Growth Strategies for Brokers

There are three main ways to grow any real estate brokerage.  And most brokerages focus on the wrong one. We’re going to break down each growth approach.  

Number 1: Let me introduce you to Managing Broker Ryan. His growth plan is centered around: Lead generation.  Because he’s focusing on lead generation exclusively, he’s going to grow slower than the other two brokers we’re going to look at.  That’s right, lead generation is the worst thing to focus on. To be clear, I’m not saying don’t do lead generation, I’m saying don’t do lead generation at the exclusion of your other options.

Let’s take a look at his business. He has 20 agents working at his brokerage, each averaging about 100,000 GCI.  Some more some less but they average 100k without the company generating leads.  Meaning they produce $2 Million GCI from Sphere of Influence, and agent sourced leads.  With the brokerage split of 75/25, the brokerage is at $500,000 top line revenue.  Ryan adds to this baseline by doing lead generation.  He spends about $4,000/Month and generates roughly 200+ leads a month. His conversion rate on these leads is 2.5.  With an average transaction value of $500,000.  So over the course of the year, he does 30 Transactions for $15 million, producing an additional $375,000 GCI, after splits about $94,000 for the company.  Factoring in the cost of $48k spent on the lead generation, Ryan added $46,000 of profit to the brokerage.

It’s not crazy money. But it’s okay. Maybe Bryan could charge the agents for the leads, or take an increased spit on company generated leads, and boost that profit a bit.  This method does work for generating revenue.  The problem is that unlike the other methods we’ll discuss, it doesn’t compound.  

What do I mean by that?  Lead generation is basically a 1:1 system.  Ryan spends X dollars, he gets 1 lead.  He buys or generates enough leads, he generates a single sale.  Profit.  But that’s the end of Ryan’s return on investment. Maybe they transact with him again in 7 to 9 years, but for the most part, he’s done until the next sale he generates from a lead.  So basically his return on investment is directly proportional to his lead generation spend, and if he stops, so does the revenue flow. That is completely different from the next options.  Instead of linear growth, exponential growth becomes viable.

This is Samantha W. Her brokerage doesn’t do lead generation, her brokerage focuses on helping her agents generate more business themselves.  Their baseline is similar to Ryans.  20 Agents producing 2 million GCI. They average 8 transactions per agent with an average transaction size of $500,000.  Samantha invests primarily in training for her agents.  She brings in subject matter experts and teaches them things like sales techniques, social media marketing, listing generations, and more.  She invests $50,000 over the course of the year to make her agents better.  Over the course of 12 months, each of her agents is able to generate 1.5 extra sales on average because of the things they learn.  This adds 30 transactions to their production. With their transaction average, Sam’s team does an extra $15 Million to their year, just like Ryan’s team.  So $375K of GCI.  The brokerage gets 25% so they gross about $94K just like Ryan.  Here’s where things differ.  The knowledge doesn’t go away, it compounds.  Sam’s smarter agents will take their knowledge into the next year.  Instead of Ryan’s year 2 baseline of the same $2 Million GCI.  Samantha’s team is starting off with a baseline GCI of almost $2.4 million.  Her growth will compound year after year.

Let’s look at the third method.  This is Walter W. He’s got the same year one base line as Ryan and Sam.  20 Agents, 2 million GCI, $500K Company revenue.  Walter decides recruiting is the way to go.  He’s going to add 1 experienced agent to his roster every month.  He added an agent in January.  That agent will do 7 transactions this year for Walter.  In February Walter added another agent.  That agent will do 6 Transactions for Walter.  And so and so forth to the end of the year.  Walters 12 new agents, each are only working a partial year for him this year, but combined they generate an extra 30 transactions this year.  That’s the same 15,000,000 million in extra revenue generated as Ryan and Sam.  But the compounding is insane! Walter will start off year two with 32 Agents, compared to Ryan and Sam’s 20 agents.  His baseline projected revenue will be $3,200,000 GCI.

Summary:

Ryan’s Lead generation added revenue and profit, but no actual year over year growth.  His baseline revenue is still $2 Million GCI in year two.  Sam trained her agents.  Her agent’s knowledge compounds and her year 2 baseline revenue is now $2.4 Million.  Walter recruited and added exponential compound growth.  His 20 agent team became a 32 agent team.  And in year 2 his baseline growth is now $3.2 Million GCI.

Different situations could yield completely different results.  Except for lead generation. That growth will always be 1:1.  But with training, the more agents you have the higher the return on training programs.  If Sam had 60 Agents, and spent the $50,000 on training to get a 1.5 annual transaction lift per agent she’d get 90 additional transactions instead of 30 with 20 agents.  That’s over a million GCI annually at their transaction size average. The bottomline is, the more agents you have the better the return on training programs.

Walter set conservative goals. It’s very possible to recruit more than 1 agent a month. I recruit 150-200 agents/year. That compounds FAST.

In the perfect scenario you can do all three revenue strategies for rocket powered growth.  I think lead generation certainly has a place in your business. Especially if you’re able to use some of the leads as a recruiting incentive to competing agents.

The brokerages that are able to recruit and train effectively, are the brokerages that take over markets.  How you approach these two items is really important. It’s usually dependent on your situation, market conditions, and your competitive landscape.  

Bonus: Building through Branding

There is a fourth method of growing your real estate brokerage- Branding.  Many people think of branding as something you do but doesn’t necessarily have ROI.  The difference between branding and lead generation or any of the other methods outlined above, isn’t ROI, it’s time horizon.  If you commit to a GOOD branding strategy the long term benefits are enormous.  The goal of your branding campaign is to eliminate your competitors from consideration in the consumers mind. If you can succeed at that, your brokerage’s potential is unlimited.

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