I’m excited to tackle a topic that often confuses many team leaders: how to create a compensation plan that ensures profitability as a team leader. Many think hiring someone on a 50-50 split is the way to go, but guess what? It’s a bad business model. Let’s dive into it!
Sample Business Setup
Imagine we’re starting a retail store together. You put up the money, sign the lease, handle the advertising, and stock the inventory. I work the cash register and take 50% off the top. Out of your 50%, you pay back your investment, rent, inventory, and advertising. Doesn’t sound fair, right? That’s essentially what many team leaders do—take all the expense and give away half the profit without any risk to the team member.
Often, team leaders end up making less money than when they were solo agents because they don’t structure their teams properly. Building a team is essential, and I believe everyone should start their team as soon as they get their real estate license. However, you need to be intentional and understand your role as a leader, which includes creating stability and security for your team members.
Hiring and Compensating Your First Team Member
So, who should be your first hire? The first person you should hire is a Client Care Coordinator (CCC).
There are various ways to compensate a CCC. You could pay them per transaction ($250 to $400), hourly, or a base salary plus a bonus. A good CCC can handle up to 100 transactions. For instance, you might pay a salary of $25,000 to $40,000 plus $100 per transaction up to 100 transactions. Beyond that, you can split the role into marketing and transaction coordination.
Compensating a Buyer’s Agent
When it comes to buyer’s agents, here’s a model that works:
- 40-60 Split: They get 40%, you get 60% for the first two deals per month.
- 45-55 Split: For deals three and four.
- 50-50 Split: For five or more deals.
This structure ensures you maintain a 50% gross profit after covering costs like lead generation and client care coordination. The key is to ask potential agents, “What’s more important, the split or the amount you take home?” Most agents care more about their net income than their split.
As a leader, your job is to help your agents succeed, not just to have them serve you. Help them become the best version of themselves and make more money than they ever thought possible. For example, on a 40-60 split, an agent doing two deals a month (24 transactions a year) at $10,000 commission per deal would make $98,000.
Listing Partner Compensation
Compensating listing partners is slightly different. They should be paid between 25% and 35% because listing homes incurs more costs for you (photography, staging, etc.). A good listing partner can handle 60 to 85 listings a year, earning over $100,000.
Using the Buyer Agent Agreement
To streamline this process, use a Buyer Agent Agreement, which outlines compensation and expectations. This agreement, signed by both parties, ensures clarity and commitment. You can download our template, customize it, and run it by your attorney to make sure it fits your needs.
Take a look at my YouTube channel, and in particular my 9-minute video on “How Do You Split Commissions on a Real Estate Team” where you can download the Buyer Agent Agreement.
Key Takeaways
To build a successful team, remember to:
- Hire a Client Care Coordinator first.
- Use a tiered compensation model for buyer’s agents.
- Pay listing partners appropriately to cover additional costs.
- Use a Buyer Agent Agreement to set clear expectations.
By following these steps, you’ll create a compensation model that ensures profitability and provides stability for your team members. This is just one step in building a great team.
Have a great time building your team. This is just the beginning!
