The Economic Model: Your Shortcut to More Real Estate Sales
This article is the first in our “Back to Business Basics” series – one that is aimed at helping you achieve greater success by using models outlined in Gary Keller’s The Millionaire Real Estate Agent. The MREA gives you the “how” to achieve your goals and shows you where to focus your time to achieve the greatest impact. That’s because successful agents have left clues: which of their actions led to their desired results. The MREA is a compilation of those clues.
Since its original publication 17 years ago, the MREA has sold 1.3 million copies – withstanding market conditions and the test of time to help both new agents and seasoned pros alike.
Stop reinventing the wheel. Let the MREA be your guide.
“Reinventing the wheel every time is just plain exhausting work. And it leads to breakdowns and burnouts. On the other hand, I think you’ll discover that modeling will be very empowering. In fact, it may make things appear so simple it feels like cheating. Powerful models usually feel that way.” – Gary Keller
The Economic Model
Whether you’re struggling to build a real estate career or focused on taking your team to the next level, step one is to understand the Economic Model laid out in pages 129-132 of the MREA.
The Economic Model is a formula that shows how your investments and performance in key areas of business work together to produce net income. Unlike other complicated methods, it makes a clear connection between your desired net income goal and the basic activities that will lead to that number. In short, it’s a simple formula for how your real estate business will make money.
It’s that simple.
Start with a Big Goal
Before diving headfirst into the model, you must know exactly what you want to achieve in your business and your personal life. After all, the reason you’re in business is to achieve your life by design.
When you know what you want to accomplish, work backward until you arrive at what you need to accomplish in one year to reach your Big Goal. From there, calculate the costs associated to reveal your annual net income goal.
Do not think small – think BIG. Thinking big helps you to build up the momentum needed to surpass small goals on the way to achieving bigger success. Otherwise, you’ll slow down when a smaller goal is within reach.
Next, share your goals with accountability partners – your KW MAPS Coach, team leader, peers, and family. They will stand for your success, help you stay the path, and celebrate with you once you’ve reached your goal.
Know the Numbers You Must Hit
Next, familiarize yourself with the basic formula of the Economic Model and fill it out with how your business is currently performing:
- Plug in conversion rates for seller/buyer listings, appointments, and seller/buyer listings taken. If you are new to real estate and don’t have actual conversion rates yet, review the conversion rates on page 181.
- Enter the average sales price of a home in your market.
- Calculate the average commission per sale for each side.
- Divide by 12.
That way, you’ll know what areas of your business need to improve so you can achieve your goals.
Do the Activities – Focus on Appointments, Conversion Rates
“Models represent a plan that was prepared in advance and, when properly systemized, should translate into a consistent set of actions you take every month, week, or day.”
Once you plug in your numbers, the Economic Model calculations make it very clear: without appointments, you will not make any money. And without qualified leads, you will not get any appointments. For this reason, Gary Keller points to lead generation as the single, most important activity to succeeding in real estate.
“Leads are the fuel to your economic engine. And here is a truth that you must never lose sight of: You can never have enough good leads. Never,” he writes.
With a pipeline full of leads, your next focus is to turn them into appointments, then to convert those appointments into buyer/seller listings, and finally to successfully serve your clients and help them close a deal.
Your gross revenue (your GCI) is driven entirely by this chain reaction of productivity. It doesn’t matter how many leads you have if they never result in appointments. It doesn’t matter how many appointments you have if you can’t convert them into listings. And, it doesn’t matter how many listings you take if they never result in a closed transaction.
So, what’s the trick?
More often than not, the success of each appointment is determined before you ever set foot in the door. Most clients only interview one or two agents before choosing one to go with. That means that if you work on setting appointments with leads who are serious about buying or selling, you’ll put yourself in a good position to secure a client!
Successful appointments begin with setting appointments with clients who are ready and motivated to make a buying or selling decision.
If a lead has dropped a hint that they might be willing to test the market, start a brief conversation with them to better understand what’s driving their decision making.
- What sort of urgency do they have?
- How prepared are they to make a move?
- If their motivation is strong, then setting an appointment with them should be a top priority.
Pro tip: pre-qualifying leads for appointments is also a great time to dig up relevant information you can use for your consultation. Use this time to identify different ways your business’s unique value proposition and service plan can help them reach their goals. Mastering these presentations will help boost your conversion rates.
Fortunately, when it comes to your presentations, you don’t have to recreate the wheel. You can download and customize this listing presentation and buyer consult in Designs. Handcrafted in partnership with KW’s top agents, these presentations will help you bring more expertise, brand recognition, and insight to the table. Once you have your presentation, practice – a lot!
Track every presentation and its outcome to develop conversion rates to plug into the Economic Model every year. You can do the same for people on your team as you grow your business.
Since each of the activities are built on one another, you can quickly understand your pain points and seek training to improve in that area. As you move along, you will see how the model puts YOU in control of your business.
Command: With a growing book of business, it is challenging (and unsustainable) to manually keep track of all of your activities in relation to your goal. This is why Keller Williams has developed goal tracking in Command – its centralized, cloud-based business management platform.
Goal tracking allows you to stay plugged into them via a dashboard since EVERYTHING on the platform is interconnected.
The Millionaire Real Estate Agent: For in-depth tactics and strategies, purchase a copy of The Millionaire Real Estate Agent. Read it, then read it again. If you lead a team or market center, save big by purchasing the bundle! Follow the plan and models to create your path to success.