I'm really struggling with this one. I see the comparisons to MLM, and I try to understand the formula. I watch as Realtors are told how they'll have income forever without working? And I probably have misconcetions. Nonetheless, a brief synopsis.
1. Gary Williams wrote a good book (a little elementary in my mind) that described ethics, work habits, other, and hilighted 16 realtors (only 4 of whom currently work for KW as best as I can figure).
2. The book doesn't describe how to recruit, it talks about customer retention, building value, creating lead systems that leverage your time and become an assett.
3. They really work hard on training, but appear to provide little other services.
4. The profit sharing is split first by 50% profit to owner, then a percentage to a group that oversees the company profits, then down to the agents based on their recruits production.

The only things I can find that report profit sharing have to do with gross nation wide numbers by the number of agents, and a gentleman on the east coast who said he had 42 agents in his downstream, and made $7,000 last year. Because the number for the "Profit sharing" isn't given for the formula, owners, overseers, etc, I begin to draw these conclusions:

If I as a broker charged what KW seems to, with little services except training, and overseeing the companies profit, I'd be very profitable and would be glad to share with my agents. Kind of like over paying the IRS, so I'd get my money back at the end of the year, an interest free savings account.

If I as an agent worked as hard, and turned 42 leads, my profit would be much greater than recruiting 42 agents.

From my perspective (as a borker), I sell a service. My service is what I provide to agents to be effective, profitable, well trained, motivated, and have tools in their hands that will help them be Realtors. I believe firmly in rewarding Realtors who help bring in a prospective realtor by sharing the income made from that Realtor. It just seems to me that between the Gary Williams book of being successful, and the practice of "Recruit all you can to make us big" something was lost in the translation. It seems that Big Recruiting won out over quality recruits. From what I've seen KW trains, and recruits, yet individual average production is much less than other quality programs.

And, I am biased. Can any one help me see what I'm missing?

Jeeze, just reviewed my spelling. My mind was working faster than my fingers....

I am sorry, i just read that whole thing and I am still unclear as to what your question exactly is.

My question is, I'd like to understand their profit sharing. We've had a large number of agents who believe they will be able to retire in just a few years (like $10,000 profit sharing if you recruit a single mil producer). If I loose agents for this reason, I want to understan the true mech, and let them make an informed decision. So the question is, what is realistic number that an agent can get? With only a few recruits?

some people swear by it, i have experienced it personally and find it a hoax, here it is in a breakdown. If you are an agent for KW and get someone else to come aboard, you get rewarded, if and only if that particular office that referred agent works in is profitable. KW sets aside some amount, say %2 for example and gives that to their agents who helped bring them agents. I referred two people to KW and got a whopping $40 dollar check and havent seen one since. They make it confusing for a reason, becuase they dont want the ignoramouses understanding it. They just want people to bring them bodies with credit cards. I found it impossible to run my business with KW taking 36% of my profits plus their montly office dues, so I left. Businesses cant be run like that. Instead of offering referral programs, just offer your agents higher commission amounts and stop playing games like KW.

It works like this:

First each agent's contribution is figured out as a percentage of what they contributed to the income of the center for the month. Let's say Joe 's split to the company equaled 2,000 (to keep numbers remotely clean). Let's say the market center's gross income for the month is 50K. Joe contributed 4% to the gross income of the company. Remember this as it will be important later.

your split with the company first goes to pay expenses and then to the profit sharing pool for your market center.

I don't have it in front of me and the numbers get a little jumbled around because I've played with them a lot, but the breakdown is something like this:

After approved company expenses are paid (rent, utlities, etc.) the rest left over is the gross profit pool per market center.

The profit pool is divided using a scenario like:

25% of the first 3,000 of the owners' profit
35% of the next 7,000 of the owners' profit
50% of anything over 10,000 in owners' profit.

in a hypothetical world....lets say the company profitted 25K for the month. The pool would be tallied like so:

25% of the first 3,000 = $750
35% of the next 7,000 = $2,450
50% of the remainder = $7,500

The gross profit pool for the market center is $10,700.

Now...since Joe earlier contributed 4% to the gross income. 4% will be his personal profit pool (4% of 10,700 = $428)

Now that 4% get's split through the downline through a formula that I don't have in front of me so I'll guess and be reasonably close.

direct sponsor 50% = 214
level 2 gets 10% = 42.80
level 3 gets 5% = 21.40
level 4 gets 7.5% = 32.10
level 5 gets 5% = 21.40
level 6 gets 10% = 42.80
level 7 gets 12.5% = 53.50

If I did my math properly then those numbers add up to 428 bucks.

Don't forget that KW caps peoples personal incomes at 18-20K depending on the market. Once they hit that cap they won't be contributing to profit share anymore.

