How To Determine The Lifetime Profit Value Of Each Of Your Delighted Clients & Use This Precious Info To Take Your Business To New Heights
Contrary to what you might have read or been told...
The Main Purpose Of Your Business Is To Obtain And Retain Clients!
If you know how to find and keep plenty of clients and compel them to do business with you for the long term and give you lots of referrals regularly, you’ll produce more profits than your greatest expectations
(If you already understand the importance of knowing the lifetime profit value of each of your clients and just want to calculate this figure quickly and easily, scroll down to the comment section and click the link in my (first) comment to access my online calculator.)
On the other hand, if you don’t have enough clients doing business with you, you won’t be able to stay in business for very long, let alone make a profit.
Every successful real estate agent (and every other successful business owner or professional) treats his or her clients like royalty before, during, and after the transaction.
The success of your business will depend on how well you serve your clients.
If you’re like most agents, you probably haven’t been taking care of your clients at the level you could be, right?
If you had been, and you’ve been in this profession for at least five years, you would have a massively successful business right now. So you wouldn’t even bother reading this article.
The Biggest Mistake Most Real Estate Agents Make
After investing a large amount of money, time, and effort getting prospects to become their clients, many agents don’t take care of them well enough to keep their patronage for the long term.
By treating their clients with indifference, agents don’t get hired for future real estate transactions and don’t receive referrals. As a result, these agents constantly have to acquire new clients to replace the ones they have lost.?
Remember this important fact:
Your clients are your business and your business exists for them. Without clients, you’ll have no income, no nice home or cars, no college education for your children, no vacations, and, of course, no business. Nothing!
Clients Are The Lifeblood Of Your Business!
Unless you understand clients are the lifeblood of your business or your greatest business asset, you won’t go the extra mile to make them feel special or appreciated.
When asked, “What’s the most valuable asset of your business?” most agents (and business owners) usually reply:
“The cash in our bank accounts.”?
Or...
“The real estate we own.”
Or...?
“Our trademarks.”
Or...?
“Our brand.”
?Or...
“Our employees.”
Even though these assets are extremely important to your business or mine, they aren’t the most precious.
You see, without your clients, the money in your bank accounts can be used up quicker than you can imagine, forcing you to sell the real estate, the trademarks, or the brand to generate cash to pay the employees and other expenses.
Because the majority of agents don’t realize their clients are their most valuable business asset, they treat the people who have given or will be giving them money to support their lifestyle poorly or with indifference.
Some agents don’t keep in touch with their clients regularly during the transaction and many of them don’t do it after it has closed.
Your Clients' Biggest Complaint
The biggest complaint sellers have about agents is, after the sign has been placed in the yard, they don’t hear from their agents for weeks or even months.
If you’ve also committed this deadly mistake, that’s one of the primary reasons you aren’t generating your desired income no matter how hard or long you’ve been working.
In short, when you treat your clients with indifference, they won’t hire you to handle their future real estate transactions or give you referrals even if you ask them repeatedly.
Let me share with you some revealing information from the NAR’s 2018 report, Profile of Home Buyers and Sellers.
In case you aren’t familiar with NAR (which stands for National Association of REALTORS? ), they’re the largest membership organization in the United States with more than 1.3 million members.
(If you’re in Canada, the information still applies because the two countries are closely related.)
This table shows 39% of sellers chose agents that were referred by people they knew or have done business with.
Are you surprised or shocked only 24% of sellers rehired their previous agents?
How many of your clients have done two or more transactions with you?
If your figures are the same or similar to the NAR’s study, then only 2 out of 10 of your clients have rehired you.
That’s depressing, isn’t it?
You invested so much money, time, and effort to acquire your clients and 80% of them won’t use you for their future real estate transactions.
How Buyers Selected Their Agents
Can you believe it?
Only 12% of buyers rehired their previous agents in 2018.
How many of your buyer clients have done two or more transactions with you?
Are you also losing 88% of them after the closings?
Check out another illuminating discovery from the NAR’s survey:
This table shows 74% of buyers said they would definitely use their real estate agents again.
Let’s look at the sellers...
A similar pattern with sellers. Even though 69% of them said they would definitely rehire their real estate agents (top table), only 24% of them did it (bottom table).?
