Leverage Your Time by Learning Your Net Rate Per Hour

simplified illustration of a gauge

RE Magazine — Summer 2017


Net rate per hour should be measured on each transaction you do. The math is simple. For each transaction, there is gross commission, expenses for that transaction and the amount of time it took to work with that client.

Example:
Buyer Transaction

Gross Commission $10,125
Brokerage Fee, E & O, Transaction Fees -$4,243.75
Expenses (gas, food, listing expenses, gift, etc.) -$526
Taxes (20%) -$1,071.05
Net Commission (gross minus brokerage fees and expenses) $4,284.20
Transaction Hours 73
Net Rate Per Hour (net commission/transaction hours) $58.69
 

Buyers generally take more time than listings, but listings incur more expenses. Using the same example above but for a listing, if my expenses were $1,641 and my hours were 42, take a look at how that changes my net rate per hour:

Example:
Listing Transaction

Gross Commission $10,125
Brokerage Fee, E & O, Transaction Fees -$4,243.75
Expenses (gas, food, listing expenses, gift, etc.) -$1,641
Taxes (20%) -$848.05
Net Commission (gross minus brokerage fees and expenses) $3,392.20
Transaction Hours 42
Net Rate Per Hour (net commission/transaction hours) $80.77

There comes a time in every broker’s business when a deal becomes too frustrating, a client becomes too demanding, the broker is showing homes too far out of area and at some point, they throw up their hands and say, “This isn’t worth it!”

It is at that point that I encourage clients to dig a little deeper and determine what specifically isn’t working. Usually it comes down to a matter of time or frustration. While frustration is difficult to measure, time certainly isn’t. Therefore, when deciding to make a change either by specializing in one type of client or area and making rules around what other types of business a broker will do, it is critical to look at your net rate per hour.

Although the net commission on the listing transaction example was almost $1,000 less, it had a higher net rate per hour. This is because the buyer transaction took almost twice as many hours as the listing.

Now imagine we determined our averages for ten transactions and we find that the number of hours for a buyer transaction average 70 and listings average 38. In addition, our average rate per hour for buyers was $56 and for sellers it was $80. If our goal is to leverage our time, doesn’t it make sense to do lead generation that focuses on procuring more listings? We can do almost twice the number of listings in the same amount of time as one buyer transaction.

In fact, if there are 52 weeks in a year, let’s say we work 46 of those weeks (as we need some time off). Our goal is to work only 40 hours per week. That gives us 1,840 potential work hours. Of course, we are going to need some of those hours for business organization, marketing, sales meetings, meeting with our accountant, etc, so let’s assume we need 10% of our hours for those activities leaving us with 1,656 potential hours for clients.

In 1,656 hours, based on the average hours determined above for listings or buyers, we can work with 24 buyers or take 44 listings. Using our average rate per hour that we determined, if we worked exclusively with buyers, we would net (before general business expenses) $92,736 and if we worked exclusively with sellers we would net $132,480, $40,000 more. If this were your business, just based on the potential income, what business would you focus on getting more of?

Now imagine you know your rate per hour and don’t want to make less than a certain amount. What would you do if:

  • A buyer wanted you to help them buy a home out of area,
  • A past client who you know to be demanding, unreasonable, and took a lot of your time wanted to work with you again,
  • A seller asked you to cut your commission,
  • A high-end seller didn’t want to listen to your advice regarding pricing their property but expected you to hire a high-end photographer complete with drone capability, wanted you to do a 3D property tour, and a video,
  • Or a client wanted you to participate in a complex transaction involving zoning issues, permit issues, and an extended feasibility period.

Each of these either demands more of your time, decreases your commission, or increases your expenses. Hopefully, when you evaluate your net rate per hour, it will help you make better decisions for your business based on your bottom time-or-money line.

For example, if a buyer wants you to help them buy a home out of the area, consider:

  • The extra money for gas
  • The extra time in the car for showings
  • The extra coffee you will buy for both you and the buyers to keep you awake for that long drive
  • The extra time to get to know the area
  • The extra time to research local professionals who may be called in to help with the inspection and repairs

All of these will reduce your net rate per hour. Now imagine instead you referred out this transaction. No extra time in the car, no extra expenses, just a phone call and some follow-up—maybe three hours tops. Imagine this transaction would have had a net commission of $4,000 and you would have made $36 per hour only due to the extra time. With a referral which would yield 25% back, your net rate per hour skyrockets to $333.33 per hour! Whoa!

I encourage you to evaluate your 2016 and 2017 year-to-date transaction and determine your net rate per hour for each transaction. Separate buyers and sellers as well as any specialty niche markets you work with such as land, multifamily, manufactured homes, short sales, equestrian, luxury, and more. This will give you a benchmark that you can use for projecting your potential net rate per hour for future transactions.

Although you shouldn’t only use math to determine whether or not you work with a client, as sometimes you need to follow your heart and sometimes there may be greater opportunities for you later once you master a certain type of transaction, using your head to leverage your time will help you make strategic decisions which are a good fit for your business.

 


 

About the Author


Denise Lones

The founding partner of The Lones Group, Denise Lones, brings over two decades of experience in the real estate industry with expertise in strategic marketing, business analysis, branding, new home project planning, product development, and agent/broker training. Denise can be reached at The Lones Group: 360-527-8904 or online at www.TheLonesGroup.com.

 
 

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