3 Ways to Grow Your Business (Part 2): Increase Average Transaction Value

I hope you had a Merry Christmas and you are able to take some time off this week to relax and enjoy your time with your family and friends.

In my last post, I talked about the first way to grow your business: how to increase your number of clients by increasing your conversion rates on your marketing materials and sales consultations. Today, I’ll discuss the second way to grow your business: increasing your average transaction value.

Raise Your Fees

The most obvious way to do this is to raise your price. For instance, if you’re repeatedly charging 5% per listing instead of 6%, increasing your fee to 6% will net you more money.

For instance, on a $250,000 home, your commission at 6% is 1.5% or $3750. At 5%, your commission is 1.25% or $3125. By simply raising your fee from 5% to 6%, you’ve increased your income by $625.

Negotiate Your Fee Split

If you are already working at 6% commission or you are unable to command higher fees, you may have to look elsewhere for gains. For starters, can you negotiate with your broker so that they’ll take less of a percentage? Some brokers offer a 70/30 split or even 100% commissions in exchange for a monthly fee. If you do the volume, this can be extremely lucrative.

For instance, on a $250,000 home, you and your broker gross 3% or $7500 combined. In a 50/50 split, you each get $3750. In a 70/30 split, you get $5250 and your broker gets $2250.

Some brokerage firms offer 100% commissions and require agents to chip in with the overhead expenses. Let’s say that overhead is $1000 per month or $12,000 per year. At a 50/50 split, that means you’d have to buy or sell about three homes ($12,000/$3750) in a year at $250,000 each to break even. At a 70/30 split, you’d have to buy or sell about six homes ($12,000/$2250) before you brake even.

Work with Buyers and Sellers at Higher Price Points

A third way to increase your average transaction value is to work with buyers and sellers at higher price points. At 1.5%, you receive $3750 on a home that sells for $250,000. If, instead, you were to work in the $500,000 price range, you’d receive $7500 at 1.5%.

Let me clarify that I don’t mean you should break any code of ethics here. Your #1 priority is the best interests of your client, so if they want - or can only afford - a home priced at $250,000, you should not try to guide them towards a different home simply because you’d get a higher commission. However, there are plenty of move up buyers that do want homes in the $500,000+ range. These would be the people you’d target to work with you.

Referral Fees from Strategic Partners

Finally, a fourth way to increase your average transaction value is through referral fees. Many real estate agents offer a referral fee for other agents that refer business to them. If you receive a lead that isn’t a good fit for you, pass them along to another agent who can do the work while still paying you a referral fee.

You also aren’t limited to real estate agents. There are numerous other vendors and service providers that service the real estate industry such as accountants, appraisers, contractors, attorneys, home inspectors, insurance agents, locksmiths, movers, mortgage brokers and interior decorators that you could partner with and perhaps negotiate a referral fee for every client you send their way.

In my final post in this series, I’ll talk about how to generate repeat business and referrals.