Smashing The Referral Fee Myth Part 2

The Referral Fee Myth –

A Narrow Mind Will Always Stunt The Growth of your Business!

Note:  If you have not read The Referral Fee Myth Part 1, my suggestion is to stop right now and go read it real quickly. It will support you in bringing this all together.

Smashing The Referral Fee Myth Part 2We left off with a bunch of questions for Brokers to ask agents, and agents to use in the self-reflection of their business. What were your findings?

Let’s jump in right where we left off and drill this thing down into the science of it.

Let me first share with you some business principles I suggest you carry forward with you if not already:

  1. It’s responsible to measure everything investment/return
  2. It’s responsible to do a thorough measurement of investment/return in both Human Resource Exhausted (Time) and Financial Resource Exhausted (Money) Don’t be narrow-minded and just look at the dollars. In the long run it will cost you dollars. Funny how that works.
  3. Have a constant awareness and measure so that you can be shifting your business away from the areas you are not getting the highest return on your time and money. Then shift to areas of business that do give you the highest return. The growth of your business is inside your business, not outside your business. Pretty simple. Note: Constantly be measuring but not to the point of analysis to paralysis.
  4. Every new transaction is not about THAT transaction, it’s about all the business you will generate from it. This frame of mind does 2 things for you:
    1. You better do a heck of a job on this transaction so that you get referrals.
    2. Ramp up every bit of every prospecting activity in your arsenal to extend your messaging through the new client you are working with.

Let’s Do Some Math

The next step we are going to take is evaluating your business. When is the last time you did the following?:

  1. Measured the value of your time per hour?
  2. Measured how much time you put into a transaction?
  3. Measured your cost of time per transaction?
  4. Measured your hard dollar cost per transaction?

Hopefully this process was started after reading Part 1 of this blog.

Let me illustrate the truth. I am not going to give you all the answers, but I promise I will paint a very clear picture to facilitate the shift of your mindset and Interrupt The Pattern of this Referral Fee Rift. If you follow what I have shared with you, you will probably grow your business. Wait, not probably, you will.

Here’s a scenario you can follow along and plug your own numbers into and make your decisions based on those findings:

Disclaimer: I understand everyone has different splits, fees, revenue shares, profit shares, etc. What we are measuring is dollars realized from a transaction and your time/money expenses.


How many hours a week did you work last year and how many weeks did you work?

50 weeks at 50 hours a week which equals 2,500 hours

How many transactions did you close last year?

50 (I guess I like that number so I am going to stick with it 🙂 )

Our first discovery is that you exhaust 50 hours per transaction. Everything you do on a daily basis regardless of outcome is a part of your end result including failed escrows and canceled listings.

What was the total commission to you after splits and any related fees?


Assumptions Established:

I will do the math for you based on what we have gathered so far.

A. You make $5,000 per transaction
B. You put 50 hours into each transaction
C. Your value per hour is $100

How much money did you spend in marketing?

$25,000 or $500 per transaction…I calculated way on the low side

Note: At a minimum you should be reinvesting 10% of your revenues in marketing to sustain a business on a continual growth trajectory. I see highly productive agents investing 15-18%

Let me bring this all together now if you don’t already see it. Then, you be the judge. It’s your business and I am not going to give you all the answers. You need to be able to evaluate your own business on a consistent basis.

Evaluate your time you spend over the year. I am going to go with the assumption that 50% of your time is spent procuring leads and turning them into a buyer or seller (If more or less, calculate accordingly). Simple math tells me with marketing (the number I shared was on the very low end) and your time, it costs you $3,000 per transaction. Remember your per transaction cost of time was $5,000, we are calculating 50% of that (based on our assumption that 50% of your time is spent procuring business) and marketing per transaction is $500.

Now if you are a good business person, you measure the value of your time. You should have now discovered that to truly compare a referral transaction dollar amount vs. a standard transaction without a referral fee is pretty darn close to the same, net net. When you take it a step further and evaluate the long term net of one transaction you paid a referral fee, you will see your business with a new pair of glasses. You will see a huge opportunity you may have been turning away. Check this out:

Note: Concern for liability and exposure vs. return comes up as I have mentioned earlier. Just be sure you are measuring the spin-off/future business too as you evaluate the risk/reward.

How much business did you generate from your sphere of influence last year?

How much business will you generate in the future from the referral you are getting that will put a sign in a yard you can work off from, posting online you can work off from, mailing you can work off from, and a new sphere of influence you are now exposed to from this new client that you would never have without the referral.

Consider the amount of business you will miss over your career by not allowing yourself to be exposed to a new sphere of influence a transaction with a referral fee can provide you?

How do you feel about third party or referral fees now?

Ready to focus on the referral fee myth? Start Here

Download the PDF version of this post for your offline use!

Tags: , , ,

Facebook Comments:

Leave A Reply (No comments so far)


No comments yet

Get New Posts Via Email

Enter your email address to subscribe!

Click the image to subscribe to Jon’s iTunes Podcast

coaching with jon cheplak

Contact Jon