Four rules of business expansion
To be a champion agent, you must understand the four rules of business expansion. These rules are universal for all businesses, but especially for service businesses where competition is high and opportunities for repeat customers and referrals are greatest. Those factors describe the real estate business well.
These four rules control the level of risk you’ll need to take to win the business of a champion agent. The further down the list you venture, the greater the risk you incur and the probability of achieving a return becomes even less. I always advise clients to attack these rules in order.
Rule #1 – Protect what you currently have
This does not require a lot of work. Sometimes you get so excited about the new venture or expansion opportunity that you fail in your main business area. Your core business starts to slide and becomes stale, stagnant and lifeless. Never stop looking at the ball. Each of you has one or two pillars of your business that generate considerable business without much additional attention, but it needs attention. Don’t fully throttle backwards.
The vast majority of agents do a poor job of this. We are so excited about new techniques, new systems, and new sources of lead generation that we neglect to protect the business, past clients, and sphere of influence we now have. As I once told a new client, when explaining the four rules of business expansion, it’s like running a ranch. You spend all your time buying new cattle (which you find through a bit of prospecting or marketing). The problem is that the whole back of your pen is open, so your newly acquired cattle that haven’t been branded yet are walking out onto the neighbor’s pasture. You have to fix a fence.
The easiest and fastest way to grow your business is to protect what you currently have. This really does not require a huge investment of time or money. It has to be done, or you’ll be working too hard for too little return.
The National Association of Realtors® has conducted many studies over the years on our clients and the levels of satisfaction and retention of both Buyers and Sellers. The numbers are actually quite shocking. In a survey conducted over a number of years, 69% of people were satisfied with their Agent’s service. When they checked back with this test group, they found that only 24% of people who completed another real estate transaction did so with their previous agent. We only produce an average of 69% satisfied customers, which is about a C rating. So we only got 24% of the total to do business with us again, another 45 percentage point drop. Those numbers are really terrible.
What that boldly says to one is that we don’t protect what we currently have very well; that too many of us are sending junk and trinkets in the hope that it will lead to referrals and long-term relationships with our previous clients and sphere. It obviously doesn’t work!
A champion works first to protect what they currently have before moving on to improve market penetration with their target market or those they already do business with. Most agents go to number three on the list first. The reason is because he is new; it’s fun; it is an adventure; someone recommended it; they’re bored. Most agents go to number three before anything else. Remember that risk and probability are reversed the further down the list of rules we work. The risk is higher and the probability is lower as we go through rules three and four.
We must protect the farm we have (if we have), our previous clients and our sphere of influence. You must protect your position first, and that means wherever you are currently generating business from…protect it!
Rule #2: Improve your market penetration with your target market or with the people you already work with.
Once we protect them, we need to expand our reach in our target market. Basically, the rule says that wherever you have strength or control, exploit that strength for more. Figure out ways to acquire a larger part of the business in an area that you have already penetrated, if you already control a part. If you have a farm to work, increase your market share in the farm. I have a client who owns more than 30% of the sales on his farm. Our first step was to create a strategy to increase their market share to over 45%. We did this by promoting your domain in comparison to other agents and even companies. We also promoted the concept of a second opinion to the people who lived on the farm. I wanted to raise awareness about the changing marketplace and the fact that a second opinion costs nothing but gives them peace of mind that they are making the right decision. That strategy worked wonderfully. He increased his number of appointments at the farm by 23% in the first few months. It is on its way to easily surpass the 45% market share threshold. She is getting much better performance in a short period of time with less risk by applying rule #2, rather than rule #3.
You can also convince your clients to invest in real estate; make more deals with the people you currently do business with by having your friends and family work with you. Increasing your referrals is a Rule #2 activity.
A target market would be any market you are currently targeting to generate business. It could be geographically, like my example, or they could even be FSBO or expired if you’ve already done them. It is whatever you are currently and deliberately doing to generate business.
Rule #3: Horizontal expansion in your main business area.
For most, their primary business area is residential real estate. Whatever makes 80% of your commission dollars is your core business.
When you expand horizontally, you open up another section of your business or a new source of leads, but you still remain in residential real estate. You could start working masons; market to condominiums, multiplexes, investment properties, FSBOs or expired; or establish a new growing area. Stop by to hold open houses, attend service clubs, and hold seminars for home buyers, home sellers, or investors. The options are truly endless for what you could do in this category.
The key is to expand into this area once you’ve reached the point of diminishing returns in the first two rule categories. The law of diminishing returns says that you are getting close to the maximum in that area, so the closer you get to the ceiling, the less growth you will receive, even if you put in a lot of effort and resources. There just isn’t enough growth potential to make it worthwhile.
Rule #4 – Change and create vertical expansion.
To expand vertically would be to move into a similar complementary business that is structured like the real estate business or has ties to the real estate business. This rule allows you to take what you learned in real estate or use the contacts you have in real estate and build an additional business and income stream.
The most common thing for Agents in this area is to open a real estate brokerage office and recruit Agents to work for them. You can also create a mortgage company, title company, escrow company, branch out into land development, build homes, or invest in real estate. I have even heard of Agents becoming or forming a business partnership with a property and casualty insurance provider.
If you have a good database and communicate with your past clients and sphere frequently, you certainly have the option of serving them with other financial needs as well.
Champions work to follow the four rules of business expansion. They focus on risk and probability working to keep both in your favor. I know of many agents who became champion agents simply by focusing on Rule #1: Protect what they currently have and Rule #2: Improve their market production with their target market or those they already work with. . Due to their skill, the size of the database, and the frequency of communication, they can achieve exponential growth with limited risk.