recent history.

As I write commission check after commission check to Kevin and Shawn, I sometimes think about the money they’re making. And I think about the time and energy I spend building a national real estate technology company, and writing books and articles to train agents.  I remember fondly those days of working with real estate customers, and think about going back to selling real estate like Kevin and Shawn.

For me, it would be a pay raise, but it would also be shifting back to “addition”.  I am currently on a “multiplication” plan and I’m somewhere around the 19th of the month!  The money is OK but it’s not what I’d be making if I were to list and sell again.  I think about going back and doing real estate (and I loved doing real estate) and making the “easy money”.  But then I come to my senses and decide to hold on a little longer!  It’s almost the 23rd!

I’d like to close by challenging you.  I’ll assume that you’ve solved the customer problem that keeps most agents from succeeding.  I’ll also assume that you’ve learned how to advertise and how to stay organized and focused.  That means that you have more business than you can possibly handle.

Now let me ask you this:  Are you building by addition or by multiplication?  I’d like to challenge you to try to build by multiplication.  If you’ll take the time to do it, I’ll promise  you that your life will never be the same.

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