6 - Aligning Your Habits with Your Revenue Goals
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Get the Money Right: Episode 6 – START
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Joe Rodriguez
Hello, my name is Joe Rodriguez and you're listening to Get The Money Right with Todd Butzer. Todd has decades of experience in giving real estate agents the training and resources they need to get their finances on track. In this episode we will be going in great detail about a money myth that was mentioned back in episode two: Your revenue is not your income. You want to start, Todd?
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Todd Butzer
Thanks, Joe. Welcome, everybody, to episode six of Get the Money Right. As Joe mentioned, we're going to take a little deeper dove on the money myth that we brought up in episode two that says your income is not your revenue. And what we mean by that is agents often quote a number. And again, they're not bad people, but they'll often quote a number, and they'll associate that number with their income. The danger with it, of course, is what they're quoting is the actual revenue of their business. And it can get very, very dicey. So, with exercises, hopefully you have your phone nearby. I'm sure most of you do may be listening to this on your phone. You're going to want the calculator from that. Doing math via podcast or broadcast or any kind of electronic medium is always a little bit tricky because we're kind of walking you through the math. But I think if you bear with us here, you're going to come to some discoveries that will really help as you approach your business and getting the money right.
Okay. So, the first part of this exercise is centered around really, how are you doing so far this year? So, there's just a little exercise, Joe, that I have people do. And that's this take whatever month you're listening to this in, okay. And we're going to add a full month to that. So here's what I mean by that. If you're listening to this in May, which would be the fifth month, of course, I want you to add one full month, which would be six months. And there's a reason behind that, because any business we're writing in this month will typically not close till 30 days later. Okay. So we're going to add one full month to our simple equation. All right. Now, just going to table that for a second. I want you to look at your income goal for the year. Now, again, most of us will quote the income we want.
All right. So that's what we're going to start with. What's your income goal for the year? The next step is we're going to take that number and we're going to multiply it by two. And kind of bear with me on the percentages here, but you'll get the idea. The reason behind multiplying it by two is whatever number we're looking for, we have to gross a higher number because we operate a business and this business is going to have cost of sale. It's going to have splits to our broker potentially. It's going to have operating expenses, maybe referral fees, things like that. So we are going to pay some money out before we get to keep the money, which is our net income. All right. So take your income goal and multiply it by two. Now, what we'll do next is we're going to take. Whatever month we're in. And we're going to add a month. So, for example, if you're listening in May, we're going to add one month. That'll be June through June.
That means we are 50% done with our year. All right. So what do we do? We take the revenue goal that we already listed, and we're going to multiply it by where we are in the year, which is 50%. In this case, if you do it in August, you're at eight month plus. One month would be nine months. Okay. And that would be 75% done. So we're 50% done with the year. So if we just do basic math, if our income goal was 100,000, just track with me here. And we multiply that by two to get the gross revenue that we need to reach the 100. We're now at 200,000. Okay, great. Now we're going to multiply that by where we are in the year so far. And again, let's say we're listening to May, so we're going to add one month to June.
