If you’re interested in starting a real estate business to help buyers and sellers navigate the stressful and complicated process of working through one of the biggest transactions of their lives, you’ll need to make sure your business is well prepared.
The real estate market is enormous. Here are the relevant statistics you should know:
- 5.34 million existing and 667,000 new homes were sold in 2018, according to the National Association of Realtors.
- The Association of Real Estate License Law Officials (ARELLO) estimates that there are about 2 million active real estate licensees in the United States. Nearly 1,400,000 of them are active members of The National Association of Realtors (NAR).
- According to NAR, the typical realtor is a 54-year-old white female who attended college and is a homeowner.
- According to NAR, the median gross income of Realtors was $41,800 in 2018 (an increase of several thousand compared to 2017).
- There are over 86,000 real estate brokerage firms operating in the U.S. (based on most recent census numbers from the 2012 and 2007 economic censuses).
But don’t be intimidated by the competition. Real estate can be a lucrative business.
People looking to start a real estate business often ask:
- How much does it cost to open a real estate business?
- How do you start your own real estate company?
- How much do real estate business owners make?
- How successful is a real estate business?
- How do realtors get clients?
- Do I need a license to work in real estate as a realtor and as a broker?
- How do I name my real estate business?
- What does a realty company do?
If you want to take the plunge and start your own real estate business, there is a lot to consider.
Here’s a complete, 11 step guide on how to start a real estate business.
- Develop and refine your idea
- Write a business plan
- Decide your legal business structure
- Get a license
- Purchase business insurance
- Crunch the numbers
- Create a strong brand identity
- Build a web presence
- Create a sales plan
- Join a team
- Grow your business
1. Develop and refine your idea
Real estate is an enormously competitive field. The chances are that your area already has at least one or two successful and popular brokers already actively engaged in the marketplace.
If you want to have the best chance at success, you need to consider your strengths, weaknesses, and any areas you are particularly interested in or experienced with.
Make sure you are deeply familiar with the area you’d like to set up your business.
Knowing the towns and surrounding areas of where you’ll be helping people locate to is a critical part of running a real estate business, but it can also influence how you’ll decide to present yourself in the marketplace.
Take a look at the other realtors and brokerages in the area to determine what your competition is doing in the marketplace, and take stock of how these existing businesses are approaching things.
How do your natural strengths differentiate you from the other real estate businesses in the area?
Consider the following questions. Getting outside opinions on some of these can be helpful – don’t be afraid to ask someone you trust what they think about your answers to the following:
- What skills set me apart?
- What is the purpose of my business?
- Who am I providing a service or product to?
- What is the maximum figure I can safely spend on this business?
- Do I need outside capital? How much?
- What kind of work/life balance am I looking to achieve?
- What are my expectations of starting my own business?
Find a niche
Consider what specific niche is right for your real estate business to give yourself a leg up on the competition.
Do you want to sell to a particular group or segment of the population? Or perhaps you want to concentrate within a specific area of the city, or specialize in buying and selling condos?
Maybe you want to be the area expert in short sales, only focus on rental property management, or perhaps you are the go-to resource for landlord/tenant laws for your state.
You’ll have a better chance at success if you start with a specific target audience.
Make sure you set up your real estate business to meet the needs of a specific niche to avoid overspending and underwhelming all of your potential customers.
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- How to clearly articulate your brand identity.
- How to define your brand personality.
- How to set your brand voice.
- How to identify your brand's audience, and more!
This is true for any business, not just the real estate business. In our definitive guide on how to start a small business, we suggest that aspiring entrepreneurs choose a niche for the best chance at success.
Competition is hard enough – make it easier to stand out with a specialty.
Here are some real estate niches to consider:
- Resort and vacation homes
- Income properties (homes purchased to generate income through rental or leasing)
- Commercially zoned properties
- Property management
- Rental Property
Whatever niche you choose, make sure you’re passionate about it. That passion will come through in everything you do, and your customers will appreciate and embrace the authenticity of your brand.
