Episode 57: Profit Per Agent: Why Bigger Isn’t Always Better – Forney Group

Featuring: Eric Forney, Hosted by Matt Miale — The OT Only Teams Podcast

In this powerful episode of The OT Only Teams for Real Estate Podcast, guest host Matt Miale sits down with Eric Forney, CEO of Livian and one of the sharpest minds in the real estate industry, for a deep dive into what it really takes to scale a profitable real estate team.

Spoiler alert: it’s not about having the biggest team in town.
It’s about having the right team—and understanding that profit per agent is the most important metric you’re probably not tracking.

🚫 The Myth of Team Size: More Agents ≠ More Profit

It’s easy to fall into the trap of thinking growth means adding more agents. But as Eric Forney makes clear, “The size of your team is a vanity metric. It’s not a success metric.” In fact, many large teams are unknowingly scaling dysfunction—adding people without a system, strategy, or sustainable model.

“If your team isn’t profitable, you’re not building a business. You’re building stress.” – Eric Forney

Matt Miale echoed the sentiment, noting that teams often confuse activity for productivity:

“You can add 20 people and not move the needle one bit if you don’t have a model that makes each hire more profitable than the last.”

📈 The Profit Per Agent Model

So what should team leaders focus on instead? According to Forney, it’s profit per agent—a performance indicator that reveals the actual health and scalability of your business.

“Profit per agent is the true north. If every hire isn’t making you more profitable, you’re not scaling—you’re growing broke.” – Eric Forney

Rather than chasing headcount, high-performing teams prioritize:

• Agent productivity
• Efficient systems
• Clear accountability
• Leadership capacity

These are the levers that move profitability—not sheer numbers.

🛠️ Systems Before Scaling

Another key theme was the importance of having systems in place before you scale. Teams that grow too fast without foundational operations often find themselves managing chaos rather than building a business.

“The ability to scale is directly tied to your ability to replace yourself with systems and people who do it better than you.” – Eric Forney

Matt added,

“If you’re scaling without systems, you’re just creating a bigger version of your current problems.”

🧑‍💼 Leadership Is the Multiplier

One of the most powerful moments of the conversation came when Eric discussed how leaders can unknowingly become bottlenecks:

“Most team leaders think they’re the MVP. But the truth is, if you’re still the best agent on your team, your team isn’t scalable. You’ve built a dependency, not a business.”

Great leaders build talent, delegate strategically, and create space for others to succeed. They understand that scaling requires subtraction—removing themselves from production roles so they can lead from a higher level.

💥 Key Takeaways From This Episode:

• Team size doesn’t equal success. Profit per agent is the real metric that matters.
• Every hire should improve profitability. If not, you’re scaling dysfunction.
• Systems, accountability, and leadership are non-negotiable for sustainable growth.
• Step out of the center. Build a business that works without you.
• Think like a CEO, not a rainmaker.

🔥 Final Thought from Eric Forney:

“Your business is a reflection of your leadership. If it’s chaotic, confusing, or unprofitable—it’s time to look in the mirror, not at your agents.”

🎧 Listen Now:

Episode Title: Profit Per Agent: Why Bigger Isn’t Always Better
Hosted by: Matt Miale
Guest: Eric Forney, CEO of Livian

Catch the full episode on:

• 🎙️ Spotify
• 📺 YouTube
• 🌐 OnlyForTeams.com

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Subscribe to The OT Only Teams for Real Estate Podcast, where every week we talk with real estate leaders doing 100+ transactions a year—so you can learn exactly how they scale, simplify, and succeed.

Transcription

Announcer  00:00

Welcome to the OT only teams in real estate.

Eric Forney  00:15

The way that we scale a real estate team is by multiplication, and what I mean by that is you can add people, but if you don’t add multiplier people, you you end up just getting incremental gains on the addition of people that you add to to your roster size. I see people building organizations instead of building to a profit number and and the point of that is that too many people tie their identity around how large their organization is instead of how large their income is, because we glamorize People with large organizations and large volume, instead of large per unit profit, it causes people who pay money to attend events and seminars to believe that the most wealthy people are the ones with the largest organizations. So inherently, as an industry, we’ve championed the wrong thing. What I can tell you from looking at several 100 PLS, is the the very first line item I’m going to look at to determine if a team is profitable is going to be their cost of sale. And if it’s above 65 I don’t really need to look at your profit number, because it’s not enough. People discount the value and the wisdom of the MRA and the timelessness of the fact that it still holds true. Most agents wake up every day blissfully ignorant that they have problems to solve in your market. And so in order to recruit them to your team, you have to create a you have to create an awareness that they have a problem and that their problems can’t be solved on their own and must be solved through your organization instead.

Announcer  02:13

Here’s your host, Daren Phillipy, Hey

Daren Phillipy  02:16

everybody. Welcome to this week’s ot only team for real estate agents. My name is Daren Phillipy, and I am your host. And I will tell you today I am so excited to share this episode with you because I was actually out of town at a an event that I couldn’t hold the OT. And so I asked one of my good friends and old ot guests, Matt mialli, to be my guest host. And so I got to meet Eric Forney when he came out and spoke at our only team live event that we had earlier this year. And he just little side note, he’s actually the VP of expansion here at Keller Williams International, and so he is kind of the expert of expansion and how to scale and all those kind of things. He runs his current expansion team in Indiana, Ohio and Kentucky. Just be ready for your guys’s minds to melt because the information and the deep knowledge and understanding that Matt and Eric have seriously you’re probably going to need to listen to this. This episode five times easy. They are talking about very specific stuff, about how to make sure that you’re profitable. And they talk in a deep level about scaling, and just just because you add a person on your team doesn’t mean that you’re going to make a whole bunch more money. There’s actually some physics that are involved in it. Who knew real estate had physics? You guys probably did. I didn’t. All I know is Matt and Eric blew my mind. I have listened to this myself multiple times, and I can’t get enough of it, so I don’t, I don’t really want to screw this up. All I know is, if you guys weren’t in the room, you’re missing out. You got to be in the room. Go to only for teams.com, and click that join the Room button every Tuesday at noon, and you could be in the room also. Other people need to be hearing this kind of stuff. There would be a massive change in our industry if we had smart guys like that in this industry being able to share this at a larger level, which means I need you to share this with other people. Share this with other teams, share this with other great producers that are in the industry so they can learn some of the stuff that Eric and Matt talked about today. Just be ready for your mind to melt. And that’s pretty much it. It’s that simple. I’ll see you guys the end of the OT

