Your favorite Empire Builders are back to talk us through knowing your numbers and how this can predict your future.
Why bother tracking your numbers? How do I track them? What do they tell you?
We first dive into the “Why.”
Leaders may not find it fun to use spreadsheets and manage finances. The reality is that it’s not only your responsibility but also makes you a smarter business owner. Sarah’s reason for tracking numbers is for predictability. Numbers do not lie. By knowing your numbers, you know where they are leading you to then predict the future for yourself and your team. Sarah says knowing her “Why” helps her give back to the ones around her.
As an Empire Builder, Wendy believes knowing your numbers is part of an emotional responsibility to your team. Setting a goal and hitting it can be extremely motivating. Your business’ future is directly correlated to the future of your family and your team’s families. Knowing the reason for tracking numbers is an obligation as a business owner. Seychelle says, “this is the difference between a sales person/employee and a business owner.”
Seychelle shared her journey to discovering how to track her numbers. In 2008, when the market was shifting here in Dallas, the majority of her friends and clients started getting laid off, creating short sale scenarios. A month earlier, Seychelle’s father went through a major crisis. Barbra, her business partner and mother, had to exit their real estate team to take care of him. Overnight, at the age of 25, Seychelle went from being part of a team to running a team. Shortly after, things got even more complicated when her buyer team walked out on her.
She recalls standing in Starbucks with that, “I’m not ok” look. There was a group she used to network with there and a gentleman by the name of Trey (a good friend also in real estate) walks up. “Hey, Sey, how are you doing?” She looked at him and said, “I’m not great.” After telling him everything, he told Seychelle,“You are going have to know your numbers or you are going to go bankrupt.”
She knew she didn’t want to go there. He then made her an offer. For the next 6 weeks, Seychelle would buy their coffee and bring all P&Ls to go over with him. Seychelle and Trey sat there and redlined it every week, meaning Seychelle was not allowed to leave having the same expenses as the week before. She made a goal every week to cut 10%.
Wendy shared how she attended Keith Cunningham’s 4 day MBA. Wendy was not a numbers person and this was an amazing education. She acknowledges that it was mostly men there learning, noting that everyone cannot be a numbers person until you learn it. You have put the effort in and work at it. You have to know how to read your numbers to run a business. Wendy and Seychelle would not be where they are now if they didn’t find a mentor.
Next, let’s talk about what to track.
To know what to track, you need an understanding of leading versus lagging numbers. Leading numbers are the numbers used to predict your future. They include:
- Leads generated
- Conversations had
- Appointments booked
- Appointments to contracts
- Buyer agreements and listing agreements signed
If you know the leading numbers, you know what your business will look like 4 to 6 months out. Lagging numbers come after leading numbers. These include numbers such as closings and contracts.
Conversion rates are an important part of this. You can’t predict the future if you don’t know your conversion rates. You have to include the whole picture. It’s much like a P&L — it’s easier not to know than to accept reality. Tracking your conversation in a step-by-step fashion is so necessary to ensure that you can pinpoint what needs to be focused on.
Seychelle shared that her team tracks everything through a daily conference (they call it “huddle”) call after lead generation. On this call, each agent reports how many contacts they have made, leads generated, appointments booked, and contracts signed. The numbers are also visible through dashboards they have built in their CRM. Wendy uses Google sheet and calls it a “master tracker.” Sarah uses Commitment to Excellence (C2EX).
When you first get started this can be very challenging. Be sure to start off small where you can. Start with listing agreements signed and appointments held. Then at the end of the year, you know your number of closings, which you can then work your way back from. This helps you learn your basic conversation rates and create your baseline.
So what do these numbers tell you?
As mentioned before, your numbers provide predictability. For example, tracking year-over-year allows you to compare leading numbers from last year to understand what your expected outcome will be this year. This is how knowing your numbers allows you to be a smarter empire builder.
Next, let’s chat about a dirty little word called profit.
Revenue versus Profit
Our Empire Builders start off very basic, explaining the difference between profit and revenue.
Revenue is all of the money that comes in through sales. An example of revenue would be all gross commission checks.