I read somewhere that you can expect to receive around 2K per year per direct sponsor of someone who hits their cap. Although I can't testify to that it sounds about right to me. I don't think profit share is a true retirement plan, but I think of it like a strong bonus system. Also, if you can make 18-20K a year in profit share....it's pretty much the same as being on a true 100% split.

I wrote this really fast because I have to leave, but if you need me to clarify my explanation please let me know

Thank you so much. The most complete answer I've ever seen. If I may think out loud. Refer to VM's comment about the 36% given up vs a 100% agent. This goes to the core of my beliefs. I think that a broker should be chosen on the basis of the services offered. I've based my company on offering Technology, Office space, fast color laser printing (30 ppm duplex), web site, web based appointment desk, personlized graphics, advertising to name some. Yet, it appears that the KW here is out recruiting everyone. There split isn't much better or worse than others, and most of the agents they are attracting are mostly new or mid level producers. Fact is, from what I've gotten from the MLS, their agents are averaging 3 sides each for the last 6 months. My company has averaged over 6 sides per agent the last 6 months, but I can't get agents to talk to me. The only thing I ever hear about is:
a) the profit sharing, or
b) Christian/family values.

Is my basis wrong? Do we brokers sale a service to the agents? Should we concentrate on trainging, 100%, charge for each thing?

I've tried to come up with competitive splits, and include ALL costs in those splits. Easy, no accounting headaches, no bean counter mentality. Should I be shifting off that and moving another direction?

That's a tall order of questions that I think only you can decide.

The thing I like the most about KWs setup is that it promotes a TEAM environment. Everyone wants the company as a whole to do well because it means more profit share for everyone. As a mortgage broker, I get to spend a lot of time at various RE offices and the KWs are always the most friendly and vibrant.

The feeling I get from other offices is that they're going through business like it's a poker game. Agents don't want to talk too much for fear of giving other agents an edge.

I think if you can duplicate the "charge" I get from setting foot in the KW offices then you're company will do outstanding.

I'm not sure what to attribute that to, and again I'm in a hurry. I'd like to think outloud later and see what people think.

On a side/personal note for a situation I'm dealing with now. For future reference, if you're going to take a buyer out and get them to purchase a property. Please get them to sign a loan application sooner then 5 days into a 30 day escrow. I'll sleep a lot easier at night. Also, business bank accounts and personal bank accounts are treated far differently under different investors. In fact, most don't allow the use of business funds for a personal purchase even if they are sole owner of the business. Please don't complain to your mortgage guy because the borrower has cash...just not in an account that he can use. Oh yeah, antiques & tapestries do not count as liquid assets no matter what the borrower tells you. Ok....I'm done. I feel a little better now.

HAH, glad you'll sleep better. Wish everyone could be up front about finances, assets, etc. Hate finding out about child support the day of closing!! And thank you for the input. Fact is, maybe I don't want the agent looking to get rich quick. I want those who know that hard work bring you reward.

You're Mike Volkin posting under yet another screen name, aren't you?

I don't know if he is or not. I understand what he's saying about playing games. My approach is the split is the split, and everything is included. If you don't want the services, I'll negotiate, but I don't want the time or software to make all the accounting and billing for each service. Seems to me the KW plan of overseeing the company profitts, figuring if there is a profit, splitting, who gets what... on and on. Lower the split, or provide services. Why charge the 70-30 and not provide anything?

jflynn, its amazing you are so unwelcome everywhere you go. Yes, it is me, posting under a different user name because i started my own company and didnt want my old name, is that ok with you dad, i sure hope i have your permission

VM, wow that had some bite to it.

Maybe he's busted your chops a bit before (I don't know) but your reply seemed a bit harsh.

he busts my chops everytime i say something. Also, when someone has a question, instead of answering it he ALWAYS says something smug or sarcastic. I am tired of him, he doesnt contribute to this board at all and uses this board to make fun of us

morningshw,

I have only heard of a few KW agentsactually making decent residual income under the profit sharing plan. Most have gotten checks for pennies. But, you are right, agents are lured there by the smoke & mirrors of extra income & retirement income. Most see it for what it is when they get in there & experience it.

I do run up against them too in my area (although they aren't very big here). I try to explain it like this:

1) The *extra* money you are getting is the money you gave them from your split anyway. So basically they are giving you back a portion of the commission you already gave them - no matter how it's explained, that's essentially it. I offer a higher split than KW here so why not come here & get it up front to invest in how you see fit.

2) I explain that I would much rather have them out prospecting & growing their business rather than focusing on recruiting. I had looked into an Exit franchise & determined that I didn't want the agents recruiting for me to earn extra money. I want them to bring in agents they would want to work with. I also have them think about how they would feel knowing they were being recruited to work for another firm because the agent received a portion of their hard earned commission if they joined?

And you also have to realize that there are some that you just can't compete with. I have a few firms here that no matter what I do-the agents will never leave. It's like they are brainwashed. Very strange but that's the reality of it. You just have to weed through the agents & find the ones that see value in what you have.