That's 50% through the year, which means, Joe, we either need to have closed and or pending $100,000. By the day. You're listening to this if you're listening to me. That makes sense, everybody. That'll give you a good assessment as to where you really are toward your goal. Let me give you an example of what on I'm referring to. I have a colleague in real estate, actually, a good friend. And I've known this gentleman for many, many years. He's a great agent. And we don't get to talk as often as we would like, I think. But we do see each other occasionally at events and things like that. And I ran into him at what we call our family reunion or our national convention for our real estate company. And I ran into him on the trade floor and we exchanged pleasantries. And I can remember exactly the day because it was Valentine's Day, and there was a lot of stuff going on about that and. And I said to him, How are you doing, Bill? Not his real name. I said, How are you doing? He said, You know what? I'm really off to a great start and I think this is the year. I would never make up a number, folks, he said. I think this is the year that I'm going to hit $1,000,000 in GCI. I said, That's great. Good for you. And I said, So how are you doing so far? Where you at? And he said, Well, I've written or pended are closed door pended, $60,000 so far. So how's he doing? Well, just in terms of for a lot of people's businesses, we'd say, wow, $60,000 in the first six weeks. He's rocking it. Except as he compared to his goal. See folks. He has to do $83,000 a month. Not 60,000 in six weeks. So he's quite a bit behind his goal, incidentally, as he great agent. Yes. Is he is he doing well by a lot of standards? Yes. Is he doing well by his own goal, though? And the answer is no, because he's nowhere near where he really needs to be. So this is just the first part of this is just really a checkup. And that is to say, where are you compared to what you were really looking to do? And make sure we start with the true gross number that we're looking for. Now, just a quick sidebar that we can chat about for a little bit. How do you know that the first number we wrote down is right? And you know, I know a lot of people hear that and they say, well, what do you mean? It's right. I came up with it. I know you came up with it. And here's my thought. How do you know that? That's the number you can hit. What if? What if the number you can hit is far larger than what you originally wrote down? What if the number that we're writing down is just a number we've got in our head that we think is the right number? And I just want to offer and again, you can go back and listen to, I think, episode two. I'm not talking about stuff here and buying things in material things. I'm not talking about that. I'm talking about assets for your family. If your goal was 100,000 an income this year. How do you know you can't do 400,000? Or 900 or 2.2 million. He said, Well, I've never really thought about that. Well, as you go through these numbers, just keep in mind one thing. And Joe, this is something I brought up to a lot of people. The market does not care who wins. I know that sounds kind of like a speaker phrase. I truly mean that.
Just think about this. For example, you have an agent start in real estate for the very first time. Pick a year, 2023, 2022, whatever. They start that year and by the end of their first full year, they've done four or 500,000 in gross commission in their very first year. So my question is, where did that come from? Well, the market doesn't care who wins. They simply went in and took that share. So as we start this exercise and you put down your number, I want to challenge you to, you know, don't make it up to the point where it seems just absurd to you, but push your limits a little bit. If you're used to saying making and I'm making these numbers up, but if you're used to writing down 75,000. What does 275 look like or 475? I do know a lot of agents will tell you this, that doing, you know, 30 million in volume. Actually became easier for them than doing 10 million. We're doing 10 million and volume was actually easier. Or more systematized and more fluid than doing 2 million. So start there and put the number into play that. Where could this go? All right. And that's all we're going to go there. So the recap is this take your income goal for the year. This is income that needs to come to you. Multiply that by two because that's the number we're going to need to hit. We will refine these numbers later in later podcasts. For now, though, let's hit four for twice the amount. Now, what we're going to do for this year's assessment is we're going to say how far into the year are we? So just take the percentage of how far into the year you are, including your returns that are going to close in a month or so. And take that percentage and apply it to your large number. Now we can nitpick this a little bit if we want to. And some people have said to me, well, regarding this gentleman, well, maybe he is going to hit the number because it's seasonality. You can apply that if you want, if you wish to. I'm just for simplicity. I'm just saying take where you are in the year and multiply that times the amount you need and see where you are. It's just a good a good checkup.
Joe Rodriguez
I have a quick follow up question. So, no matter where the agent is at this point in time, they're going to do this check-in with themselves, figure out how much money they need for the year. Have you ever experience or do you have any check ins with yourself throughout the year where you may say, I'm doing significantly better than I thought I was, than I thought I would be? And so you readjust those goals or do you just sort of maintain and just try to overshoot your goal?
Todd Butzer
Okay. It's an excellent, excellent point, Joe. And here's what's interesting. The quick answer is yes. If you find yourself, let's say whatever your number, let's say that you do this assessment and you're 50% ahead of the number. What do you think? Most people in our industry tend to do. I'm generalizing, I know that. But just in my observations, there's something that most agents tend to do if they find themselves ahead of their goals. What do you think that is?
Joe Rodriguez
I think they might see that and think of it as like a buffer. It's like, oh, I'm safe, I can step off the gas and kind of like slow down to.