2. Write a business plan
Although a business plan isn’t mandatory, it can help you to crystallize your ideas. Toby Nwazor advocates for creating a business plan:
Any experienced entrepreneur knows a company without a business plan is like a fish without water. The plan does not need to be lengthy at first. Rather, it should be one or two pages, identifying the key elements of the clothing line’s business strategy.
A business plan is a document that outlines the financial and operational goals of your business. It defines the objectives of your company and then provides specific information that shows how your company will reach those goals.
Your business plan doesn’t need to be 100 pages long. Keep it short and concise and focus on the essential details.
Studies show that entrepreneurs who take the time to write a business plan are 2.5 times more likely to follow through and get their business off the ground. The work that goes into creating a business plan also helps new entrepreneurs build skills that will be invaluable later.
Traditional business plans have the following sections:
- An executive summary. This section summaries the entire plan, so it is generally written last. Anyone reading your plan will read this first, so it’s an important element.
- An industry overview. This section gives a brief overview of the industry sector your business will operate in. It includes key players, industry trends, and estimates of industry sales.
- Market analysis. This looks at the target market for your product or service. It has a breakdown of your market segments, their geographic location, and what their needs are. This section shows anyone reading that you have a thorough understanding of the people you plan to sell to or serve.
- Competitive analysis. Who are your direct and indirect competitors? How do they currently meet your target market’s needs, and how will you differentiate your product or services?
- Sales and marketing plan. What is your unique selling proposition? How are you going to promote your business and persuade your target audience to buy? This section goes into detail on questions like these.
- Management plan. This section outlines your legal and management structure. It shows who your leadership team is and what your staffing needs will be. If you plan to seek funding, you should describe your advisory board here, as well.
- Operating plan. Your business location, facilities, equipment, and what kind of employees you’ll need are in this section. Any suppliers, manufacturing processes, and any other operating details also appear here.
- Financial plan. This section is for all things financial. There are three key financial documents of any business that go here: an income statement, a balance sheet, and a cash flow statement.
- Appendices and Exhibits. Any information that helps support your business idea goes here, including market studies, legal agreements, photos of your products, and more.
For more information about how to create a business plan, the Small Business Administration has you covered. Click here to see their complete guide to writing a business plan.
Do market research
Before you dive into your business plan, it’s important to know the market you’re entering.
Business planning and marketing research help you to build a more successful real estate business.
Who are your direct competitors? Who are the top real estate agents working in your target niche? What makes them stand out from the rest of the competition?
A lot of the work to come relies on information gleaned from market research. It’s crucial that you don’t skip this stage, so you have the data you need to make informed decisions.
You’ll need to undertake the two major types of market research: primary and secondary.
Primary research is an important first step. You’ll need to find the answers to questions like:
- What factors do your potential clients consider when purchasing a residence/office/land?
- What do they think is working and what needs improvement in their current location?
- What do they like and dislike about the location they are currently in?
- What is their current mortgage/rent? Do they feel it’s reasonable and has good value?
You answer these questions by talking to potential customers. Surveys, focus groups, one-on-one interviews, and questionnaires are the tools of choice for primary research.
Secondary research is information pulled from existing sources.
You can identify competitors and define your market segments or demographics using currently available data. Key attributes like age range, lifestyle, and behavioral patterns are some of the data points used to divide your target customers into segments.
Once you have this information, you’ll refer back to it repeatedly as you build and launch your business. Make sure you spent a decent amount of time collecting data, so the decisions you make are based on solid research.
Plan for all of the necessary legal and logistical business considerations, and you’ll create a strong foundation for the prosperous future of your real estate business.
3. Decide your legal business structure
There are many different types of legal structures for various business entities. For new business owners, choosing the best one for your business can feel overwhelming.
Real estate also has special business requirements to consider.
Most real estate agents operate as self-employed business owners affiliated with a licensed real estate brokerage. In this case, agents run their independent businesses but under a licensed broker’s supervision.
Opening your brokerage has some similar considerations, but with an expanded focus. In most states, opening your brokerage also requires a special type of real estate license.
In both cases, you are starting a business.
