What are flexible fees?

The first thing to understand is that flexible fees are not cheap fees, at least they don’t have to be. In fact my recommendation for their deployment into your business, is that you base them directly from your current fees.

Flexible fees are effectively three choices for a client that we seek to position as one choice.

No Sale, No Fee (Pay nothing on listing)

Part Prepaid (Pay something on listing for a substantial reduction in the fee – circa 20%)

Full Prepaid (Pay everything up front). I call this Move in 2, but more on that later.

Once properly deployed and trained, we see 20% of clients choosing no sale, no fee, 60% paying something up front and 20% paying everything up front.

The customer?

How do you pay for an accountant? You would agree on a fee for your wanted your tax return. done in time for the self-assessment deadline. If you tell them to stop working the day before it’s due, when the work has been done, would you expect them to charge you?

If you were paying a builder for a job, would you expect an invoice for materials.

In a typical act of estate agent self-hate, we under value the effort and work we put in for our clients. We accept that because no sale, no fee has been the status quo for decades, it must always be the way we work.

My challenge to anyone not convinced about us not selling a property and a customer still having a charge, is the basic fact that 50% of clients don’t end up moving. This means that we are over-charging serious sellers to compensate for the number of non-serious sellers who change their mind, in fact we are charging them double the price we would need to charge if everyone paid the same for the service.

The key to this argument is two fold. Every customer should have the choice to pay nothing up front, ie no sale no fee. The agent should charge more for no sale, no fee to factor in the risk the customer decides not to move.

What the graph shows below are the results from a full years listings, measured in April of the following year. It clearly shows that to a large extent, the choice the customer makes dictates the outcome. It is self-selecting.

Why is it good for the business?

This in many ways is the easy bit. Let’s take an example of an agent who charges 1%

Step 1: Increase your no sale no fee by 20% (1.2%)

Step 2: Add a £295 payment into your traditional 1% fee (so it’s 1% including the £295)

Step 3: Take 20% off your 1% if the entire fee was paid up front (0.8%)

Below is an example of a fictional business with a £3500 completion fee, listing 30 properties a month and having 50% completion rate. By adopting the tactic above, it would increase their revenue by 23%. If you are making a 10% margin, then this will triple profits.

This will have two additional benefits:

1. Create an extra dividend for the first 4-5 months on top of the 23% growth
2. Transform the cashflow profile of the business in particular in Q1.

You can see from the numbers above that over the lifetime of the pipeline, you will see a decline in the completion fees from £52.5k per month to £42k per month. This is offset by the prepaid fees, which tend to come in the prime listing months of the year (Jan-Sept), which accounts for the big shift in cashflow.

For the first 4-5 months there is this one off windfall of £102k of additional revenue. The only cost is that of the commissions that you pay.

Flexible Fees Before Self-Employment

The other key work that I do is to help businesses add a self-employed model to their business, in addition to their employed model.

I believe that every self-employed model must have a strategy to overcome the high attrition rate in the first 6 months. There is little to no income for the agent without this. Flexible fees are a key tactic for doing this, improving the retention rate and allowing for faster growth of the model.

It is typical for me to recommend implementing flexible fees to the employed business as a Phase 1 for building a self-employed model, to allow for swift cash generation to fund the model and to finesse the strategy for the individual business.

How do you implement this strategy?

There a few ways to implement this strategy, from spreadsheets and to it being an integrated part of your CRM with Greenhouse OS

The obvious advantage of it being integrated into the CRM is that it creates the different types of contract that you need, takes the upfront payments and calculates the commissions. That being said, moving CRM is a big deal and does take while in my experience.

Most of the clients that I work with start low tech, prove the model and add the systems later, which makes a lot of sense. They key element to any implementation is the belief of the individual valuers. What I can promise, from having delivered this training around the UK from Swindon to Liverpool is that the customer will respond positively. The issues will be in the mindset of the lister.

One of my favorite quotes is:

“There are two types of people, those who think they can and those who think they can’t, and they are both probably right”

There are a few other consideration that I haven’t had time to discuss in this article. So if it has been of interest, you can subscribe to my other articles below as I will do a follow up to this around the incentives for team members, the impact on growth and strategies to reduce discounting.

One thing that I am very happy to do is to do a 5 minute analysis of the financial impact of flexible fees on your business, so feel free to drop me a message via Whatsapp.