I’ve worked with a lot of real estate agents creating great real estate web design and helping them strategize to grow their business, I learned that most agents are not aware of how much they are making per hour. Knowing this is however important to know your true value. With a simple metric, any real estate agent can track his or her performance and learn how to increase the hourly rate per client.
This is inspired by an exercise that we do with our team and our clients to help with delegation. The big idea behind this is really simple, we want to reverse-engineer some math to understand what’s required to get us to our objectives. Here are the valuable questions we asked that help us determine the path to our goals:
- What is the annual financial goal?
- What is the hourly rate?
For example, we identify the goal as wanting to make 7-figures a year. Let’s say that the desired hourly rate is a thousand per hour. But if it turns out that you only make $10 per hour for tasks, it will be very difficult, if not impossible, to achieve the 7-figure goal.
Having the client time tracker will help you compute your hourly rate and how much you are making per deal, once we’ve identified that number, we can turn that into actionable things to do to try to improve that number and make more money with less time.
Looking at the average life cycle of a transaction from start to finish, the reality is the usual life cycle of a real estate transaction is long. There’s a series of events or tasks that you need to do in order to convince a complete stranger or a buyer to trust you with a purchase. That in itself can take months, if not years, to accomplish.
Once a client commits to you the effort transitions from marketing to fulfillment. This includes guiding the buyer through the process of getting connected with a lender, going through a pre-approval process, then going through escrow, and finally closing the deal. This is another several-month-long ordeal to take on.
Misusing your time when all of the dust settles you might find that you’re making less than minimum wage. You won’t know this until you compute the time and effort you put in, versus your commission. Knowing your true value and what you’re worth based on these calculations, either will make you feel good, or it could be completely disheartening.
We as agents and entrepreneurs can get sucked into the time investment. We’re easily caught thinking, “I’ve done all this work. I might as well just see this through to the end.” Not realizing that at a certain point in time, the investment of time ended up providing a diminishing return. There’s actually a term for this. It’s called the sunk-cost fallacy. This is when the best option is to abandon a strategy but you refuse to do it thinking you already invested so much in it.
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Client Time Tracker
There is a way to fix this problem. This system simply boils down to time tracking. One of the things that we do with our clients is to help them time to track what they’re working on. And we do this with SQ1 Client Time Tracker. Every single day you want to be logging the activities that you do per client. You’ll want to estimate the amount of time and effort that you do per activity.
The first thing that you’ll want to do is name the tab per client. The next step is to put the date that you did a certain task for this client. Then the estimated time and effort that you did to complete the task. For example, you had a conversation with a prospect over lunch. That’s like an hour or two hours investment. One hour is eating with the prospect, half an hour to get to the restaurant, and another half an hour to get back.
Next is to label each activity as “Marketing” or “Fulfillment.” Marketing is where you are trying to convince this prospect to become a client. And Fulfillment is the tasks needed to be done for the client to meet his or her goal.
And then lastly, you’ll want to put in the description of the actual activity or activities that corresponded with a particular date.
Now, the trick here is that you need to make a daily routine of updating these trackers per client. Once you’re able to close escrow, the hourly calculator becomes super valuable. The magic part about this cool little time tracker spreadsheet is that it’ll automatically give you the calculations. First, put in what you believe your hourly rate is in the Hourly Rate section. Then once a deal closes, you can now put in your net commission in the Net Profit section.
The Estimated Time Investment is a calculation based on your hourly rate and your net profit. How much time you have spent in with this client to make your hourly rate number?
Total Hours is the summation of all of the time you’ve invested with this client to get them to the goal.
True Rate is a calculation between your net profit and the number of hours that you’ve invested with this client. This will give you the Rate Difference or how much you lost. The Net Loss will give you the amount of money you lost on spending more time working with this client. Essentially, this is the amount of money you lose by working with a client even if it starts to provide you diminishing returns.
Hour overage is the amount of time you invested minus the estimated invested time. This is where you’ll see when you need to trim off. For example, the estimated time is 20 hours and you ended up spending 30 hours working with a client. The 10 hours difference is where you need to figure out how to optimize so that you can reduce time spent and increase your hourly rate.
There are two KPIs that can be measured from this tracker; time and task. Once you’ve done a few transactions, you’ll find an average time that is required to be spent per client to find your optimal hourly rate. Let’s say for example that the ideal number of hours per client is 80 hours. Do you end up spending more than 80 hours on average on a client? When your hourly rate drops, and then it just simply becomes diminishing returns. And at that point, you then need to reevaluate your time investment with each client because this relationship will end up turning into a sum cost or a negative return on investment based on your hourly rate.
The second KPI is the task itself. There’s a way to optimize the hourly overage and get the number lower. If it’s a repetitive task, we can save time by simply recording a video with applications like Loom. The point of this is to record this video with the instructions or the big ideas for this particular task. Then either send this video to a client to provide the next steps so that you can save time and effort.
You can also have an assistant to complete the task who has a lower hourly rate than your true value. It will take a little legwork to set this up at first, but the simple process of doing this will immediately save you a ton of time, thereby increasing your hourly rate.
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Final Thoughts
This process is going to be a test of self-discipline. The secret to this is to time-block the end of your day to work on this data. It’s a daily habit, but once you build the muscle memory of doing this, you’ll find that you’ll have a wealth of information to play with. At the end of the day, what can be measured can be improved.
You may find it difficult at first to commit to tracking every detail of your transactions. But once you get the result, you’ll realize how critical it is to track your hourly rate. With this, you will also come to appreciate your value and time as a real estate agent.
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