Todd Butzer
Exactly what they do. In my experience. Anyway, I've seen agent after agent after agent, including myself. When you are ahead of the curve, you start saying, you know, pretty cool. I'm going to take some time and that's okay. You deserve some time. You don't want to burn yourselves out. But if you're ahead of the curve and you are well aware of that, yeah, let's reassess. Let's up it. That's kind of going back to my original concept of how do you know that number is the right number? Because truth be told, if you look at Rookies of the Year that are coming in with no idea what they're going to go do, and in their first year, do three, four or five, $600,000 in gross commission income right out of the chute. It just it gives us the idea that maybe our mind does play a lot of a lot of role here in terms of what we're what we're seeking. So, yes, Joe, it's a great question. We sometimes take our foot off the gas if we're ahead of the curve and taking a break down in is good. when you need them is good. But don't be afraid also to up the goal and reset the goal. That's great. Great question.So let's take this to the next step. And that is what do we have to do to actually hit these numbers and how do those numbers work? So we're going to do a little bit more math. And before I take you too far into this, John, I will do this throughout the series here. I'm going to recommend, if you haven't read the book, The Benchmark book written by Gary Keller, Jay Papazian and Dave Jenks, the millionaire real estate agent. If you've not read that book, come on, I highly recommend it, because what I'm about to talk about, they go into great, great detail on explaining how you back into the activities you need to hit the number that you need to hit. And I'm going to highly recommend it. We'll put a link, if we can, on our site or a reference on our site to it. Okay. So. So here's the next step. What we're going to do is we're going to take. Our revenue goal that we've already decided. Okay. And we're going to kind of set that aside and we're going to look at. The amount of gross commission we received last year. Take that, whatever that number is, and hopefully you have that number. If you don't have that number, we've got work to do. It's nothing. Nobody's been bad. We have work to do if we don't have the number.
Incidentally, quick side note. You should have that number on the top of your head. What was your gross? It's knowing our numbers, which is a whole nother episode, Joe. But let's find out how much how much commission dollars came in last year. And let's divide that by the total volume that we sold, the total dollar volume that we were credited with. And that's going to give you your average commission rate rather than just me. Tell you what it is, because I don't know, you're going to calculate your own. You know what your own is. How much commission do you receive on average per sale? Okay, so we're just going to start there. Now we're going to go back to the revenue goal. And we're going to divide it by our average commission rate. Now for some people, this gets kind of funky. It gets kind of weird because we're dividing by a percent, essentially.
Okay. So let's just let's just do some math here. Let's take our $200,000 gross revenue goal. Okay. And we're going to divide it in this particular example by a commission rate of point oh to five. So I'm just assigning I'm making this up because commissions vary by agent, by company, individually negotiated with each of your clients and so on. So, but I'm just coming up with 2.5%. So we're going to divide 200,000 by 0.025. All right. Now, what you're going to find is if my goal is 200,000 in revenue because I want 100,000 an income. I'm dividing it by my average commission rate. It means I need to do about 8 million in sales volume. Now. What do we do with the 8 million? Well. We know that our average sale price. That we do not the average sale price in our market, not the average sale price for our office or our market center. It's our average sale price because the fact of the matter is, is my average sale price in ABC, you know, community might be 200,000. Your average sale price might be 900,000. So we have to go with our own. So we're going to take our 8 million in volume and we're going to divide it by our average sale price, incidentally.
Quick sidebar. That's a number we should know. That should be off the top of our head. So for this exercise, we're going to use $300,000. We're looking for 8 million in volume. The average sale price in in in art that we're doing in our sales is 300,000. That means I need to do 27 units. This coming year. At an average sale price of $300,000 to reach 8 million and sales volume, which at two and a half percent commission will pay me $200,000 gross. And from the gross, I will have cost of sale and expenses and so on. And then the income that comes to me will be $100,000. A real nice business, by the way. That's how you go and target the money.
