BROKER to BROKER: 80/20 Rule vs. 50/30/20 Rule

As a 22 year veteran in the real estate industry with a very diverse background, I’ve come to realize that the real estate brokerage business is a very competitive sport. You have players(Agents) on the field physically fighting the good fight. You also have coaches(Brokers) on the sidelines barking their experience, ideas, opinions, and perceived value propositions in the pursuit of recruiting, supporting, and training players to perform at their highest and best use. Then, you have the industry spectators that have never coached or played the game, but they sit high in the Press Box overseeing the field of play as they influence the industry with their ideologies, market assumptions, and predictions as to how they think things should be done with absolutely no consequences, investment, or skin in the game of their own.?

To become a coach(Broker), the barrier of entry is low and in most states doesn’t require much experience. There are spoken and unspoken rules that govern how we play the game(do business). And at times, there are huge fights with no boxing-ring or gloves, industry bullies that are willing to bare it all. Furthermore, most coaches are independent and territorial, with an industry that makes it almost illegal for coaches to get together to discuss their best practices and share ideas.? However, at times, these coaches from many different teams must display their bipartisanship as they come together when it mutually benefits them. Especially as they all are fighting to survive a game that seems to be rapidly evolving everyday, as well as fighting class-action lawsuits that could alter the fabric of how we play the game.?

BROKER 2 BROKER, when is the last time you sat with other Brokers to discuss the business? For many Brokers, the answer is never! We got our Brokers license with the idea of being better than what we’ve experienced. To provide options, support, tools, and training to Agents in a way we believe is best for their business. To offer compensation plans that have high splits, low splits, or a flat fee. Some of us charge Agents a monthly fee, or no monthly fee. Should you charge them for E&O, or not? What about CAPs, no CAPs, etc… Now, don’t forget Revenue Share in this competitive market! Then, you have to account for the standard 80/20 Rule that we were told about when it comes to this industry. Yes, they say that 20% of Agents do 80% of the business. Actually, the top 25% do 75% of the business. Meaning that 75% of Agents are fighting for the remaining 25% of the business.?

Personally, I wanted to better understand this theory. I wanted to break down that 80/20 Rule, by better understanding the anatomy of this Bell Curve instead of being told what to think by the industry and its Press Box spectators. My research led me to come up with what I call the 50/30/20 Rule that I now teach our DOSS Franchise Owners. As much as I dislike the word realistic, it’s very important to build a business that respects and understands the numbers when doing predictions and setting production goals. With that being said, lets use the 50/30/20 Rule with a Brokerage who has 50 Agents.???

50% RULE?

What I found out when doing my research and coming up with this 50/30/20 Rule, is that 50% of the Agents in an office are going to close 1 to 3 sales transactions a year. Now, depending on your Agents that fall into this category, that average could be 1, 2 or 3 closed transacts a year. Of course for you, you want that average to be as close to 3 as possible. However, in most cases, that average is going to be between 1 and 2 transactions per Agent for 50% of the Agents in your office. Assuming you have 50 Agents, that means this group consists of 25 Agents. As a Broker, you can only hope that this group of Agents will give you 25 to 50 closings a year. Based on your compensation plan, do the math to determine how much your brokerage will net. ?

Characteristics: These Agents are mostly part-time. They might never want to be a full-time agent for their own reasons. They enjoy the idea of being self-employed, but with the security of having a full-time job. They are able to participate in the tax benefits, which for some is the greatest benefit, and earn additional income with the flexibility that comes with being an Agent. They can’t attend most of your training sessions because they have a full-time job. However, they will often engage you with repetitive questions because they can’t attend training.?

Closings: 25 to 50 sales transactions a year

30% RULE

This segment of Agents, they are not going to close any transactions all year long. Yes, expect 30% of the Agents in your office to close nothing! Given this example of 50 Agents, that means approximately 15 Agents in your office are none-producers for that year.?If your office percentage is higher than 30%, you need to reevaluate your business, your recruiting practices, and mentorship, support, and training systems for your Agents.

Closings: 0

Characteristics: These Agents are primarily new agents and part-time agents. However, believe it or not, this group of Agents are going to be your culture builders. These Agents will show up to your office events and training sessions. They are the Agents who have a range of desires. It is your job as the Broker to figure out what each of these Agents need and want. You might be surprised that some of these Agents don't care to close anything. They simply like the idea of being an Agent and view it as a social activity.

20% RULE

As you probably anticipated, the 20% are the Agents that are going to carry your office. Based on my research, these Agents are going to close 7 or more sales transactions a year. With 50 Agents in your office given this example, that means 10 Agents are your workhorses!?Your objective is to develop as many 20% Agents as possible for your organization.

Closings: 70+

Characteristics: These Agents are busy and mostly full-time agents. They will not attend many of your events, unless they are engaged as the expert on a panel discussion. Or, they are attending an award gala or end of the year party. These Agents tend to be low maintenance and don’t need much support unless they are dealing with a snag in one of their deals and need your help.

BROKER 2 BROKER, I wanted to share my experience and insight about building an office, what to expect, and how to predict closings based on Agent headcount. Now, there are still going to be some variables that could impact these numbers. Like, are most of your agents new, part-time, market conditions, etc… You have to constantly build, recruit, and support agents to increase your 20% and 50% headcount pool. Look at your brokerage as a feeder. Someone may start in the 30% group, but over the months and years, those that apply themselves will eventually become a top 20% producer in your office. However, don't sleep on the 50% of Agents in your office that close 1 to 3 deals a year. Those onesie-twosie-threesie deals add up! Furthermore, believe it or not, you need each of these characteristics(50-30-20) to build the collaboration, communication, and culture of your organization. These groups need each other, just as much as you need them. They are your clients... So, with everything you have to offer, serve and support them!?

What are your thoughts about my 50/30/20 Rule? Please share...