Brokerage seeking entrepreneurs generally select one of four legal business structures: sole proprietorship, partnership, limited liability company (LLC), or a corporation. Here’s a basic breakdown of each:
- Sole proprietorship– this is the most basic business entity. A sole proprietorship means that one person is solely responsible for a business’ profits and debts.
- Partnership– A partnership is a shared responsibility between two or more people who both hold personal liability for a business.
- Limited Liability Company (LLC)– a structure that permits owners, partners or shareholders to limit personal liability, but still includes tax and flexibility benefits associated with a partnership.
- Corporation– this is an entity legally considered separate from its owners. That means that corporations are permitted to own property, can be held liable, must pay taxes, and may enter contracts.
Most real estate agents that work as independent contractors under the umbrella of a real estate brokerage operate as sole proprietors.
Additionally, single owner brokerage firms also sole proprietorships.
If you start in business on your own and opt not to incorporate or form an LLC, by default, you are a sole proprietor.
Sole proprietorship and partnerships are the most accessible business forms because they form naturally. You don’t have to declare either one. Once you or you and one more people start selling goods or services, you’re automatically a sole proprietor or partner.
Companies and corporations require more effort to set up, but there are distinct financial and business benefits to each.
Consider your future business goals. You want to choose a business structure that can accommodate the growth and expansion of your business.
For more information, the Small Business Administration is a great resource.
Once you decide on your legal business structure, be sure to register with the government (typically your state and sometimes, your municipality) and the IRS.
The forms you need and where you have to register, are determined by your business structure.
In some cases, you may need federal, state, or local licenses and permits to operate. The SBA’s database lets you search for licensing requirements by state and business types. And remember to contact your municipality to see if there are any local licensing or registration requirements.
You may also need to get an employer identification number (EIN) from the IRS.
If you’re a sole owner and don’t have employees, this is not required. But you might want to get an EIN anyway to keep your personal and business taxes separate and to be sure that you can quickly hire when the time comes to expand your business.
The IRS has a useful checklist to help you decide whether you will need an EIN to run your business.
If you do need an EIN, you can register online for free.
4. Get a license
Whether you are working in New York, California, Texas, Illinois, or another state, you’re going to need to have the appropriate license for your real estate business.
A real estate license
If you are entirely new to the business, you’ll need to get your real estate license before you can start working as an official Realtor.
There are four basic steps you need to compete to get your license and start working as a Realtor:
- Take the real estate pre-licensing course for your state. You’ll need to take your real estate pre-licensing course in order to take your state’s real estate exam. This grants you a real estate license. You’ll need to study the topics covered on the exam, which can include fair housing laws, types of property ownership, fiduciary responsibilities, titles, deeds, contracts, and other necessary aspects of real estate law. Every real estate pre-licensing course will cover the laws and regulations for your state, in addition to the federal real estate laws in effect for all 50 states.
- Pass the real estate licensing exam. The length of the exam varies from about 1.5 hours to 3.5 hours based on the state you’re in. In most states, you must answer 70% to 75% of the questions correctly to pass. The state exam will cover the same topics that are covered in your pre-licensing courses. The majority of states have multiple-choice exams that test both national real estate principles and laws and state real estate principles and laws.
- Submit your real estate license application. Submit your license application to your state’s real estate board as soon as you pass your exam. If there are application fees, you will need to include those. Be prepared for the possibility that your state may require all real estate license applicants to submit their fingerprints for a criminal background check.
- Find a broker to work for. Now that you’ve successfully passed your real estate exam, submitted your application for a license to your state’s real estate department, and paid any necessary fees, you will need to find a broker to work for. Having your license associated with a licensed brokerage is necessary for you to start working as a real estate agent. This is a critical decision that requires research and careful thought. Consider the benefits involved should you choose to work with a franchise brokerage, or alternatively, the benefits of working with a boutique brokerage instead.
A broker license
The basic steps for obtaining a broker license are the same in most states:
- You’ll need a real estate license. You must complete the aforementioned education, pass your state’s licensing exam, and have fully followed up with submitting your application and any necessary fees.
- Experience. Realtors are typically required to have at least 2 to 4 years of experience working in the real estate industry before they are eligible to apply for a broker license. Additionally, some states require agents to complete a minimum number of real estate transactions before becoming eligible for a real estate broker’s license.