Profit is the number after all expenses have been taken out. Therefore, Profit = Revenue – Expenses.
All of the Empire Builders agreed — mastering expense management is the first step to profit. Wendy recalled when her business started moving quickly and growing rapidly. She didn’t know how much was going out and how much was coming in. This uneasy feeling started Wendy’s profit and loss journey. Sarah shared that she didn’t feel prepared to run her business with her knowledge; she felt inadequate. Sarah even thought about needing to step down and hire a more capable CEO. Instead, Sarah hired a coach and surrounded herself with others who take their P&Ls seriously. In turn, she gained comfort in knowing how much she was actually making.
Sarah recalls her first call with her expense management coach. He told her, “I need you to cut 10% from the budget.” Sarah thought it was just for that month when he actually meant for the whole year. Sarah communicated this goal to her team and they worked together to make the cuts. Including your team on these choices allows them to feel empowered about making decisions.
Additionally, having a team finance meeting every single month helps keep leaders accountable. This includes going line-by-line once per month through the P&L, bank statements, and any credit cards. It is super detailed and tiring, but important! Seychelle has her CFO email out spreadsheets prior to the meeting to have everyone itemize out their expenses, then she ties it back into the P&L. This forces each team member to look at their expenses each month.
You generally see profitability go up with productivity, and this is often reflected in a team’s culture. Building a pay structure around profit also helps motivate your team on a personal level. The way Gary Keller set Keller Williams up is great example of profit share. These models can translate into virtually any business.
Some leaders may have a stigma toward sharing their P&L with their team due to their own limiting beliefs that teams may see business owners as being selfish. When markets take a shift, showing the condition of the company can help push everyone’s goals. Sarah chimed in with an experience she had when she asked her team to guess how much they thought they spent on marketing. The result was a much lower than what was actually being paid out. Team members don’t know how much it costs to run a business. Including them on these expense shows how their choices determine the bottom line.
Steps to Profitability
1. Set up an incentivized pay structure. You have to reward your people for good behaviors. Creating an incentivized pay structure or profit share system will help you to reach lofty goals. Keep in mind the long haul when making this plan. You may start off with a “per deal” situation when first starting out but when you scale up, you may want to change this.
2. Prioritize return on investment. When rewarding team members based off of different lead sources, you have to dig deep into lead generation and how you track leads. Being able to track a client back to the original source helps you truly understand what works. The Think Like a CEO podcast speaks about the return on people. After all, people will always be your greatest investment. The chance of return on your people can be scary but has to happen to grow. You need to hold them accountable for that return within 90 days.
3. Track key performance indicators. Expect to get 5 times an employee’s salary back to you in value. Knowing the impact of your people on your organization is something you are responsible for, and your numbers will tell the story.
4. Budget Everything. Budgeting should be done based on revenue. Budget your occupancy, budget for lead generation, and budget for the cost of sales. This is any cost attributed to the sale. This could be the Buyer’s Agent, Listing Agent, or Inside Sales. They do not get paid if the sale doesn’t go through. The Millionaire Real Estate Agent does have a budget model and what it could look like if you modeled it out. This idea translates out to every business as well.
5. Budget cuts. We’ve all been here. Take for example when market shifts happen quickly. Fear sets in for your clients and this leads to a lack of decision making which causes a delay in contracts. Your top line revenue stalls out before your expenses get corrected. You then have a good 30 – 60 days to identify this and immediately start making budget cuts. This should be done without having to lay off any team members. This may require weekly P&L audits to observe daily and weekly changes. Wendy challenges everyone to look at their current P&Ls now and start imagining where you could cut 10%. This exercise helps you know where to go first during crisis mode.
6. Finally, lead generate. Pick up the phone, get face to face, use social media, but get back into business and lead generating. How you do it matters less than the fact that you do it. This can can turn your P&L around quickly.
You have now conquered the dirty little word! Don’t ever be afraid of profit. You are an Empire Builder!
To hear more from these talented Empire Builders, download the Empire Building podcast today through your podcast app or by visiting https://go.kw.com/empire-building.