Planning Real Estate Income with the Funnel Approach

Desired income and the funnel approach

Couple shaking hands with real estate agent at open house
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Our task is to determine how much needs to be fed into the top of our funnel in the way of prospects in order to generate the desired number of transactions exiting the bottom of the funnel. This also requires an analysis of our activities and marketing in order to feed the required amount of prospects into the top of the funnel. Our task is complicated by the difference in quality of prospects based on how they are acquired or generated and where they are in the process. In other words, a prospect who calls us and requests to be shown properties is obviously more likely to come out the bottom of the funnel as a transaction than one who just visited our website and asked for information.

Then we also need to quantify an "average" transaction and commission amount for each transaction that exits the bottom of the funnel. This way we can come up with what we need to feed at the top in order to realize our income goals from what comes out the bottom.

Determine funnel-out for funnel-in for each type of prospect.

Real Estate Sales Funnel Spreadsheet
Find out how many prospects you need to enter the top of your sales funnel in order to get the desired commission income out the bottom. Jim Kimmons

For the spreadsheet to determine your average per-transaction commission income, you enter the average transaction percentage, your split percentage and the average sale dollar amount for a transaction.

You can see the examples in the image. Just replace our sample numbers with yours.

Update note:  I'm updating this article just a little, as more Internet leads are now the norm for many real estate professionals.  You should be developing two different funnel systems, one for traditional leads and the other for website leads.  They behave differently and have different time lines.  Web leads often must be worked for months, as the Internet lets our prospects start much earlier and stay anonymous in their search for real estate services.

Estimate marketing prospects to closing

Two business people having serious discussion in modern office
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What we need to do here is to look at prospect types and try to determine the percentage of that type of prospect that are likely to come out the bottom of the funnel as a transaction. Then we know how many we need to come up with entering the funnel to achieve our income goals.

Let's take newspaper ad call-ins that actually look at properties as our first example. You're on floor duty and get a call from someone who wants to look at a company listing. You set an appointment and show that listing and some that are similar off the MLS. What we want to conservatively quantify is how many of this type of prospect might end up buying through us. I grant you that this is very subjective and somewhat arbitrary, but if you err on the conservative side, you'll probably be quite happy with the results. You ask a few of the old-timers and they say on average that only one in 10 will end up a deal. Use one in 20 to be really conservative. Then you ask and find that you'll get about 50 of these a year when you're on floor duty.

Estimate closings for each type of marketing or prospect listed in the spreadsheet. Change descriptions or add in the blank lines as needed.

Get the total expected commission income.

House sitting on pile of dollar bills
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Once we've determined the anticipated number of transactions we'll have from a certain type of prospect, we can apply that to our average transaction commission income amount to see how far we've progressed toward our desired annual income total. The spreadsheet does this for you and totals the result.

If there isn't enough to make ends meet, you might need to take other agent's floor duty or increase activity in other areas.

The overall goal here is to understand where we're getting our leads, how many we're getting from each source, the percentage of each source's leads that make it to closing, and the money we spent in getting those deals.  This is the way that we can do marketing planning in the future and know where best to spend our money and time.  You just keep refining and testing your marketing, track the results, and then you will have the information you need to get more commission dollars for every dollar you spend in lead generation marketing.  It works if you stick to it.