Wow!?What a discrepancy!
Are you shocked at these statistics!
Why such a large difference?
Well, many sellers and buyers don’t rehire their agents because they think their agents are the same as other agents.
Although most of them said they would use their agents again, when they were ready to sell or buy properties, they didn’t do it because their agents:
1.?Didn’t provide them with a memorable home selling or buying experience. Or…
2. Didn’t keep in touch with them. Or…
3.?Didn’t do both.
What about you?
Do you contact your clients after receiving thousands to tens of thousands of dollars in commissions to provide them with extra value and let them know you really appreciated their business and will be the best agent to handle their future real estate transactions?
If you’re like most agents, you probably haven’t been communicating with your clients as often as you would have liked, am I right?
Maybe you haven’t contacted some of them even once since the closings.
Have I hit a nerve?
One Of The Primary Reasons Most Agents Don’t Take Care Of Their Clients Well Enough To Gain Their Business For The Long Term Is They Don’t Understand The Lifetime Profit Value Of Each Delighted Client!
?
To persuade you to go the extra mile to treat your clients like kings and queens, I’ll show you the huge profits you could make from each one over the course of his or her home buying or selling cycle.
Let’s say John and Linda Anderson are your clients and you’ve just sold their house for $300,000, which is the average price of the properties you typically sell. The average commission is 6% or $18,000. After paying the buyer’s agent, you make $9,000. Your split is 70/30, giving you $6,300, which is also the amount you make on the buy side.
(If the average home price in your city is higher or lower than $300,000, or if your commission rate isn’t 6%, keep in mind this is only an example.)
We’ll assume the Andersons are both 30 years young and have a combined annual income of $122,000. Eight months after selling their house, they’re looking for a new home. You didn’t know this because they told you they would rent for a few years before purchasing another home.
In the first scenario, we’ll pretend you provided them with an average home-selling experience and you stopped communicating with them after the closing. This is typical of many agents. Since you treated the Andersons with indifference, they don’t re-hire you when they’re ready to buy their next home. So you made only $6,300 from them.
In the second scenario, we’ll pretend you provided the Andersons with an amazing home-selling experience and you got the best price and terms for them. And after the closing, you keep in touch with them via phone, text, email, postal mail, and personal visits. As a result, you know about their plan to buy a new home. In addition, you’ve received several referrals from them without even asking.
Let’s calculate the lifetime profit value you could make from your delighted clients, the Andersons, based on only $300,000 as the average property price to be really conservative.
If the average price in your city is several times larger than this amount or slightly smaller, it doesn’t matter. The concept still applies.
Are you stunned the Andersons could be worth $604,800 to you over the course of their lifetime of patronage?
How many of these clients do you need to make a fabulous living in your real estate profession?
Just a dozen, right?
Besides making a fortune, imagine how much more enjoyable your business will be when you can work with clients who are pleasant and who like you and care about helping you become enormously successful… because you’re treating them like royalty even after the closings.
Let me explain some of the items in the table.
A. The average price of the properties you sell or buy
If the average price of the properties you sell is several times more than $300,000, the lifetime profit value of your clients could be $1,000,000 or more, depending on future property prices.
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B. Your average listing commission, net of your brokerage’s share
The $6,300 was based on a selling price of $300,000, a list-side commission of 3%, and a split of 70/30. If your listing rate is more than 3% or your split is more than 70%, the Andersons’ lifetime profit value will be even larger than $604,800. (Even if your commission is only 1.5% net (such as in Vancouver, Canada), the amount is still $302,400.)
C. The average number of years between your clients’ moves
Research has shown most homeowners move every seven years, whether within the same city or out of state or province. The people in your area may relocate more or less often than seven years. If you’ve been in this business for 20 or more years, you should know how often your clients relocate.
D. Your client’s average age
The Profile of Home Buyers and Sellers indicates 31 was the median age of first-time home buyers. The median age of first-timer home buyers in your city may be younger or older. If you’ve been in the real estate business for a few decades, you should know the average age of first-time home buyers among your clients.
E. Your clients’ age from 72
Although the average life expectancy for both male and female in the United States is 78 and?is 79 in Canada, we’re assuming most homeowners don’t move after age 72.