So you take your revenue, your income goal, your revenue goal. Now, here's how we got there. We took your income and we multiply it by two in this case. We'll refine these at a later date when we really start digging in even more. So we have our revenue goal. In this case, I said I have an income goal of 100. That means I need revenue of 200,000. I'm going to divide it by my own personal average commission rate, which in this case is 0.025 or two and a half percent. That gives me 8 million in volume that I'm targeting for this coming year or this coming cycle. At a $300,000 sale price on average that I do I need do then hit 27 units next year. Now what this tells me, this gives me the framework of what I need to be doing daily. To be having the number of appointments I need. To be getting the number of sales I need. Listings or sale site that I need to close. 27 units in this particular example in the coming year. The reason I recommended the millionaire real estate agent book is it will take you mathematically through which we're not going to do today, but it will take you mathematically through your conversion rates from a lead to an appointment and from an appointment to a sale. And again, if you don't know those, then this is something we can start working on right now. We can start looking and saying, Well, I'm going to start tracking my appointments and how many appointments actually lead or I mean, my leads, how many of those leads actually lead to an appointment and how many of those appointments actually lead to a sale? Now some of us hearing this might say, you know, I don't I don't like doing all of that. And I get that. I do. Except for the fact that we run a business. People watch a show like Shark Tank and you'll see somebody come on and they have a great new idea. And the first thing the sharks do, even if they've they're really you know, it's a cute little kid or something and they've got a great little idea. The sharks always do the exact same thing, which is tell us the numbers. In you better known. And it's a good education for all of us that that our lead conversion rate. What if what if we have a very average or low percentage of listing actual listing contracts for the amount of listings were going on? What if we're getting 50% of them? And we have friends in our office that are getting 90%. So, the numbers tell us stories and they tell us that, wait a minute. I might have to work on my listening presentation skills or my listening presentation itself or my prelist packet or whatever it is. All of that comes from knowing these numbers. But hopefully this exercise of where we are in the year so far. What do we have to be doing and are we ahead of the curve? As Joe brought up a little bit ago, or are we behind the curve here? And are we doing the activities necessary to be able to hit the number that we need to hit? And then let's take a look at the second section here.
The second exercise, which is how many units do I actually have to do to hit the numbers that I'm looking to hit? Now here's one small caution and then we'll get ready to wrap you up for this this episode. Don't be fooled by numbers that look simple. And here's what I mean. If we do the math on 8 million in production, in this particular example that we just did, and we said that at a $300,000 average sale price, we're going to have 27 units we're going to hit. Here's the trap 27 when you're setting up your goals. Seems so reasonable. Or 227. No wonder whatever numbers you're working with, they're going to seem reasonable to you in your mind. If you're like me might go to well, that's only two a month tot. It's only a couple a month. I mean, a little more than two a month. I can do that. Well, I've heard a lot of agents say that, except they're not doing two in six months.
So, something's going to have to change. So, if we're really, really committed to these numbers, then we have to match up our actions, habits and disciplines toward those numbers. The beauty of these exercises, in my mind, I know they're very simple, but the beauty of them is this it gives us a target. That then allows us to build the activities and habits that we're going to need to do to be able to hit that target. And it's a big, big step, folks, in getting your money right.
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Joe Rodriguez
That concludes this episode of Get the Money Right. Stay up to date on the latest and get the money right. Follow us on social media and be sure to subscribe to the podcast platform of choice. If you want to support the show, please leave a five-star review and share with your friends. If you're a real estate agent who is getting their money right, want to be a guest on the show. Please submit all inquiries to getthemoneyright.podcast@gmail.com. Links to everything we discussed today in the episode description.
Thank you for listening and have a wonderful day.
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Get the Money Right: Episode 6 – END
In this episode, Todd will be going into greater detail about a money myth that was mentioned back in Episode 2: Your revenue is not your income. He will also be breaking down how your revenue goals inform your daily activities.
Subscribe to stay tuned for more real-time financial strategies that will improve your real estate business!
If you are a real estate agent that is getting their money right and would like to be featured on the show, please email getthemoneyright.podcast@gmail.com
Subscribe to stay tuned for more real-time financial strategies that will improve your real estate business!
If you are a real estate agent that is getting their money right and would like to be featured on the show, please email getthemoneyright.podcast@gmail.com
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Hosted by: Todd Butzer
Produced by: Joe Rodriguez