- Education. Broker applicants in every state are mandated to complete pre-licensing education, which can vary from 45 hours to 90 hours before they are permitted to apply for a broker’s license.
- Broker’s exam. You must pass the broker licensing exam. The broker’s exam is lengthier and more comprehensive in every state as compared to the real estate agent’s exam. It is exceptionally important to prepare well and study all the necessary materials, and there are courses available to help you master the information on this in-depth exam.
- Application and Fees. Complete the broker license application and pay any applicable fees. The fees range from $150 to $200, depending on which state you live in.
5. Purchase business insurance
You’d be surprised how many new business owners forget to protect themselves and their business by purchasing insurance before they start their business.
It doesn’t help if you buy insurance after you start your business and incur claims.
Insurance can cover property damage, theft, intellectual property lawsuits, and other incidents. Those can be very costly to small businesses, and you need to protect yourself and your new business. This is especially true in real estate, where transactions include advice, guidance, and large amounts of money.
As a provider of real estate services, you’ll want liability insurance to protect you against possible claims. Your clients depend on your expertise and management, and there is always the possibility of an unhappy client suing you if something goes wrong.
If your real estate business employs people, you’ll need to have workers’ compensation and unemployment insurance. Coverage varies by location, and much general liability (GL) policies will cover at least workers’ compensation.
Here’s a good read on the different types of insurance you should consider as a real estate business owner.
6. Crunch the numbers
When you start a new business, even if it’s a home-based real estate business, understanding the numbers involved is crucial.
These numbers include being able to track your sales and profits – but a smart business will need to account for much more than sales alone.
Real estate sales tend to ebb and flow with the economy. That means you need to prepare for the ups and downs of inconsistent revenue. You need to know how much income you need to cover the times when things are leaner.
Plan for the cost of health and life insurance, and be sure you included potentially unpaid vacation time in your budget. Everyone needs a break at some point, and your budget needs to account for that.
When launching a brokerage of your own, or even if you’re starting out as a newly licensed realtor, your costs may include:
- your personal branding (logo, business cards, and website)
- any license or permit fees
- deposits and rent for a physical work location if you plan to lease your own workspace
- basic infrastructural costs like phone and internet service, invoicing software, etc…
- marketing and advertising costs
- equipment costs or leases
- salaries or wages for any employees
Once you know how much it will cost to get you started, compare that with the funds you have. Then plan how you’ll make up any difference.
No matter how small your business is, you’ll still incur costs, so pay careful attention to your budget.
Run calculations to determine how much it will cost to create your business. These numbers allow you to plan and think about your fees and what you should charge.
7. Create a strong brand identity
Crafting a memorable brand identity is a crucial element in any real estate professional’s success. This is crucial in the real estate industry. Real estate agents and brokers often market their services on the strength of their brand and personality.
As we’ve previously discussed,
…your brand is your company’s public identity. Ideally, your brand should embody the best (and most essential) attributes of your company.
A brand represents how people know you and your business. It affects how customers perceive your reputation or the reputation of your company.
In today’s competitive real estate market, a strong brand is more important than it has ever been.
Ask yourself these important questions:
- What identity/personality do I want my real estate brand to project?
- Who will want my products or services?
- What can clients get from my services that they can’t get anywhere else?
- What can clients get from working with me that they can’t get anywhere else?
- What are my brand values?
- What is the most important part of my customers’ experience?
Your answers to these questions (and others like them) will build the core of your brand. All of your future branding decisions should expand on these ideas. Your company name, your company logo, and your website design should all grow from the concepts you laid out here.
Far too many real estate companies have identical logos. Be sure your real estate logo is unique.
And don’t forget about real estate signage. Leave boring signs to others and instead, get real estate signs that sell.
It’s a good idea to review your answers to the questions you answered periodically to make sure you can relay your brand value in person – and make sure the answers still apply.
You can learn more about the nuts and bolts of establishing and maintaining consistent brand identity in Grow Your Small Business with Consistent Branding.
