This is part of a four-post series detailing how to create—and make the most of—your business plan. Read other posts in the series:
We all have must-haves—our survival needs, our monthly numbers, our bills, all of that. And, if you’ve completed the must-haves exercise, you’ve circled things in your want list that you plan to do over the next twelve months.
The next step is to add up all the numbers from the items on your must-haves list. Take your monthly total, multiply that by 12, and add everything you circled from your want list:
- The $50,000 you want to save
- The $60,000 car you want to buy (with cash)
- The down payment you want to make on an investment property
Now you have your 12-month goal. It covers all of your needs and includes your wants— including anything your spouse or family wants that you’ve together decided is happening in the next 12 months.
How to get to your 12-month goal
Let’s just say, for the purpose of this exercise, your 12-month goal is $150,000.
This is the cost of the things you need—because those wants become requirements in your business plan—over the next twelve months.
Now, remember; this is an after-tax number. So, if you hit $150,000 in earned income over the next 12 months, you are going to fall short of your plan.
Calculate your state & federal taxes
To calculate the pre-tax income we need, you have to factor in the taxes. The government is going to take that money from you.
Let’s just say your state income tax for that bracket is 6%. And let’s say, between $100-200K, you’re paying the federal government 24%. The percentages could be higher—or lower. Your state might not even have a state income tax.
Now, I am not a CPA or a tax consultant. You should have one and consult with them on how to run these numbers so you can get the most accurate picture of the income you’ll need.
For today, we’ll stick with these numbers (6% and 24%) to keep things simple.
Later, we’ll discuss business expenses and where those fit into this equation. Right now, we’re just figuring out how much money—before taxes—you need to earn in commissions.
Calculate your pre-tax commissions income target
Your total taxes for this example are 30%. Take the $150,000 in expenses and multiply that by 1.3 to get your pre-tax commission income: $195,000.
That’s what you need to earn in the next twelve months to fulfill your commitment to your business and life plan.
Based on the numbers we’ve used for this example, you need to earn a total of $195,000 in commission checks so that everything on your vision board—everything you’ve agreed as a family that you want to go out and achieve—you can do.
Determine How Many Transactions You Need to Close
Now it’s time to break this down even further. How many sales will you need to complete to hit your target number?
At the top of the worksheet, put your average sales price. You can look on the MLS and determine the average sale price in your market. Or, if you’re on a team, use the team’s average sale price because you will receive leads from the team.
If you’re not a new agent, and you have a lot of sales history that you can look at and figure out your personal average sale price, use that.
In this example, let’s just keep it simple and use $350,000.
For “Average Commission Side,” again, look at your team’s average or the marketplace and see where the average commissions are—both list and buy—and factor in how many listings and buyers you’re probably going to work with throughout the year.
We’ll use an average commission rate of 2.5% for this example.
Now, let’s take the $350,000 and multiply it by 0.025 to get our total commission: $8,750. That’s the number you’ll put on the line for “Average commission side” right next to the percentage (2.5%).
The total commission income for the average sale price of $350,000 is $8,750.
Now, cut that in half. Here’s why:
- If you’re on a team, you probably have a 50/50 split, and you don’t have expenses
- If you’re a solo agent or have a higher split, you have business expenses
Determine what it takes to cover your split or run your business. If you have a lot of expenses, your average commission split could be less than 50%.
That said, for this example, we’ll stick with 50% — again, to keep things simple. It’s a pretty safe estimate for most people, whether running a team or on a team. Any production you do will be cut in half due to the expenses of running a business.
Cutting $8,750 in half gives us an average commission of $4,375.
Back to your commission income goal for the year— you need $195,000 before taxes. Divide that total by your average commission ($4,375) to get the number of sales you need to close to earn your total commission goal.
$195,000 ÷ $4,375 = 44.57 transactions
At minimum, you need to close 45 transactions—with an average commission of $4,375 each—to earn $195,000 in pre-tax commissions income over twelve months.
That’s less than one deal a week, which is very doable for an average sales price of $350,000.
Next, you’ll break down how to ensure you close on 45 transactions by determining your daily income-producing activities and committing to the work.