Matt Maile  04:47

Alright, welcome everybody to the only teams. Mastermind normally hosted by Daren Phillipy, but today, hosted by me Matt mialli, want to welcome you guys, and particularly want to welcome Mike. Good friend Eric Forney. Eric is the director of expansion for Keller Williams, also a team owner out of Indianapolis. Been in the business for, I think, coming up on 15 years. Is that about right?

Eric Forney  05:12

Or no? Thankfully, not quite yet, I still think that I’m that I’m young and and then I just saw something that said, this is my 10th year. And so, yeah, I don’t feel so young now.

Matt Maile  05:24

Bill young buck, my friend, still young Bucha, but your team has, if I remember correctly, you guys have pretty, pretty historically, been in the top one, two or three in India, in Indian Indiana, the state, right, for the last several years. So give us a little bit of an intro, like, what do we need to know? Let’s start talking first, just a little bit about your team, about kind of how you guys operate, who you are, who’s on the team, how you guys got to where you are. Give us a little bit of backstory.

Speaker 1  05:54

Yeah, I love that. So you mentioned it. We’ve, we’ve been the top team in Indiana, for Keller Williams perspective, since 2017 which was the first year that that I started the team in 2017 and prior to that, I got into real estate full time. In 2015 when I was asked to no longer be an employee of Sherwin Williams, I left my a glorious job selling paint full time and it got into real estate. And for some reason, Matt real estate just it made sense. I don’t know why I’m not very talented at much of anything, but for some reason real estate seemed like it was easy and it was pretty adjacent to what I was doing from a paint sales perspective. And so my first year full time, I sold 128 houses in 2016 and realized that I still had more business than I had time. And so I started a team in 2017 we sold 240 houses that year. We were the top kW team in the Ohio Valley region. We’ve, we’ve been anywhere from that, that 200 to 500 range, depending on the year. And we all like to hang our hat on our high water mark of 2022, of course. So so done a little bit of production somewhere between that mark. I’ve been out of trying to work combo lock boxes since 2021 so I no longer know how to log into the MLS or open a lock box. What I do today is really just focused on team building and on studying real estate teams across the country.

Matt Maile  07:33

I want to pause on a couple of things. So the first thing you said is, in 2016 you sold 128 homes. Was that solo operator? Just you? Was there administrator, support? How did that? How did that look? Because a lot of people hear that, and they go, that doesn’t sound right, because that sounds like that. That is definitely the 1/10 of 1% that perform at that level. So let’s dive into that first, because that really sounds like so,

Speaker 1  08:02

so I so I previous the year before working full time, I sold 76 houses with a with a full time job. Now was I the best performer? No, that would explain why I was asked to no longer be an employee of Sherwin Williams that year. Was that my sales numbers had dropped off in 2015 at at Sherwin and so

Matt Maile  08:25

full time job, but you really focused on selling real estate, that’s right, and you sold 76 houses. So that’s in 2015 you sold 70 houses while also keeping a full time job, just as an as an in case of, right, this real estate thing is a fluke. In case, selling houses a month is just total fluke, and I’m not going to be able to eat it. I could always go back to selling gallons of paint.

Speaker 1  08:49

That’s right. That’s right, because chicks dig the paint guy. And so you, you know, you don’t want to step out of that role either, because it’s a glamorous, glamorous job. And so, so when I had to finally cut cut bait and and get rid of my my guaranteed income. I obviously got into real estate full time. I like, probably like everyone else, my first foray into hiring was I had no idea what I was doing, so I hired the first person that showed up and was willing to take a job. And I had no idea what to what to pay them, what to have them do all day, how to determine if they were successful. And what I realized was he knew less than I did, and so, so he drove me around, because that was the highest form of leverage I could have when you sell 10 houses a month, transportation takes the majority of your time. And so

Matt Maile  09:40

another was a good source. And, and, and so you went from 76 homes, working full time at Sherwin Williams, to hiring, and it sounds like just one person. You just hired,

Speaker 1  09:50

yeah, initially, yeah, initially, and then. And then I joined Keller Williams. And when I after joining Keller Williams, getting introduced into the MRA, then I realized, oh, there’s. Model for this, and so I started to implement the model, right? So then I actually hired an assistant executive. I hired what amounts to be a fantastic operations director at the time, and that that created a bunch of additional leverage and the infrastructure to build a team. And so in 2016 finished the year with with a showing assistant, and then a transaction coordinator. There was paper file and, and what amounted to be an Operations Director, eventually,

Matt Maile  10:33

alright? So, from, from, so about it, basically, I’m just doing the math. It looks like from 2015 it was 76 homes. To 2016 it was 128 homes. 28 homes. So you added about 50 more units, but you added additional people to the program. Okay, yeah, and then, and I think that why I’m digging into this is that I know a lot of teams kind of struggle with this sort of call it the the scaling process, right? So a lot of teams were out. Most of us were the top performer. We’re the top producer. I think your story follows this path perfectly, and then the team gets bigger and bigger, but not on a per heartbeat basis, meaning every person you add doesn’t exponentially add more units or more or more. That’s right, more, more, more, you know, more production so, so at some point between 2016 and 2022 What were your 2022 numbers? You said that was your high water mark?

