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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 companies, but especially for service companies where competition is high and opportunities for repeat customers and referrals are greater. Those factors describe the real estate business well.

These four rules control the level of risk you must take to achieve the business of a champion agent. The further you go down the list, the greater the risk you incur and the lower your likelihood of a return. I always advise clients to attack these rules in order.

Rule No. # 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 core business area. Your core business begins to slide and becomes stale, stagnant, and lifeless. Never take your eyes off the ball. Each of you has one or two pillars of your business that generate considerable business without much additional attention, but need some attention. Don’t speed all the way back.

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 customers, and the sphere of influence that we now have. As I told a new client once, when I explain the four rules of business expansion, it is as if I am running a ranch. You spend all your time buying new cattle (which you find through a little prospecting or marketing). The problem is that the entire back of your pen is open, so your newly acquired cattle that have not yet been tagged are going out onto the neighbor’s pasture. You have to fix some fences.

The easiest and fastest way to grow your business is to protect what you currently have. This doesn’t really require a huge investment of time or dollars. You have to do it, or you will work too hard to get too little performance.

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 really shocking. In a survey conducted over a series 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 the people who made another real estate transaction did so with their previous Agent. We only got an average of 69% satisfied customers, which is about a grade C. Then we only got 24% of the total to get back to doing business with us, another 45 percentage point drop. Those numbers are really terrible.

What that tells you bravely is that we don’t protect what we currently have very well; that many of us are sending junk and trinkets in the hopes that they will lead to referrals and long-term relationships with our past clients and our sphere. Obviously not working!

A Champion works first to protect what they currently have before moving on to improving market penetration with their target market or those they already do business with. Most agents go first to number three on the list. The reason is because it is new; it’s fun; it is an adventure; someone recommended it; they are bored. Most agents go to number three first. Remember that risk and probability are reversed the further down the list of rules we work. The risk is higher and the probability less as we move on to rules three and four.

We must protect the farm we own (if we have one), our previous clients, and our sphere of influence. You need to protect your position first, and that means wherever you’re currently generating business from … protect it!

Rule No. # 2: Improve your market penetration with your target market or 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 to get more. Find ways to acquire a larger piece of the business in an area you’ve already entered, if you already control a piece. If you have a farm to work with, increase your market share on 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 its market share to more than 45%. We did this by promoting your domain compared 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 market 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 perfectly. He increased his number of appointments on the farm by 23% in the first few months. It is on its way to easily exceed the 45% market share threshold. She is getting a much better return in a short period of time with less risk by working on Rule No. 2, instead of Rule No. 3.

You can also convince your clients to invest in real estate; to make more deals with the people you currently do business with by getting your friends and family to work with you. Increasing your referrals is a Rule No. activity. 2.

A target market would be any market that you are currently targeting to generate business. It could be geographically, like my example, or it could even be FSBO or expired if you already do. It is whatever you are currently deliberately doing to generate business.

Rule No. 3: Expand horizontally in your main business area.

For most, their main business area is residential real estate. Whatever generates 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 builders; market to condominiums, multiplexes, investment properties, FSBO or expired; or establish a new agricultural zone. Move into open address homes, attending service clubs, and holding 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 have reached the point of diminishing returns in the first two categories of rules. The law of diminishing returns says that you are approaching the maximum in that area, so the closer you get to the ceiling, the less growth you will get, even if you put in a lot of effort and resources. There simply isn’t enough growth potential to make it worth it.

Rule No. 4: switch and create a vertical expansion.

To expand vertically would be to move to 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, a title company, an escrow company, a branch in land development, home construction, or investment real estate. I’ve even heard of agents who have become or formed a business partnership with a P&C insurance provider.

If you have well-informed data and communicate with your past clients and your sphere frequently, you certainly have the option to serve them with other financial needs as well.

Champions work to follow the four rules of business expansion. They focus on risk and likelihood of working to keep both in your favor. I know of many Agents who became Champion Agents simply by focusing on Rule # 1 – protecting what they currently have and Rule # 2 – enhancing their market output with their target market or those they already work with. Due to their skill, database size, and communication frequency, they can achieve exponential growth with limited risk.

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