MODEL ONE: YOUR ECONOMIC MODEL Think of your Economic Model as a formula that describes the way your business works. It is your equation for success. Essentially, the Economic Model describes the relationship between a series of activities and the specific outcomes they produce. Actually, you can work the formula in reverse just as easily. If you start with an outcome, it will dictate the specific actions you must take to produce it. Now, whether you realize it or not, you have an Economic Model. Every business does—every real estate agent does. The issue is not about having an Economic Model; rather, the issue is whether you understand the one you have and whether it can get you the net income you want. A sound Economic Model should do three basic things for you: 1. Show you where your money comes from (gross revenue) 2. Show you where your money goes (expenses) 3. Show you how much is left for you (net income) This is basic economics and sounds very simple, but, in actuality, most people follow very unsound Economic Models. 1. They are not sure where their money will come from. 2. They are not sure which costs are critical and which ones are not. 3. They can’t be sure how much will be left at the end of the year. The problem is their Economic Model is based on activities with no projected outcomes attached. They have bought into the common fallacy that if they just work hard and spend money on their business, then somehow they deserve to make all the money they want. Sorry—it simply doesn’t work that way. Fortunately, highly successful real estate agents have lived before us, and we now have lots of examples to guide us. We can now put
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