07 Oct Keller Williams Business Model : How It Works
The Evolution Of The Keller Williams Business Model
The real estate industry has changed quite a bit over the years and Keller Williams has changed its business model to keep up with the changes. Our focus is supporting our agents in every way possible so they can succeed in their local markets.
The Keller Williams business model was very unique when it was introduced in the 1980s. No other companies had programs such as capped commission splits for their agents, or profit sharing programs. The Keller Williams business model takes the best features from traditional brokerage models and introduces its own advantages.
It is important to note that the Keller Williams business model is not an “a la carte” menu. It doesn’t work if you just take one or two pieces of it and try to copy those parts. All of the components of the business model work together to create a real estate company nobody will ever have to leave.
You don’t have to believe us, though. You can see what one of the best universities in the world has to say about it.
Low risk / low reward
The traditional real estate brokerage business model has been around for many years and is still prevalent in some markets. The agents drawn to this business model like to have most of the work in a transaction done for them and they don’t mind paying a hefty portion of their commissions to their brokerage for that privilege. Giving up 40-50% of your commission seems like a steep cost to most experienced agents, but this business model persists nonetheless.
Traditional brokerages work hard to sell the idea that their “brand” is the reason their agents are doing any business. Many agents believe that the brand matters, even though objective statistics from the National Association of Realtors have shown time and time again that consumers do NOT choose their agents based on the agents’ company affiliations (translation: consumers choose agents, not companies).
The risk for an agent working in this business model is low (it doesn’t cost much to just hang out and do a few deals a year when clients appear), but the rewards are also low (the percentage of the commission kept by the brokerage in every transaction is large and continues forever without ever capping).
Here are the hallmark features of a traditional brokerage business model:
Agents are on traditional commission splits that never cap–50/50, 60/40, etc.
The brokerage does not share profits or provide equity opportunities.
Agents are dependent on the broker for all of their business needs.
Teams and independent agent branding are discouraged–the brokerage is always the focus of the branding.
Flat Fee Brokerages
High risk / high reward
Flat fee brokerages appeared in the 1970s and 1980s. One of the pioneers in the flat fee brokerage space is still around: Remax.
The concept is the same as it is in a barber shop: The agents pay a flat fee every month to rent their “desk,” and in exchange, the agents get to keep 100% of the commission they earn. The catch? That flat desk fee is $1500-$2000 a month and all of the marketing expenses, transaction management expenses and education expenses are the responsibility of the agents.
And if you don’t do any transactions for a few months, like in a pandemic? Well, you still have to pay that $1500-$2000 a month in order to stay with the company.
When this business model first appeared, it was extremely popular with experienced real estate agents. Experienced agents know that their clients choose them as individuals, not their company. When the only other option was the traditional brokerage model, most of the best agents left the world of 50/50 and 60/40 commission splits in exchange for paying a flat $1500-$2000 a month.
The risk is high in this model (the monthly bills to pay are significant and continue even if you don’t sell any real estate), but the reward can be high (if you consistently sell multiple houses a month regardless of the economy or pandemic situation, the math works well with the amount of commission you get to keep).
These are the features of a flat-fee brokerage:
Limited or no support from the brokerage.
Agents are treated like barbers in a barber shop–they pay a flat fee to rent a chair for the month and they are responsible for everything else in their business.
The flat fee is due every month regardless of whether the agent sold any properties.
Low risk / high reward
The Keller Williams business model borrows elements from the traditional brokerage model and the flat-fee model, and then adds some things that don’t exist anywhere else.
The capped commission structure was the first big innovation that came from Keller Williams. Everyone who joins Keller Williams, regardless of experience, is on a 70/30 commission split. The means brand new real estate agents, and veteran agents who have been around for decades are all on a 70/30 commission split. But that’s not all…
Once Keller Williams earns a certain amount of money from an agent’s 30% every year, they stop taking money from that agent for that year. At that point, the agent gets to keep 100% of their commission for the rest of that year. (The cap varies depending on where you live and depends on the average house price, number of houses that sell, and a few other factors).
The capped commission structure at Keller Williams is also known as your “fair share.” As a company, we never wanted to be in a position where we overcompensated our agents, and we never wanted our agents to overcompensate us. The commission caps make it possible to provide the full services our agents expect from a brokerage, but still allow our agents to keep most of their commission dollars for themselves.
A second big innovation in the Keller Williams business model is the Keller Williams profit sharing system. The idea behind the profit sharing system is that the agents at Keller Williams are responsible for the income in the business, and they should get to share in the profits. There is a formula we use, but it’s basically 50/50–the owners of the Keller Williams office get to keep 50% of the profit of that office and the other 50% goes into the profit sharing system.
The largest innovation in the Keller Williams business model is the intense focus on training. The training exists for agents at every level–brand new agents, seasoned agents with large teams, and every agent in-between. In fact, one of the reasons our top agents and agent teams in the company stay with us is the continuing value they get from our advanced-level training.
Some other components of the KW business model are the Agent Leadership Council, open books, ownership opportunities, a variety of career tracks, and cutting-edge technology. We will explore all of those in additional posts in the future.
These are some of the most unique features of the Keller Williams business model:
Company and agents have a win-win relationship when it comes to commission splits (there’s a maximum agents pay every year, then they go to 100% commission).
Profits are shared between company and agents–when everyone in the company is watching the profit, it makes a difference.
Company helps agents expand their businesses and create stand-alone teams.
Ownership and equity opportunities are created with the company and the agents who wish to pursue them.