8. Build a web presence
According to a study on homebuyers, 90% start their search online, and 40% contact a real estate agent after researching on the web.
The web is an essential sales and marketing tool for all small businesses, and real estate agents and brokers are no exception.
Customers choose real estate services based on the brand, the person behind the brand, and the reputation of that person. Your website is often the first contact point between you and prospective customers. Make that first impression a good one with a well-designed site.
Ensure that your website design truly embodies your brand. Visitors should be able to understand who you are, the services you offer, and your qualifications and reputation.
Your website’s design and marketing copy should project your personal or broker’s brand voice and identity. Here are some suggestions:
- If you work as a real estate agent, include a photo and bio. Homebuyers want to know the person behind the site.
- Be authentic and avoid marketing “happy talk.” Speak the same language as your customers.
- Include high-quality examples of sales you’ve closed, and make sure to include social proof wherever possible.
- Give site visitors an easy way to get in contact with you.
Aim to create a site that builds your brand establishes your approach and style and communicates your value proposition. As it is with other fields that are personality-driven (like real estate sales and other creative services), people are not just buying your services; they’re buying a relationship with you.
When purchasing something as important as a home, trust is critical. Make sure everything about your brand conveys that you’re a trustworthy authority.
Finally, strong website design will lend credibility and legitimacy to your business. To learn more about great website design, check out Grow Your Small Business With These 7 Website Design Best Practices and 7 Modern Web Design Trends for 2019.
9. Create a sales plan
Market research remains a valuable, necessary tool every business owner should use when starting a new business venture.
When you’re ready to open your real estate business, having a well-researched plan will save you time, stress, and money in the long run.
Make sure you understand all of your choices and then consider which will work best for your business.
Start with the big one: how will you sell your services?
Real estate is often a personal, intimate service, so a hands-on approach is more effective and successful. Your website can help you generate leads, but your success is based just as much on the customers you say no to like the ones you say yes.
What does this mean? It means getting up from the computer and on the phone.
A quick call with a prospective customer can establish whether or not you’re a good fit for their needs. It saves both you and your customer time and effort if it turns out there isn’t a good match.
All of this pre-work leads to the second part of your sales plan: the in-person consultation. You want to meet with your clients so that you can work out in advance their needs, expectations, and any critical factors.
The ultimate goal in this phase is for your client to commit to working with you.
Of course, here’s where the real work starts! No matter what service or product you offer, there’s one important thing to remember: the post-sales experience.
A crucial part of your sales plan is what happens after you’ve completed the work. Post-sales customer care can be a place where you differentiate yourself from your competitors.
Many real estate agents and brokers find a lot of their clients through word-of-mouth from happy new homeowners. Create a great sales experience with your clients to increase the likelihood you’ll get plenty of word-of-mouth referrals.
Word-of-mouth is a powerful marketing tool, especially for real estate agents. As we wrote:
In fact, customers referred to a product are more valuable. A Wharton School of Businesss study found that referred customers have a 16% higher lifetime value and are more loyal.
Think about your sales plan ahead of time so you can capitalize on every opportunity to close the sale and generate future ones, too.
10. Join a team
The first step in choosing to join or starting your own brokerage is understanding the pros and cons of the two basic types of real estate brokerages: franchise brokerages and boutique brokerages.
National Franchise Brokerages
The first type of brokerage is called a franchise brokerage.
Franchise brokerages work under the umbrella of large national companies. These companies grant brokers the right to use their name, branding, and business plan. The franchise receives these benefits, and in exchange, the larger company receives a percentage of every deal closed by that office.
Most franchises are independently owned. However, each franchise brokerage is compelled to follow the rules and regulations as set by the corporate office.
There are many advantages to working for a franchise brokerage. The larger companies provide vast resources for marketing and branding, easy name recognition, and a larger percentage of online traffic.
There are drawbacks, as well.
The major drawback of working for a national franchise is, ironically, the flipside of their advantage: their size.
New agents, in particular, may find the impersonal nature of a large franchise to be off-putting, and the consequent lack of mentoring and professional development can make it an added challenge to break into an extremely competitive market.