Speaker 1  11:28

Yeah, yeah. We did across multiple across our multiple locations, we did 509 units in 2022 and that includes a location in Dayton, Ohio and in southern Indiana, and then our Indianapolis real estate hub,

Matt Maile  11:46

all right, so for basically four locations, 500 units, how many people were involved in that organization? 20

Speaker 1  11:52

we had 26 agents and four employees. Okay,

Matt Maile  11:57

so really, really scaled effectively on the admin side. So yeah, six agents, four employees, four locations, but still not meeting the 76 houses per agent model started out with, that’s right, it still wasn’t. Because if it’s 76 times 26 is not 509, I’m no mathematician, bar timer so that it doesn’t, yeah, that it doesn’t add up to that. So what? What do you think happens as we scale that has this inevitable degradation to the quality of the production that comes from the first person to the scaling out, and then I know that when you get to a certain level, and I know you’re there, because we talk frequently, and I know I’m there that as I grow my business, it feels like I get lower and lower production quality on the agents that we recruit now versus when I first started. Why do you think that happens? Why do you think the farther we get out, or the broader we get, we get less and less production out of the agents.

Speaker 1  13:03

Yeah, it’s a, it’s a great question. And what’s, what’s kind of interesting is there, there’s some some science and some research behind this and and what you see is that this, this trend, shows up not just in real estate, but it shows up in in our government. It shows up in, in fact, in all cultures and in all large organizations. And that is, as a group size increases, the individual productivity tends to decrease. And so more people typically end up defaulting to less, less weight being pulled per individual. And so the challenge then becomes, when thinking about scale is when we’re in the service business, right? And when you think about scaling service at the end of the day, the way that, the way that we scale a real estate team, is by multiplication. And what I mean by that is you can add people, but if you don’t add multiplier people, you you end up just getting incremental gains on the addition of people that you add to to your roster size. So let me say, yeah. So

Matt Maile  14:09

you’re not really adding scale, you’re not really adding more production. You’re just adding production and and and ballast at the same time you’re adding more weight and more production, so that you’re not actually increasing your profitability. You’re just expanding your geographic footprint and expanding how much you you do, but not actually adding any real production by business metrics. Like there’s

Speaker 1  14:34

no this is super this is super nerdy, and I know we’ve talked about this before, but it’s this similar problem that, uh, that a rocket has. I know most people confuse real estate agent with rocket engineers. That’s brain science,

Matt Maile  14:45

brain surgery and rocket scientists. Totally. We’re all in the right.

Speaker 1  14:51

But going to space has the same problem, Matt. And what I mean by that is, as you add more fuel, every incremental amount of fuel that gets added to a rocket. It adds incremental weight, and that then requires a heavier amount of lift in order or propulsion in order to get off the launch pad. And so real estate teams have the same challenge, and that is that oftentimes when we add more people, what we end up adding is just more mass to the organization instead of adding multiplier people. You know, I thought it was interesting. At one of Gary’s masterminds recently, someone asked Gary a question. They said, Gary, what do you find that teams? What mistake do you find teams are making most commonly right now, and I’ll paraphrase what he said or what he meant to say, what it was is that I see people building organizations instead of building to a profit number and and the point of that is that too many people tie their identity around how large their organization is instead of how large their income is. And the truth is that we should all be building a business and establishing plans on how much income do we need to make and want to make in order to achieve our desired lifestyle and build an organization to that. Instead, most people build the organization and hope the money shows up second they build,

Matt Maile  16:15

they to your point. They build an org chart, rather than building a profit machine, right? Rather than building a business that serves them. It’s interesting to me, because I always find I wrestle with this dynamic a lot, where it seems like the most efficient real estate business, the most efficient and most profitable per per you know, pound for pound, is actually the solo agent operating two or three highly effective administrative assistants that like pound for pound, that on a, on an, on an output versus yield is always going to be the most profitable.

Speaker 1  16:53

Yeah. And so we’ve done a we’ve done an analytics study on 700 team PNLs. And what’s interesting, Matt, is we found that the teams that have the highest profit margin as a percentage are the teams that have a rainmaker still in production, and they have an average sale price of $450,000 and they have five full time agents. And if you were to put that on to an MRA chart, you would say that that’s a team that’s operating at level five. Or you could say it’s a team operating at level four, depending on the, you know, how the how they’re structured, but that’s what those are the teams that are most profitable as a as a percentage of margin. And you know, when you when you look at it at a $450,000 average sale price, that that makes your throughput a lot more effective. It because every transaction I have the benefit of working in Indianapolis and the governor’s mansion is probably like $16 or something. You know, our average sale price is in the two hundreds and so to do to generate a million dollars requires significantly more units here in the Midwest than it does in most markets and and what you find is that you can bury a lot of sins in a higher average sale price. And so the the highest model from a profitability standpoint, is to still have a rainmaker in production and have an above average sale price with four agents who are highly productive and full time as the highest from a percentage

Matt Maile  18:32

standpoint, all right, so, so I, again, I sort of brought this conversation here because we know this to be true. We’ve seen it, you’ve studied it. We’ve got data that supports it. So then on here, you know, here we are on a teams only mastermind. Why would anybody build a less efficient, larger business that makes them less much? Why would we start? Why? Why do so many people reach a certain point and then say, cool, let me do the next thing which is less efficient, will make me less money and take more time. Why do we take the next step? What do you find when you’re talking to team owners, when people are going into expansion, what is it that’s driving them?

