Marketing

The real estate referral coefficient

Use math to help you figure out where to focus your efforts

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Referrals are the core of a┬áreal estate agent’s business. We know how to improve them and maintain them, so why wouldn’t we be able to take a mathematical approach to estimating how improving your referrals can enhance business? That’s what we’re going to try to do here.

Let’s define the formula as R = S x L. R is the number of referrals per year, S is the sphere of influence, and L is the average percentage of leads you obtained from your sphere each year.

With this simple formula, you can start estimating what your referrals could be by multiplying the size of your sphere of influence by the percentage of referrals you get from it every year.

Here’s an example: You currently have 1,294 people in your sphere of influence. You know that on average, you get referrals from 2.55 percent of them (.0255) every year. Knowing this, you can expect 33 referrals per year from your sphere of influence.

1,294 x .0255 = 33 referrals

How do you calculate your referral percentage? Simply divide the number of referrals you’ve received this year (or last year, the year before and so on) by the number of contacts in your sphere of influence.

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If you had 33 referrals and 1,294 contacts, you would see:

33 / 1,294 = .0255

Therefore, 2.55 percent of your sphere gave you referrals.

Now that you know your current referral coefficient, you can focus on improving either side of the formula.

Increase your sphere of influence

If you take 1,294 and set your yearly goal to increase your sphere to 2,000, using the formula, you can see how many referrals you can expect to get.

R = 2,000 x .0255

R = 51

You could expect about 51 referrals per year.

Here are some ideas to increase your sphere of influence:

  • Attend meetups from meetup.com and network.
  • Attend other offline events.
  • Cross-check your social media with your database.
  • Ask for introductions on LinkedIn.
  • Take time to meet new people everywhere (even at Starbucks).
  • Hand out more business cards.

Increase the referrals from your current sphere

Perhaps you’d like to increase your percentage of referrals — let’s get ambitious and almost double it to 5 percent (.05). Here’s what that formula looks like.

R = 1,294 x .05

R = 64 referrals per year. (We’ll round down because you can’t have a fraction of a referral!)

Here are some ideas to increase your referral rate:

  • Send your sphere a personalized real estate flier.
  • Ask for the referral.
  • Give them a referral first (following the theory of reciprocity).
  • Make sure it’s clear you appreciate referrals. Add a line to your email signature like “Always accepting referrals!”
  • Have a memorable real estate slogan.
  • Make it clear that you welcome them on your real estate social media profiles.
  • Balance out what you want to improve

If your referral percentage is really low, then you’re going to want to focus on increasing that first. If your sphere is small, then focus on that first. Take them one at a time to find your balance. You’ll also want to come up with your own creative ideas for drumming up referrals or expanding your sphere of influence.

Andrew Gale is the founder of FlyerCo.

Email Andrew Gale.