Boutique brokerages are usually owned by a small company. They are managed by a single broker, and the agents working in that brokerage usually work closely together.
The small size of a boutique brokerage increases the value placed on each individual agent. Because the boutiques are small, every contribution to the brokerage’s bottom line makes a marked difference. ]
There is an inherent advantage to making sure each agent is working at their best, therefore – which means that newer agents can benefit from the extra attention and direction given by more experienced agents.
Boutique brokerages are also more flexible with branding regulations. Agents have creative license to build themselves a brand without as many constrictions, which can help new agents create a standout brand for themselves from the start.
The primary disadvantage of working with a boutique brokerage is that the available budget for marketing materials and other resources is likely to be significantly lower than that of a big chain. Brand recognition may be harder to achieve and will be limited as a rule to the areas the boutique serves. Agents may find it difficult to maintain their reputation in other areas should they decide to do so given the lack of brand awareness in other locations.
11. Grow your business
Real estate is a challenging industry to enter. Competition is fierce, and there’s plenty of it.
Getting started can feel daunting, especially if you’re fresh from earning your real estate agent or broker’s license. Where to begin?
An essential marketing tool in any real estate professional’s toolkit is networking. Making connections and establishing your credibility is a crucial step, but remember to choose quality connections over quantity. For example Property Valuers Brisbane – Call For the Best Valuations Service and start your networking.
Consider a targeted approach to find people at networking events that can help you realize your goals. You want to build a diverse network of individuals and businesses who can provide advice, assistance, sales leads, or help you “level up.”
Set up a CRM
Real estate businesses run on relationships. How well you track these connections and manage your contacts can dramatically affect how successful your business is.
What you need is customer relationship management or CRM.
Use a robust CRM to organize all of your leads, contacts, and network connections. As we said in our look at the Top 9 CRM for Small Business:
A customer relationship management system is a way to track and analyze all of the interactions you have with your customers and prospects.
By collecting customer information, you can simplify and scale engagement by capturing all of the communications your company has with its customers.
You never know where your next referral or customer may come. CRM gives you the ability to shape the customer experience and optimize your interactions, so you’re always ready for that next lead.
Contact your leads
Once you start tracking your leads in a CRM, it’s time to reach out and engage with them. Studies show that the longer a lead sits unanswered, the lower the possibility that it can be converted into a sale: from 80% if you reach out immediately to 20-35% if you wait 30 minutes or more.
Before you contact a lead, however, do some research. Have some questions ready and be prepared to answer some, too. Have answers to some of the common questions written down and above all, be positive and have an open mind.
The focus is on quality instead of quantity. Spend the time to create a rapport with prospective customers and talk to them as if you were talking to a friend. You are there to help.
Ask for Referrals
Referrals are a significant source of leads for real estate businesses. Once you’ve established a successful relationship with a customer, don’t feel shy asking for a referral.
Often if you do your job well, there’s no added effort required to get a referral. People are generally happy to share with others a positive experience they had working with someone. A brief reminder at the end of doing business with a customer can help nudge someone who might otherwise forget.
Satisfied clients are just one source of referral business, however.
In addition to friends and family, business associates and people in your social and professional networks can help expand your pool of referrers.
When asking for a referral, don’t beat around the bush. A straightforward request like, “I would appreciate your help in growing my business. Would you feel comfortable leaving me a review, or referring anyone you know that needs my services to me?”
There are many resources available for putting such a request out there, especially on the internet. Consider using email campaigns featuring enticing perks or freebies for the first number of clients to refer your business. You can also reach out to existing clientele through social media platforms, which is an easy and more personal way to engage with your connections.
There’s a lot to think about when you’re starting your own real estate business.
The above eleven steps will give you an advantage and will help get you started on the road to owning a successful business of your very own.
Additional Resources for Real Estate Agents and Brokers
Here are additional useful resources for real estate agents and brokers:
- Inman News (leading independent real estate news service)
- Realtor.org (official membership site for the National Association of Realtors (NAR)
- Realty Times (leading news and advice site for real estate consumers and professionals)
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We regularly update this guide to keep it current. It was most recently updated on January 14, 2020.
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