Speaker 1  19:15

Well, there’s two things. One is that, as an industry, we celebrate volume and organizational inside organizational size instead of profitability. And so because we glamorize people with large organizations and large volume instead of large per unit profit, it causes people who pay money to attend events and seminars to believe that the most wealthy people are the ones with the largest organizations. So inherently, as an industry, we’ve championed the wrong thing. And then two, what we see is that eventually there becomes a there becomes a limitation of physics, and that that limitation of physics is typically. Time. And so what there’s, there’s an interesting research piece that somehow got lost inside of the KW lore and and I heard gene rivers just happened to mention it recently, and it was they did when they they came up with 36 units to hire your first assistant based not just on a guess, but actually, based on some research, which showed that agents who sold 40 houses for five years or more were out of the business by the end of five years. Fascinating. And and so they hit burning. That’s right, they sacrifice. They were sacrificing quality of life for more income and and so the challenge, the challenge inherently becomes, is that if you, if you redline someone on your team to get a significant amount of production in expense of their quality of life, eventually you get churn. And so what every team owner has incurred is that,

Matt Maile  20:59

I mean, I, I, I’ll never forget hearing Gary say it in a mastermind that I was in where he said, time is not a hack. Yeah, time is the using time to be more productive is not a hack. Meaning, if you work 16 hours to get a double the result of somebody that’s working eight hours, you’re actually not more productive. You’re and he said, You’re just a dummy, which is, you know, classic Gary, right? Like, which is, hey, you’re just working twice as much. You’re not actually building a more efficient business. So, so if I’m following the thinking here, what we’re really talking about is saying that at a certain point, leverage beyond efficiency becomes also about buying back some of your time, even if it’s at a higher cost, so that you can expand into other parts of your life. Is that a fair assessment?

Speaker 1  21:57

Yeah, that’s fair. And also understanding that in order, if you have a T, if your goals and your desired income are to sell 600 units, and to do so at a, you know, at a 25% profit margin, we have to accept the reality that if you, if you attempt to do that with six real estate agents, you will Red Line them out of the business Eventually, or you’ll redline them out of your business. And so the limitations of time and the fact that our business is does have physics to it, as in, we cannot disagree that someone has to show a house and someone has to go to a listing appointment. And so because of that, it means that, you know, the agents on your team would need to average 70 closings if you were only going to have five of them. And there is an inherent limitation of physics involved in showing that as many houses are required attending 70 closings. You know, in all of the work that encompasses having 50 plus showings and so in so teams like yours, Matt, teams like mine, when we say, hey, well, I have goals in my, my, my personal growth goals are to have an equivalent amount of income to 600 close units. Arguably, the only way to get there is to add more agents, because, because there are physics based limitations around the amount of time that it takes for each agent to close a certain number of units before they exit the business. You

Matt Maile  23:27

know, I’ve never heard it articulated quite like that. And I love that concept, because you think about any other business, and manufacturing business, the airline business that you know, development business, there’s a there’s a capacity for whether even a machine to print out so many ball bearings before that machine needs maintenance, needs to come off the line, needs to get repaired, needs to have something and we never really think about that in terms of the human capital that gets burned in order to go produce right? I think there’s one other element too, that I’d like to ask your opinion about. I feel like I play a lot around the concept of appetite, that as you’re building, as you’re building a real estate team, and you’re bringing people in, that one of these sort of we we have a general idea of what someone’s capacity could be, based on the history of our team based on the history of other producers on our team. And then we bring somebody in, and they tell you they’re going to do all the work and all the things necessary in order to produce 20 or 25 homes, but then they only do the work to produce 10 or 15. And then miraculously, they do half what they said they were going to do. And then they still don’t quit. Whereas if I went to take a job at a corporate position and they promised me $100,000 but only paid me 50, I probably would quit. I’d probably go get another job. Yeah, real estate agents don’t do that, and I always equate that to sort of the base, like somewhere along the lines, we have to find people’s appetite through this process of growth. Growing a team. How do you, how do you account for that through this sort of model of, there’s, there’s physics, there’s what people can do, but then there’s what they will do. How do you, how do you account for that? How do you take that into

Speaker 1  25:13

that’s a great question, and one where, where there’s, there’s inherently a challenge with it, because, you know, typically what you would do is, you look at someone’s track record, right? And you would say, Okay, well, the only thing that I can base it on is what’s been your pattern? Because your pattern in the past is likely your character and your character will show up again in the future. And so usually you’d have to measure that based on doing someone’s life story to understand is, is your life story going to carry forward? Now the challenge with that, though, is, if you think about it, Matt, is that the NFL pays millions, if not billions of dollars every year in coaching staff and scouting to go out and study the the greatest athletes in the country. And there’s, there’s game tape going back, oftentimes, into, you know, middle school, high school and college for each player that’s on the draft board. And what’s interesting is, the NFL drafts, they get it wrong 40. They get it wrong 53% of the time, each draft pick, they’re out of the league, within they see no playing time. And you know, the average running back, I think, last three and a half years. And in fact, there, there have recently been more sixth and seventh round quarterbacks in the Super Bowl than first overall draft picks win Super Bowls and and so, to some degree, the what you realize is that the data around people that can and people that will there, there’s not really a clear cut of evidence. And so that becomes in the second one of the second challenges when you think about trying to build a real estate sales team to 567, 100,000 units, is that the quant, the quality, shows up in the quantity. Yeah, and unfortunately, you know, as as a team owner, we wish that that weren’t the truth. And yet, what, what we found, especially when looking at analytics around 700 team p L’s across five years, is that this is, this is the most dumb ass statement I’m going to make thus far, and give it more time. I’ll say a lot of other dumbass things, but the most dumbass thing I’m going to say is that the number one correlation, and when I say correlation, like from a science standpoint, it had a p value that was near of nine, and that P value showed that more agents equal more pendings. I know that that’s going to shock someone, but more agents equal more pendings. What’s interesting though, to follow that up, is that more age more agents did not equal more profit. There was no correlation to agent count and profitability, but there was correlation from agent count to pendings. More

