When I was selling, my goal was to book a closing as close to Jan. 1st as I could. This set the tone for my year and let me operate from a position of strength. The later in the year my first closing happened, the more desperate I became, and clients could smell my commission breath.
An annual real estate income goal won’t warn you about a month with no closings. Neither will three pending contracts. Your bank account will, after it’s too late.
The further away a month is, the more your effort can influence it. Next month’s closings depend on your pending contracts, your active listings and whether a buyer falls into your lap. Closings six months out depend on the conversations you have this week.
Your minimum viable pipeline is the smallest number of contracts and listings you need to hit your annual income goal. Count only the deals that are likely to close. A buyer under contract counts. A buyer who is still looking does not. Most agents overestimate their pipeline.
To calculate your minimum viable pipeline, you need five numbers: your average income per closing and your targets for closings, contracts, listings and conversations. Then use those numbers to forecast six months ahead.
To see how the numbers work, take Amy, a hypothetical agent with an income goal of $120,000.
Real estate income goal: The 5 numbers you need to know
1. Find your income per closing
Start by dividing last year’s GCI by your closed volume. The result is your average commission rate, which is often different from the rate you quote. Then multiply that rate by your average sale price and your commission split.
Last year, Amy generated $100,000 in GCI on $4 million in volume, so her average commission rate is 2.5 percent. Her average sale price is $300,000, and her split is 80 percent. That’s $6,000 per average closing ($300,000 × 2.5 percent × 80 percent). To earn $120,000, she needs 20 closings.
2. Find your closings target
Most markets have a seasonal pattern. Your MLS likely has reports that show it. Spread your closing target across the year to match that pattern. Amy’s market slows in winter and peaks in summer, so she plans for one closing in January and three in June.
3. Find your contract target
A pending contract isn’t money in the bank. Some contracts don’t close.
Find your market’s contract cancellation rate in the MLS or ask your broker. Use the market’s rate even if your own is better.
Amy’s market has a 15 percent cancellation rate. That means 85 percent of her contracts will close, so she needs 24 contracts (20 ÷ 0.85) to produce 20 closings.
4. Find your listing target
Build your plan around listings, because they’re more predictable than buyers.
Some of your listings won’t sell. Add a buffer for listings that expire or get canceled. Amy expects 90 percent of her listings to go under contract, so she needs 27 listings to produce 24 contracts (24 ÷ 0.90).
5. Find your conversation target
Listings come from appointments, and appointments come from conversations. A conversation counts only when it’s two-way dialogue. An unanswered call, text or email doesn’t count.
In my experience, about 1 in 5 sphere conversations produces a listing appointment, and 80 percent or more of those appointments become listings. With FSBOs and expireds, about 1 in 20 conversations produces an appointment, and about half of those appointments become listings.
Amy plans to get 14 of her 27 listings from her sphere and 13 from FSBOs and expireds. The sphere listings need about 18 appointments, which take about 90 conversations. The FSBO and expired listings need about 26 appointments, which take about 520 conversations. Her annual conversation target is about 610, or 12 a week.
Amy’s minimum viable pipeline:
- $6,000 per closing
- 20 closings
- 24 contracts
- 27 listings
- 610 conversations (12/week)
The plan in action
Schedule three recurring reviews to stay on track.
Weekly: Count your conversations
If your target is 12 and your actual was seven, make up the five you missed next week. Missed conversations don’t disappear.
Monthly: Forecast your closings
Look six months ahead. Place each pending contract and active listing in its likely closing month. Compare each month with its closings target from Step 2. When a month comes up short, your lead time tells you how to fix it.
Your lead time is how long it takes a new listing to close. Add your market’s average DOM to the typical time from pending to closing. If homes in Amy’s market sell in about 60 days and take 30 more to close, her lead time is about three months.
If the short month is beyond your lead time, add conversations. Use your ratios to find how many more conversations you need to add to your weekly target. For Amy, two missing contracts mean about 50 more conversations, or about six extra per week for two months.
If the short month is within your lead time, the missing closings must come from business you already have. Revisit your active listings and any buyers who have gone quiet. If that’s not enough, add the missing closings to the months beyond your lead time.
Quarterly: Check your assumptions
Recalculate your conversation-to-appointment and appointment-to-listing ratios. Look up your market’s cancellation rate again. Adjust your listing buffer only when you have enough data.
The bottom line
Your real estate income goal tells you what you want. Your minimum viable pipeline tells you whether you will get it. It rests on five numbers: your average income per closing and your targets for closings, contracts, listings and conversations. A six-month forecast shows whether you’re on pace.
Within your lead time, your closings depend on the business you already have and whether a buyer falls into your lap. Beyond your lead time, effort determines your closings. Keep your conversations on pace, and you’ll operate from a position of strength.
Bob Burns is the principal at Bob Burns Coaching. Get connected on LinkedIn and Instagram.