I.?Your average buy-side commission, net of your brokerage’s share
The $6,300 was based on a purchase price of $300,000, a buy-side commission of 3%, and a split of 70/30. If your buy-side rate is more than 3% or your split is more than 70%, the Andersons’ lifetime profit value will be even greater than $604,800.
L. The number of referrals received from your clients each year
If you treat the Andersons outstandingly well and keep in touch with them regularly to provide them with added value (such as showing them how to save money on their insurance or how to make their home safer), you’ll likely receive more than five referrals each year. On the other hand, if you treat them poorly or with indifference, you’ll get few or even no referrals from them.
If you receive more than five referrals from the Andersons, their lifetime profit value will be even larger than $604,800.
N. The percentage of referrals that become your clients on the listing side
We’re assuming only 20% of your referrals will hire you to sell their properties. If you can show these prospects you’re the best person to help them achieve their home-selling goals, more than 20% should do business with you. So the lifetime profit value from the Andersons will be greater than $604,800.
Q.?The number of referrals that become your clients on the buying side
?If you take care of your referrals incredibly well when they list with you, all of them should hire you to help them buy their new homes.
R.?Your total buy-side commissions from the referrals (Q x I)
We’re assuming the average price of the homes is $300,000, your buy-side commission is 3%, and your split is 70/30. If the price is more than $300,000, your buy-side rate is more than 3%, or your split is more than 70%, you’ll generate more buy-side commissions than the amount shown in the table.?
T.?Your total income from your clients and their referrals (K + S)
Depending on the average price of the properties you sell or buy for your clients, your commission rate, your split with your brokerage, and future property prices you could make a lot more than $604,800 from each of your delighted clients over the lifetime of his or her patronage.
?
It’s extremely important for you to know the lifetime profit value of your delighted client. And the wonderful news for you is, you can calculate it easily at my website, which is provided in the comment section at the bottom of this page.
When you go there, you’ll see this:
After entering the numbers for A, B, C, D, L, and M, you’ll see the following:
After determining the values for A, B, C, D, L, and M, you can calculate the lifetime profit value of your delighted client in less than 10 seconds. In fact, you can even compare two lifetime values by clicking the Compare button.
This example shows by increasing the number of referrals from 5 to 10, while keeping the other figures the same, you can raise the lifetime profit value of each client by a whopping $264,600. That’s more than a quarter of a million dollars!
If you’ve determined the lifetime profit value of your delighted client, be proud of yourself for doing something most agents haven’t, including many million-dollar producers who have been in this profession for a few decades.
(If you haven’t, I suggest you stop reading and do this extremely important and fun exercise now. Again, the link to the online calculator is in my (first) comment below).
The lifetime profit value in our example is $604,800.
What’s yours?
If you live in a city where the average price of a single-family home is greater than $300,000, such as San Francisco or Vancouver (Canada), your lifetime profit value would be several times more.
Write down and place your lifetime value where you and your staff can see it often. This way, the next time you communicate with a client, you’ll be reminded to treat him or her like a king or queen.
Why Is It So Important For You To Know The Lifetime Profit Value Of Your Delighted Client?
There are two reasons:
First, until you know how much each delighted client is worth over the course of his or her patronage, you won’t be motivated to treat this person exceptionally well.
Second, you can figure out the right amount of money, time, and effort to invest in getting a prospect to become your client.
For example, if you think each one is worth say, $5,000, because that person may do business with you only once, then you may be willing to spend at least $100 to convert a prospect into a client. On the other hand, when you realize each client could be worth $100,000 or more over a 10-30 year period, you should be willing to invest several times more money to acquire a new client.
The majority of agents don’t know they could make $500,000 or more from each of their clients over the course of the client’s patronage, so they may invest less than $50 to convert a prospect into a client.
You now realize the lifetime profit value of each of your clients, so you’ll be willing to invest hundreds of dollars to obtain a new client, allowing you to grow your business faster than your competitors and increase your market share.
Remember this crucial fact:
It Costs Six Times More Money To Get A New Client Than It Does To Resell To An Existing One!
To put it another way, for every $1 you spend on persuading an existing client to do repeat business with you or give you referrals, you have to spend $6 to convert a prospect into a client. The reason is new clients don’t know you, so you have to invest a lot more money, time, and effort to convince them to hire you for the first time.