Matt Maile  27:59

agents equals more pendings, but more agents does not equal more profits. So there’s a tip, right? No, that’s right. This is actually brilliant. I love this. There’s a tipping point when there’s efficiency. So let’s go. Let’s just break this down for the simplest. There’s super there’s a high level of efficiency in a single agent producing 76 units in a year. High level of efficiency, high level of profit, that agent expands, gets into administration, starts to grow. You go from one agent to four human beings doing 128 units. Again, this is your story. So you add a factor of 50 units, but you also add three more mouths to feed that team then eventually, over a period of six or seven years, gets to 25 agents for staff and does 500 units and is still profitable, but by no means same level of profitability as the single agent doing 76 units, where you basically are keeping almost all of your Money Right, correct. At some point, more agents equals more pendings, but not more profit. There’s a tipping point. And as as team owners, I think effectively what you’re saying is we have to decide based on what you were articulating earlier that Gary pointed out, what is the amount of money that we’re that we’re in it for? Meaning, why are we building it? What is our profit number? And we have to find where that profit number is, and then get okay with the fact that if I want to profit a million dollars from my business, and a million dollar profitable business might mean 30 agents selling at a certain sales price, doing certain amount of production, a certain staff, a certain overhead, a certain cost of sale, whatever that economic model is that kicks out a million dollars that expanding that and growing, it isn’t by a factor of add one, add add and add an equal amount of profit. It’s add one and slowly degrade the value of profit per. Or until eventually you probably could add so many that you could become not profitable, so that you could squirrel away all the million dollars, have a monster business with lots of pendings, but make no money.

Speaker 1  30:13

Yeah, we see that happen pretty often. Yeah, and, and so you know to think about it two ways. Is there’s there’s two ways to make a business more profitable and, and this is on the profit size. I don’t mean more revenue. Okay, so don’t confuse revenue for profit. But there’s two ways to make a business more profitable, and that is, scale expenses or optimize cost of sale. You either scale your expenses or you optimize your cost of sale. And there’s somebody who says, I don’t know what the hell you’re talking about. Eric, good news. Think about it this way is my transaction coordinator today was able to process all 509 contracts to last year she processed 260 contracts. One person did 5091, the same person did 261 year we scaled 509 total pieces of revenue out of the out of the one person. Last year we got 260 pieces of revenue out of that one person. So it didn’t, we didn’t fundamentally pay her significantly more to process 509 units than we did 260 units, same person, same pay. That’s scaling expenses. Think about your expenses as an investment, and so you you get a bigger return on investment, which increases your profitability. When you think about your expenses as investments, they’re either an investment paying you back, return on time, or return on on dollars and then, and then you’re optimizing your cost of sale. What I could tell you, from looking at several 100 PLS, is the the very first line item I’m going to look at to determine if a team is profitable is going to be their cost of sale. And if it’s above 65 I don’t really need to look at your profit number, because it’s not enough. It’s not enough for what you’ve invested in the time and energy and the risk it’s it’s likely that it’s not profitable, or if it is, it’s in the single digits, maybe low teens. But anything above 65% of the cost of sale, sale starts to get really prohibitive towards profitability.

Matt Maile  32:24

Right? Right now you talk, I I want to talk about cost of sale in a second, but I want to go back to scaling expenses. Yeah, one of the most interesting, and not it’s actually not complex, but I think it’s one of the places where most teams go wrong, the cost of sale component that’s actually fixable. It’s easier than scaling expenses.

Speaker 1  32:49

But, man, people are scared to death to fix their cost of scale. Scared

Matt Maile  32:53

to death to fix their cost of sale. No question, yeah, let’s I love the transaction manager. The Transaction Manager model, right? How you what are some of the things that teams do wrong when they’re when they’re trying to scale expenses? Like, what? What do you think they’re scaling expenses, but they’re doing incorrectly, like, in all those P and ls that you look at, yeah? Or, what are they doing? So

Speaker 1  33:17

people typically think about it as incremental gain of sales instead of incremental gain of profit. Let me, let me try to quantify that in a way to explain it better, if your profit margin is 10% in order to take on an $10,000 expense, you have to generate $100,000 in additional revenue, right? And that’s because your cost of sale is going to your cost of sale comes off the top automatically, to the agent, to the brokerage, or any associated sale costs, and then your overhead still is exists in order to process that closed business. What’s what? What’s left is, is that profit. But for whatever reason, teams fail to recognize that they have to do some, some additional complicated math when they add incremental expenses and they they need to typically divide by their profit margin.

Matt Maile  34:19

I love this because this is the, this is the conversation that I have with every, you know, sales rep that wants to call and sell me leads, is that, and here’s, here’s the example that I use is that somebody calls and says, you know, for $10,000 a month, we can produce x amount of leads. And they do the math and say, if you get X amount of leads and convert at this rate, and all you need to do is get one deal and you make your money. And I always go incorrect, because what you’re missing is that top line revenue back is not the same as the profit that I had earned in order to spend the 10,000 so. For me to make my money back, I actually need to get a factor of 5x because once that money shows up on the top line, it’s all got to be filtered down. The expenses still have to come out. The cost of sale still has to come out. So in order for that 10,000 to come back to me as 10,000 it’s in my bank account today, which means it’s profit today, if I put it back into the world, in order for it to show back up as 10,000 it’s got to actually turn into 50. And 50 is a break even, I see. And I make 50. I break even. What I really need is pretend to produce 80 in order for me to get a factor of a three times return on my 10 and their brains explode. They’re like, Wait, how does that work? And it’s like, well, because that’s actually fundamentally how scaled expenses work.

