This simple model will change the way you plan your business.
Let’s talk about planning for 2023. The outcomes of our first quarter of next year will depend greatly on what we do now through the end of the year. What we use to plan out our year is something called the economic model. This basically tells us how we need to operate based on the financial math of what we want to make.
It works like this: If you want to make a net income of $1 million, you will factor in 30% for operating expenses and an additional 30% for cost-of-sale. This means that you will need to make a Gross Commission Income (GCI) of $2.5 million. From there, we can make an educated guess based on an average per-sale commission of $7,150 that you would need to close on 350 total sales.
From there, we break it down into what needs to happen on the buy and sell sides. Assuming that either side will account for roughly 50% of our business, the math will be very similar, with both sides accounting for 175 total closed transactions. From there, if we assume a 70% close rate, meaning that we close on 70% of the clients we take on, then we need to have 250 listings on both the selling and buying sides. We’ll further assume that you are converting 75% of your appointments into listings. This means that you must set 333 total appointments on each side to hit your goals.
“What we use to plan out our year is something called the economic model. ”
We use this model all of the time because we know that the outcome of $1 million in our example comes down to the inputs—how many appointments you can get. This model can be used for a team, but it could also be used for an individual. The math will work the same in either case.
So I encourage you to put this model into practice. Consider your overall goals for 2023, then use your actual conversion numbers to determine what kinds of activities you need to be engaged in. You could even break this down further by deciding how many contacts it takes to generate an appointment. The math will still work the same way.
If you would like more details on the economic model and how it can help grow your business, please don’t hesitate to reach out. I would love to help you.
