{"id":24,"date":"2008-03-14T09:28:57","date_gmt":"2008-03-14T09:28:57","guid":{"rendered":"https:\/\/bhgrealestateblog.com\/the-road-to-a-healthier-brokerage-commission-plan-indexing.html"},"modified":"2024-12-30T14:56:15","modified_gmt":"2024-12-30T19:56:15","slug":"the-road-to-a-healthier-brokerage-commission-plan-indexing","status":"publish","type":"post","link":"https:\/\/bhgrecareer.com\/bebetterblog\/the-road-to-a-healthier-brokerage-commission-plan-indexing\/","title":{"rendered":"The Road to a Healthier Brokerage: Commission Plan Indexing"},"content":{"rendered":"

Posted by Nicolai Kolding<\/h4>\n

If you\u2019re a broker, go grab your P&L.\u00a0 Look to see when the last year was that had GCI about the same as 2007 and then compare the two years\u2019 percent retained (the percentage of GCI kept by the house after sales agents receive their \u201csplits\u201d).\u00a0 My guess is 2007 was worse. Maybe a lot worse.<\/p>\n

This despite the fact that over the same time period most of your expenses, like rent, increased (thanks to nothing more than simple inflation, which is only slightly easier to control than death or taxes).<\/p>\n

One solution I\u2019ve seen savvy brokers apply to maintain profit margins is called commission plan indexing.\u00a0 The idea is pretty simple:\u00a0 each year, increase the dollar thresholds that make up the different bands of your commission plan(s) by some multiplier (usually the CPI<\/a>).<\/p>\n

For example:\u00a0 say you have only one commission plan for your office and it resets every January 1st<\/sup>.\u00a0 It goes as follows:\u00a0 each agent gets a 55\/45 split on the first $50k of GCI, 65% for everything between $50k and $100k, and 75% on everything above $100k<\/p>\n

Although most brokers have more complicated plans (and probably many of them), the concept of getting higher splits as production increases is very common so let\u2019s work with this example.<\/p>\n

Without indexing, your schedule stays the same year in and year out.\u00a0 But what if you increased the thresholds by only 4% every year?\u00a0 Your first band (where the agent gets 55%) now runs from $0 to $52k (not $50k) while the second band (where the agent gets 65%) is now from $52k to $104k.\u00a0 Fast-forward another year.\u00a0 The targets are now at about $54k and $108k.\u00a0 After year three they\u2019re at about $56k and $112k.\u00a0 And so on.\u00a0 It\u2019s not too dramatic a change from one year to the next but the cost of not<\/u> doing this is ever-shrinking margins that get really uncomfortable over time.<\/p>\n

Let\u2019s look at what this example would mean for a couple 20-agent companies.\u00a0 Company #1 has twenty agents who each produce $60k GCI every year (pretty close to average production for the industry) for a total of $1.2mm GCI.\u00a0 Company #2 has 20 agents who each produce $125k GCI (therefore $2.5mm GCI in total).<\/p>\n

With no indexing, Company #1 would make $520k (or 43.3%) of gross profits year after year while Company #2 would make $925k (or 37.0%) year after year.\u00a0 Unless you live in a world with no inflation, this means your \u201cins\u201d are stable while your \u201couts\u201d are rising.\u00a0 Result:\u00a0 less profits.<\/p>\n

If the plans were indexed, then the broker could keep more to offset rising costs felt elsewhere.\u00a0 For Company #1, indexing would increase the percent retained from 43.3% to 44.4% over the 3 years.\u00a0\u00a0 On Company #2, it would go from 37.0% to 38.5% (returning nearly forty grand to the company).<\/p>\n

As margins get dangerously thin in these tough times we all need long-term solutions, not temporary fixes.\u00a0 Play with the math and see what it would do to your numbers.\u00a0 Happy indexing.<\/p>\n","protected":false},"excerpt":{"rendered":"

Posted by Nicolai Kolding If you\u2019re a broker, go grab your P&L.\u00a0 Look to see when the last year was that had GCI about the same as 2007 and then compare the two years\u2019 percent retained (the percentage of GCI kept by the house after sales agents receive their \u201csplits\u201d).\u00a0 My guess is 2007 was […]<\/p>\n","protected":false},"author":181,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[181],"tags":[],"class_list":["post-24","post","type-post","status-publish","format-standard","hentry","category-real-estate"],"yoast_head":"\nThe Road to a Healthier Brokerage: Commission Plan Indexing - Better Homes and Gardens Real Estate Be Better Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/bhgrecareer.com\/bebetterblog\/the-road-to-a-healthier-brokerage-commission-plan-indexing\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Road to a Healthier Brokerage: Commission Plan Indexing - Better Homes and Gardens Real Estate Be Better Blog\" \/>\n<meta property=\"og:description\" content=\"Posted by Nicolai Kolding If you\u2019re a broker, go grab your P&L.\u00a0 Look to see when the last year was that had GCI about the same as 2007 and then compare the two years\u2019 percent retained (the percentage of GCI kept by the house after sales agents receive their \u201csplits\u201d).\u00a0 My guess is 2007 was […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/bhgrecareer.com\/bebetterblog\/the-road-to-a-healthier-brokerage-commission-plan-indexing\/\" \/>\n<meta property=\"og:site_name\" content=\"Better Homes and Gardens Real Estate Be Better Blog\" \/>\n<meta property=\"article:published_time\" content=\"2008-03-14T09:28:57+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-12-30T19:56:15+00:00\" \/>\n<meta name=\"author\" content=\"Elizabeth Byrne\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Elizabeth Byrne\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/bhgrecareer.com\/bebetterblog\/the-road-to-a-healthier-brokerage-commission-plan-indexing\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/bhgrecareer.com\/bebetterblog\/the-road-to-a-healthier-brokerage-commission-plan-indexing\/\"},\"author\":{\"name\":\"Elizabeth Byrne\",\"@id\":\"https:\/\/bhgrecareer.com\/bebetterblog\/#\/schema\/person\/cba2618c2f68146c705ea5ed10947fe4\"},\"headline\":\"The Road to a Healthier Brokerage: Commission Plan Indexing\",\"datePublished\":\"2008-03-14T09:28:57+00:00\",\"dateModified\":\"2024-12-30T19:56:15+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/bhgrecareer.com\/bebetterblog\/the-road-to-a-healthier-brokerage-commission-plan-indexing\/\"},\"wordCount\":504,\"commentCount\":6,\"publisher\":{\"@id\":\"https:\/\/bhgrecareer.com\/bebetterblog\/#organization\"},\"articleSection\":[\"Real estate\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/bhgrecareer.com\/bebetterblog\/the-road-to-a-healthier-brokerage-commission-plan-indexing\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/bhgrecareer.com\/bebetterblog\/the-road-to-a-healthier-brokerage-commission-plan-indexing\/\",\"url\":\"https:\/\/bhgrecareer.com\/bebetterblog\/the-road-to-a-healthier-brokerage-commission-plan-indexing\/\",\"name\":\"The Road to a Healthier Brokerage: Commission Plan Indexing - 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