Speaker 1  35:47

That’s right. And so, you know, I would say is our industry works a lot like golf. There are these dumb rules that people just continue to repeat that are not actually true, and in rule books, and one of them is like, Oh, you need a 3x return on the investment. You’re like, No, you need whatever your profit margin is. You need the inverse of that return, right? And so at $10,000 expense, you’re always going to divide by your profit margin in order to figure out how much revenue you need to break even. And I think of it this way. Matt that says, I’ll use the numbers you just use, would I invest 10 to make what amounted to be a $30,000 profit? Ask yourself the question is, what is it? Would I go to Las Vegas and bet $10,000 on roulette if the payout was 30,000 I don’t know you may or may not, but that’s effectively what you’re doing when you’re investing a guaranteed $10,000 into your business is you’re making a calculated risk that that will return a certain, a certain positive ROI, and you have to decide if that $10,000 worth of risk is worth $30,000 in payoff at the end of the year or not. I

Matt Maile  36:58

think anybody that knew, if they had certain, anybody that had certainty, you could invest 10 and get 30 right as Yeah, take that bet right all day long. I totally break, of course, is that we’re not actually most. Most teams are not actually running the math correctly, right. So they’re betting 10 or getting 30, and they might be betting 10 and getting 30 on the top line, but by the time expenses, cost of sale and the actual cost of producing the unit is run through. They spent 10, and they woke up with eight, right? And so this revenue cycle that’s not actually putting money in their pocket.

Speaker 1  37:31

And I’m oversimplifying it a bit, because listen, as a team owner, I can tell you that there are times in which you invest money that you don’t believe that it will. You think it’s a coin flip as to whether it will show up as a measurable positive ROI. There are, there are both quantitative and qualitative returns on your investment. Sometimes you may need to invest a certain amount of money to retain and keep your agents happy. Yeah, and and that it may not have any quantitative return, but it may have a qualitative return on the culture of the organization, on your your lifetime value how long you retain an agent on your team, and therefore how profitable they become over time. So it’s not as cut and dry and as simple as we make it, but if you start that way, then you can decide to negotiate with yourself later. If there’s a there’s a qualitative element to it, but the quantitative should be the

Matt Maile  38:31

first factor. I couldn’t agree more. You got to start by you wouldn’t start out by saying, I know I’m going to lose money, but I’m going to do it anyway. Like, that’s actually a terrible idea, right? It goes against every principle of running a good business. So, you know, you you may have, you may you may be making an educated guess that doesn’t work out, that has some ancillary benefit to whether that’s culturally or, you know, maybe it’s a long term investment in something that’s going to pay out later. But you wouldn’t start out knowing there’s zero chance this is ever going to make me money. I’m just going to burn the money. Let’s, let’s jump into the cost of sale conversation a little bit. Yeah, you jumped all over that. And again, scaling expenses is one part. But the other thing that I think we see all too often, just yesterday, I was on a coaching call and walking, walking somebody through their their model. And, you know, like, like, always we get into, okay, let’s talk a little bit about the economics. And, you know, everybody on the teams on a 7030 on an 8020, and and you know, the two top producers did 70% of the production in the business. This is no small business. Is $120 million business. They have 30 agents that make up the other 30% of the production, right? And so and the 30 agents are sitting at 7030s, 8020s, on the team, producing one or two units a year. Yeah, I just very quickly did the math for the for the for the customer, and we broke down. It’s like, each one of those units, by the way, at a million dollar average sales price, is only generating top line revenue to the team after after cost of sale of $3,000 per unit and and so the question was really simple, is it worth $3,000 a unit top line revenue before paying for all the leverage, before paying for anything in order for you to have all these people on the split? The answer was emphatically no, not worth it at all. At the end of the day, on $120 million business, it turns out to be about 30 units a year that generates 30, you know, $90,000 on a multi million dollar business. But you’re, you’re fostering and caring for 30 people. How do agents fall into this trap? This is the, this is the trap teams fall into, over and over again. How do they fall into this trap?

Speaker 1  40:58

So there’s, there’s probably two reasons why. One is people still think, and listen, yes, Gary Keller is my boss, right? And so when I say this, I’m not a Gary Keller apologist and and I love Gary. He’s fantastic. And people discount the value and the wisdom of the mrea and the timelessness of the fact that it still holds true. Now my my and to that. The second part of my statement with that is that I don’t know that people understood the reason why the model was 5050, for the recommended split between agents. And the reason why it was 5050, is because every transaction that closes with another agent, the cost of sale always remains fixed. And what doesn’t remain fixed are the investment that’s necessary or the expenses that are necessary in order to service it. What we typically see on when I’m looking at a teams P and L is is we typically see 25% with an of average expenses. So if it’s 5050 with no referrals, and that gives you a 50% cost of sale, let’s pretend that there’s no market center fees, there’s no there’s no sign installation fees, no photography fees. It’s just a straight 5050, and expenses are 25% that leaves the Rainmaker with 25% profit, right? Okay, and so, for whatever reason, I don’t think that people understood why 50% was the recommended maximum split, not to go above. And instead, what’s happened is our industry has discounted the concept that that 5050 was as antiquated. And we’ve looked around and we’ve looked at other team owners across the country and at events, and we’d say, well, they get away with doing a 7030 so a 7030 must be viable. And yet a 7030 means that on a great day, you might be able to profit 5% because expenses are typically about 25% on a large team. And so

Matt Maile  43:16

to your point, they stay, they stay the same, or they go up, right? But they rarely ever go away. You can’t go to your agent that you’ve given a 7030 and say, I’ve given you a 7030 split. And here’s what I’d like to do now. I’d like to take away all the leverage that you promise to pay for, because I’m not making enough profit, right? That doesn’t work. That’s right, right? So, but you, but they’re okay when your expenses go up, or your transaction managers or your staff need a raise, or the cost of leads goes up, or the cost of your CRM goes up, that you provide, that stays that those are the fluctuating costs. So you inherit that on the team owner side, but you don’t on the team, on the team agent side,

Speaker 1  44:00

that’s right. And so, you know, the other reason why we see that happen so often, Matt, is because recruiting is difficult, and we’re, you know, I hate when people say that recruiting, that if you can be a great listing agent, you can be a great recruiter. And I just patently, just don’t believe that to be true. I think that there can be exceptions, but that’s not the that’s not the universal truth, because when you show up at someone’s living room, they’ve come to you with a problem to solve as a as a listing agent, most agents wake up every day blissfully ignorant that they have problems to solve in your market, and so in order to recruit them to your team, you have to create a you have to create an awareness that they have a problem and that their problems can’t be solved on their own and must be solved through your organization instead. And that requires a different skill set than presenting from a listing standpoint. And so what happens oftentimes is team owners don’t. Get great at recruiting, and so they compromised splits in exchange for getting great at recruiting. Yep,