My sponsor made thousands of dollars because of me last year. And no, I wasn't "lured" to KW by "smokeand mirrors" at all. I went here because of a lot of reasons, and the recruiting bonus was literally at the bottom of the list.

That is not how it works at all. The money you get comes not from your split, but rather the profitability of the office where the person you recruited works. I hope that you'll refrain from telling people that in the future.

Tanya,

If I were you I'd be careful about describing KWs program without fully understanding it. From what you described, it's not an accurate portrayal of how their system works.

Also, what split do you offer people that is higher then KWs?

graysqwrl,
Just a question for you.
What makes you the expert on the KW profit sharing pyramid? As you are a loan officer and not an agent let alone a KW agent how do you know with 100% certainty how they plan is worked?

This subject creates lots of heat. Something we all can agree on. Now some "facts".

We must admit that all income generated for the brokerage is from agents "splits" (well, there are a few other things, and the broker may sell, but the splits are the main income). If a brokerage is profitable, it's because the splits coming in were more than the expenses going out. To be profitable, the brokerage "over collected" vs the expenses.

So, Tanya isn't wrong in the sense profitablily is created by the income splits. Having said that, it appears to me that KW offers very few expenses for the agents, but instead makes agents pay for office space, printing, advertising, etc.... So the expenses should be low. By offering 70/30 split, but covering space, ads, signs, boxes, Virtual Tours, web space, etc, my profitablity would be lower, but the services higher. So if I were to adopt a profit sharing where I were to keep 50% profit, and share the rest on contribution, it would be lower.

My beef with KW is 2 fold.
a. Here, there is a very poor understanding of the profit sharing. An agent told me she would get $10,000 if an agent she recruits sells 1 mil. When KW caps at 18K, and the owner gets 50%, even with max profitability, how can she collect 10K? I think that each KW is different, but it seems smoke and mirrors here.

b. Claim of superior training. In Williams book about Millionaire Realtors, only 4 of the 16 highlighted Realtors in his book currently work for KW. If the plan were so superior, why wouldn't they be working for KW? And, with all the classes here, the $'s and units produced are about 1/3 of my company, and below average for the MLS.

This is what I consider smoke and mirrors.

Keller Willaims agents:
What are your caps like? 18K, 21K, 23K?
I am curious cause I signed up with Keller Williams.

A few years ago I wrote a business plan for them for a mortgage division. I had to understand how they calculated profit sharing. Also, I use a similar one for my loan agents because it's just so darn effective.

I also had to work with a few different Market Centers on various projects and really went out of my way to learn more about how KW runs.

As a Mortgage guy I used to spend a lot of time at various RE offices and KWs were always my favorites. They always seemed to have the best environments. Not a fact...just my opinion. Now when I'm not doing admin for my company, KW agents are the majority of agents that refer me business.

I'm not "the" expert, but I have a handle on how it works.

Sorry if I've been out of line in anything that I've said, but a lot of people talk about it without understanding it. In my opinion they tend to give it far too much of a bad rep.

The money paid out is the owners' profits. In your traditional brokerage anything left over after the bills are paid, the owner keeps...or possibly re-invests in his company in some way shape or form. Under the KW plan, the owner shares, what would be owners' money under a traditional brokerage, with the Agents as a "thank you" for helping to build the company. How many brokers give out bonus checks as thank yous?

KW also offers the "cap" at 18 or 20K or whatever the market dictates for that center. I think it's a pretty solid setup. I'm not pleased when people talk bad about it without understanding it...that's all.

In my experience, most of the KW agents don't understand completely how profit sharing works. In fact they usually offer a class on how profit sharing is calculated (yet it seems to be poorly attended). Maybe the agent did intend to deceive you with smoke an mirrors, but I'd imagine she probably doesn't understand how it works. You're right, there's no way she'd collect 10K from profit sharing given 1 agent doing a million dollar deal.

My beef with the system is that in KWs effort to create a bonus system, they successfully confused a lot of people including their own agents. I have, on a few occasions, explained to KW agents how their own system works.

I think, if your intention is to recruit an agent, you shouldn't be allowed to explain to the agent off the top of your head how you think it works. Maybe if they handed out a packet with a worksheet about profit sharing a lot of the confusion would be eliminated.

Well I'm a KW Broker, I was a REMAX Agent for years, When you add up how much you pay in Office fee's at REMAX ($1600/mo) vs. the KW 70-30 split until the 30% adds up to a $20k Cap, the numbers are close to the same, the difference is that KW also offer the Profit Sharing. I've sponsored several TOP Brokers to KW and I adv about $2,000-$4,000 a month in Profit sharing. REMAX Never offered me a DIME of thier profit!!!!

Thank you Chris for letting us know. I have been trying to decide between KW and Remax.