Saturday, April 27, 2013

I was driving to work today listening to a motivational cd like I always do. The speaker made a good point. Did you ever notice that the biggest and most beautiful homes almost always have a library? Does this suggest that if you read a lot of books you have a better chance of getting wealthy? Something to ponder....

Luckily for me, the books I've read have afforded me a great education...one far superior than that represented by the degree that hangs on my wall. One such book I recently read was The Snowball - Warren Buffet and the Business of Life. Amazingly, Warren taught me a great lesson about recruiting and retention for my real estate firm in this book.

Warren Buffet, one of the wealthiest individuals in the world, built his fortune through wise investments which, like a snowball, have grown with great momentum over time. Forbes Magazine publishes a report each year of the worlds richest and Warren always manages to remain somewhere near to the top, right up there with Bill Gates. He can have and do anything because he has lots of money...about $62 billion to be more exact. However, Warren Buffet is as frugal as they come. He even still lives in his 5 bedroom home that he bought in the 1958 for $31,000.

I know....as interesting as this sounds, you're asking what do Warren Buffet, a Snowball and Real Estate Brokerages have to do with me? Here goes....

Warren Buffet became the wealthiest man alive because he understands that money, invested properly, can snowball into magnificent riches. When he sees the price of anything...new shoes, new car, new anything, he sees something different than the rest of us because he factors in the cost of lost opportunity into everything.

Let's consider a simple pair of shoes. They might cost $100. Most of us would say...hey, it's a pair of shoes, I can afford them. To Warren, the cost of those shoes is thousands of dollars because if he DIDN'T buy the shoes, and instead invested the $100 in something that earns interest which compounds over time, he could turn that $100 into thousands.

As a real estate brokerage owner, my time is like a snowball. My time can generate me a commission today if I work with a buyer and close on a real estate transaction or it can snowball into fantastic riches through momentum if I invest that time into recruiting agents and growing my firm.

Let's consider some simple math. If I sell a house today for $300,000 my commission earned on a 2.5 percent rate is $7,500. How much will I earn on that sale over the next 7 years? If I am really lucky this sale will result in one more sale in the next 7 years, through a resale or referral, and let's just assume that commission is $7,500. .So, over 7 years I am are earning $15,000 on that one buyer or seller I am working with.

Now, let's just say that I spent more time recruiting and less time selling homes. Let's say I recruit one agent. I hope to earn somewhere around $20,000 to $25,000 A YEAR on each agent recruited, but for argument sake, let's say that I earn $16,000 PER YEAR on that recruit. Over 7 years that recruit earns my firm $112,000.

So far, I have a decent sized snowball where selling a house can result in $15,000 of income over 7 years while recruiting an agent is more like $112,000. Let's take it a step further.

What would happen if, instead of selling a house, I spent a fixed amount of time retaining agents by putting a system in place to build a culture that is unlike any in the marketplace so that every agent wants to be part of my firm? By doing this, the agents I attract will start spreading the word which means for every agent I bring on, I can expect that they somehow aid me in bringing on one additional agent each year.

Now I really have a snowball going..

Let's look within a 7 year period and see what this one recruit has the ability to do...

Recruit One earns myr firm $112,000 over 7 years

After year one she adds 1 agent to your firm which means 16,000 x 6 years = $96,000

After year two she adds 1 agent to your firm which means 16,000 x 5 years = $80,000

After year three she adds 1 agent to your firm which means 16,000 x 4 years = $64,000

After year four she adds 1 agent to your firm which means 16,000 x 3 years = $48,000

After year five she adds 1 agent to your firm which means 16,000 x 2 years = $32,000

After year six she adds 1 agent to your firm which means 16,000 x 1 year = $16,000

So, because I spent the time recruiting and retaining rather than selling houses, my one recruit resulted in a snowball worth $448,000.

AND THAT'S NOT ALL.....

You see, systematized recruiting and retention means that the scenario above snowballs even further because each agent that the first agent recruits, starts additional snowballs within snowballs, within snowballs. The result, one recruit (if coached and retained properly through a systematized process of growing the office and building culture) will result in millions of dollars to your firm. Mortgage, title, and other profit centers compounds this effect even further.

I had an owner ask me recently, how do you stay profitable if you are not selling houses? Well, Warren Buffet has helped me formulate the answer. Selling a house to earn $15,000 would cost me millions of dollars in time which I leverage to recruit and retain agents allowing me to grow a snowball that no competitor can touch, no agent can resist, and no amount of money could talk me into stopping.

Hey, what can I say, there aren't many people that can see that a $100 pair of shoes would really cost $1500...but I am one brokerage owner that gets it.