Matt Maile  45:08

yep, that sounds exactly right. I actually, I think, I think one of the things that we also forget is that we’re running a team, we’re not running a brokerage, and that we wind up drifting into the competitive space of brokerage, meaning brokers are way more split. And then as team owners, we try to, we try to match or compete against a broker, somebody saying, I’m going to go to agency broker, and they give me this, and then you say, Well, I want you to come here, so I’ll give you this. And the truth is that they’re two completely different value propositions, if they’re being done right. I love what you said, recruiting is difficult, and that concept that you know, recruiting and selling are even in the same ballpark, is complete misnomer. I mean, that is, that is fallacy at the greatest level. First of all, and I just want to add to it. First of all, recruiting is relationship building, and recruiting is not a there’s no transaction in a recruit. When you treat recruiting like it’s transactional, meaning, hey, let me come and see let me present something to you and then ask you to say yes, no or not. Right now, if you do that, you actually will turn away most people. The magic of recruiting is being in relationship with lots and lots of people, so that on the day when they’re ready to make a change, you get a phone call that’s as much as you’re going to get, is you’re going to get a phone call where they’re going to say, I’m thinking about something, and I want to get your opinion. And that’s the opportunity to get into relationship with them. One of the other things that I think is really interesting that doesn’t get does not get brought up enough in in these circles and talking about this cost of sale thing is that, you know, a lot of team agents are in the business of trying to get the most money per deal, which is where the split conversation comes in. So they approach the team and they say, I want to get the most money per deal in order to be on your team. But when you compare being on a team versus being off a team, the being able to land at a 50% net profit as an agent with that much leverage is impossible. It’s the holy grail of running a real estate business like the minute that I had any leverage at all, I was not at a 50% net profit, meaning the minute you hire any assistant, the minute you bring anybody into your world, the minute you start spending any money, you are immediately not at a 50% net profit. And yet, every single team agent that’s on a 5050 is netting more money than any individual agent in the market that’s trying to run their business on their own. It is the ultimate path toward making the most money per deal, but it doesn’t get delivered in that way. People really still don’t see it that way. They’re very transactional in the way it works. And then, of course, team owners suffer. Don’t make enough money, can’t add more leverage, can’t grow as a result of it, getting away too much in cost of sale. This is obviously, we could spend an hour simply talking about this one conversation, but we’re getting toward the end here, so I’m going to take a minute. I’m going to spin the conversation a little bit. Going to ask if there’s anybody here on the call here with us today that has any questions. So Eric’s unloaded a bunch of info. There’s a bunch of people here in the chat. I don’t see anybody. Let’s see anybody who wants to raise their hand ask a question now would be a good time to do it. Go ahead, Jay, you brought you. You’ve got something for us.

Jay Hendrix  48:43

Well, I’ll just say this. I mean, this, this is a very deep conversation, so I appreciate both you guys, you guys, for cutting it at a very high level. You know, obviously you guys have had this conversation about scaled expenses. I mean, because you two guys are talking and kind of thing, scaled expenses. Maybe I’ve heard it one other opportunity, one of the time in a conversation. So somebody tell me exactly when you say scaled expenses model, what that actually is. I’m just showing I’m just showing my ignorance, right?

Speaker 1  49:14

I appreciate you doing that, Jay, too. By the way. I love that. Thank you. The best, the best the best thing that always comes to mind for me is you can hire a transaction coordinator and pay them $30,000 and they can handle 50 closings a year. You could hire a transaction coordinator and pay them $50,000 and that transaction coordinator could close 100 units. It’s $20,000 more to get, to get 50 additional units out of out of that second transaction coordinator. So you’re getting a you’re getting a higher return on your investment. You’re getting additional scale without a one to one additional dollar. Our input. And so one of the misnomers we have as an industry is when we think about leverage, we oftentimes believe that leverage equals people, and the truth is, leverage equals inputs versus outputs. And so when you when you think about hiring or when you think about spending money. It should be thinking from the idea that I put $1 in, I get a asymmetric amount of dollars out. That’s how you scale the expenses. Right as you you put there’s not a huge, there’s not a significant cost difference between the the greatest transaction coordinator in the industry and a mediocre transaction coordinator there should be, but there’s not. And and you know, even think about it this way, coaches, maps coaching, a the best maps coach probably costs $1,000 a month, more than the worst maps coach does. That’s an asymmetric expense for for just 1000 bucks, you could probably get a 50x return with that. Coach

Jay Hendrix  51:06

Agreed, agreed. Hey, listen, I appreciate that. Hey, let me ask you this question. So, so I want to learn more about this. You like you guys have expanded my my, my questions I need to be asking. Where is this conversation going on? Because I’m not, I’m not running in this circle. So where, where is this conversation that you and Matt are having? Where is that in is there classes you guys are teaching? Is it something KW is having, or just something that I haven’t bumped into? Where is this conversation going on? Because I want

Speaker 1  51:41

to learn this Matt and I need to solve that problem. That’s the problem. Yeah, that’s