Because most agents don’t understand this fact, they focus the bulk of their hard-earned money, time, and energy on generating or buying leads and converting prospects into clients.
As unbelievable as this may sound, many agents treat their prospects, the people who haven’t done business with them, better than their clients, the individuals who have given them thousands to tens of thousands of dollars.
Sadly, many agents think the selling process stops after the closings, so they fail to take care of their clients well enough to gain their future business and referrals.
Let me illustrate this important point by sharing the following:
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After spending many years in the peaceful and serene environment of heaven, the doctor got bored.?So one day he approaches St. Peter and says:
“St. Peter, heaven is a fabulous place to be for eternity. It’s quiet and peaceful. But after being up here for many years, I’m starting to miss all the excitement on Earth. Can I return to Earth for awhile?”
“Oh no. You can’t go back there,” St. Peter replies.
“The universe is gigantic. St. Peter, is there any place I can go to get some excitement?”
“Well, I can give you a pass to hell for seven days.”
“Hell? Is there really excitement there, and can I really return to heaven after a week?”
“I haven’t been to hell, but I hear there’s a lot of excitement there. And yes, you can come back to heaven after seven days,”
“Okay. Please give me a pass to hell,” the doctor says enthusiastically.
St. Peter waves his hand, and a path opens up and leads directly to the gate of hell. When the doctor reaches the gate, he knocks on it. And before he can blink his eyes, the gate opens and a red carpet appears to welcome him into hell.
Within a few seconds, hundreds of cheerful people greet the doctor. For seven days they wine and dine him, taking him to one party after another and treating him like a king. The doctor gets whatever he asks for instantly.
As you can imagine, on the seventh day, the doctor doesn’t want to leave hell. But when his pass expires at midnight, he gets automatically transported back to heaven.
After wandering around heaven for several months, the doctor runs into St. Peter one day, and asks him:
“Hey, St. Peter!?I’m bored again. Can you give me another pass to hell for a week?”
“No, I can’t.?The pass I gave you was only a one-time deal.”
“What about giving me just a one-day pass?”
“Well, since you were a great doctor on Earth and helped thousands of people there, I can give you another pass to hell. But this time, you can’t return to heaven for any reason. You must stay there forever.”
“Forever?”
“Yeah. Forever!”
After comparing the thrills he had in hell with the serene environment of heaven, the doctor says to St. Peter:
“You know, St. Peter, I think hell suits me better. Please send me there permanently.”
Within seconds, the doctor finds himself standing at the gate of hell. When he knocks on it, it opens up instantly. But instead of getting the red carpet treatment this time, a large hook grabs the doctor and throws him into a large bowl of molten lava where dozens of devils poke at him with pitchforks.
The doctor is yelling and screaming, begging the devils to stop. They pay no attention and keep stabbing him while laughing loudly.
The doctor suddenly sees Satan standing in a corner and he’s also laughing hysterically. The doctor gathers whatever strength he has left and yells at Satan:
“Satan, I don’t understand it. The last time I was here, your people treated me like a king.”
“Yeah, I know. Because back then, you were a prospect. But now, you’re a client,” Satan answers.
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As silly as this story may seem to you, this is how most agents treat their clients.
Is it any wonder their clients don’t rehire them?
Many agents don’t keep in touch with their clients or don’t provide enough value to gain their business for the long term.
According to the NAR’s Member Profile report:
What about you?
How much repeat business are you receiving from your clients?
Not much, right?
To compel them to do business with you in the future:
Treat Your Clients As If They’re Doing Business With You For The Last Time!
When you view them this way, you’ll take care of them like kings and queens.
If your mother, father, son, daughter, friend, or someone you love had only one day to live, how would you treat this person?
Wouldn’t you do everything you possibly could to make his or her last day on Earth as joyous as possible?
Absolutely, right?
If you treat your clients the same way, making them feel special or appreciated regularly, they’ll be compelled to do business with you for the rest of their lives and shower you with more automatic referrals than you can handle… without you having to ask directly.
Eventually, many of your clients will become friends and provide you with the money to retire and live the good life.
Wouldn’t that be incredible?
Absolutely!