Matt Maile  51:46

actually a conversation Eric and I have quite a bit is that this conversation does need to happen more, and it does need to happen more with team owners, and that that that community and that ecosystem has has yet to sort of form, because there is this. There is this sort of like, you know, evolution of running a team, where in the beginning it’s like what we talked about, you go from, most people, go from being a solo agent and a pretty, pretty productive one, and then they start this, this adventure of building a team, which is, you know, disguised as, let’s build a team, but what you’re really doing is building a business. But you know, the industry that launched glamor shots has not done a great job of educating all of us on how to actually go be business owners, right? So a lot of the business lessons that you learn you learn the hard way, because most of us aren’t coming out of business school, right? And so we’re not applying sort of the basic fundamentals that every other business takes for granted. If you were to open a Dunkin Donuts franchise, they’ve already built in these sort of economic things into the model. They say you can only buy so many butternut donuts at the same day that you buy strawberry and frosted because even though you like butternut, your market is not going to buy them at that scale. But every real estate agent doesn’t know that. So a real estate agent comes in and says, Well, Zillow leads work. What I’m going to do is just buy more and more and more, and then eventually you reach this point of diminishing returns, where you bought them all and you’re not getting a return anymore. But the cost of that is that you might go out of business in the process, because you’ve signed a contract at 4050, or $60,000 a month. And so there are, there are some basic business principles that you can apply. And I actually think way earlier in the business, in the process of building a real estate team, way earlier. I think once you’re at the point where you’re doing 40 million you’re generating a million dollars in revenue, you have a real business at that point, like general, any business that generates a million dollars in revenue is a very real business. But if you’re generating a million dollars in revenue, and you’re operating at a 70% cost of sale, but you’re producing 50% of the revenue, what’s actually happening is you’re going out and selling a house so that you could pay for the leverage for the people that are on your team to get the leverage at a massive discount, so you’re going to work so other people can get everything at a discount because, because you haven’t learned the business principle of the scale of the business requires you to be at a 5050, and by the way, that is still a fantastic deal for your team agent, even If they don’t believe so the short answer, Jay is, we’re working on that, and I think Daren is contributing to it. I think daren’s trying to raise the bar on that also with the only teams mastermind just say, Are these conversations that need to be had, right? That that expand beyond just leads listing and leverage, which, of course, is the foundation of getting to the point where you have a real business. But then beyond that, what do you do with it and how do you build it? How do you

Daren Phillipy  54:44

build it?

Speaker 1  54:46

Which conversation happens at 7pm usually on Matt, not with Matt and I, three days a week on the phone.

Jay Hendrix  54:54

Wow. Well, you need to tape it or something, because this is amazing, you know, because you said so much. Much today that describes, I mean, I’m not trying to throw us under the bus. I’m just being honest with you. I mean, I just felt like so many things you said today. It just, I felt like you were just describing me and our team. I mean, you know the thing where you said that, man, more agents equal more pendings. I believe I’m like, the poster child of that I really do. And I mean, and now I’m going, like, my my brain is just like, it’s just like, I missed the second half of that game. I left. I left at halftime because more agents don’t equal more profit. And that, I mean,

Matt Maile  55:43

well, the best advice Jay that I got was Pick, pick what you want your business to do for you, and you start there. What is it that you want your business to do for you? Because growth at all costs should not be the answer, right? So, what is it that you built this business for? Well, at some point there was probably a number that you said, Man, if I could make this much money, then I would be great. And then you probably blew past that. And then you moved the goal line and said something else. And said something else. And then at some point, the number of problems that you had in order to reach the next number became bigger than than, maybe the value of getting to the number to begin with. To me, I think that the value is pick the number that you want your business to generate, and then figure out how to get as much of your time back from the business by putting other people in roles and keep the number meaning. Let’s just play this way. If you want to make a million dollars a year from your real estate team, get to a million dollars a year, figure out how to get to a profit number of a million dollars a year, and then figure out how much time am I investing in order to manage getting to this million. And who else could do these parts of the job? Maybe you’re running maybe you’re the recruiter, maybe you’re still the number one producer. Gradually buy back each section of it until you maintain the million, but you’re doing the least amount of you’re putting the least amount of effort in in order to get that return that sometimes people interpret as, you know, oh, it’s like you’re not going to be sitting on the beach, you know, drinking peanut toast. You’ve earned that. That’s the value of earning the business like, that’s the value of doing all the stuff to build it. You built it so that you could create an opportunity for someone else to step in and do it. All right? Well, I think, with that said, I think we are, we are at the wrap up point here. So it’s been an absolute pleasure to to host. I’m Matt mialli. We had Eric Forney here is our guest, the only teams mastermind. If you’re interested in hearing more from my my world, you can check out episode 48 which was the episode where I was a guest. And with that said, thank you everybody, and hope everybody’s having an awesome day. Okay, you’re back.

Daren Phillipy  57:59

I was right. This was a mind bender. I loved it. If, if I could listen to those two guys talk and and just like, just like what Jay said, hey, where do you guys have conversations like this? Eric’s answer was, seven o’clock in the evening on a Tuesday, um, my answer is right here at the OT. The the only way to have conversations like this, if you don’t have relationships like Eric and Matt, is in the OT. You gotta be in the room. You’ve gotta be able to ask questions and interact, because that’s how you’re able to have conversations like this so important. I loved it. Matt, you’re the man. Eric, you’re the man. Thank you so much for taking the time being guest and guest host kind of make me feel like an idiot, because, well, your episodes 1000 times better than any of the mine that I’ve done. So anyway, what do you do? You do? Fortunately, my self esteem is okay, and I can feel being second on my own podcast. Anyway, that’s pretty much it, guys. You know, I don’t do this as a hobby. I do this because I run one of the largest real estate companies here in Vegas, Keller Williams, the marketplace where I spend most my time coaching and helping non kW agents with their business, and specifically helping them grow teams and leverage up their business. So if you want some of your life back, you want to get better at doing more production and being able to handle the scale and on some of the stuff that those guys talked about, contact me. My number is 702-706-4949. I could be your guy, and I can help you through this painful part of the industry, specifically, scaling is difficult. You spend a little bit of time talking about that so well, and that’s pretty much it, guys, let me leave you with this. You don’t have to figure this out alone. There’s a proven word. Eight to build a profitable real estate team. Let me show you how. Okay, I’ll see you guys next week.

Announcer  1:00:07

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