Are You Keeping Up With These Two Metrics That Save You THOUSANDS of Dollars?
1. You’re in the business of marketing
4. How this translates to growing your business
Are you keeping up with these two metrics that save you thousands of dollars?
I want to talk to you about two metrics that if you’re not tracking these in your real estate business, you are literally leaving tens of thousands of dollars on the table. These two metrics I didn’t know about in my career. I actually watched the wrong things for years and years and years. Too many agents still watch the wrong things, and the main reason why is because they think that they are in just the business of selling real estate.
You’re actually in the business of marketing.
What I want you to think about that is if you’re in the business of marketing, what are you doing to market yourself differently to attract customers to do business with you above and beyond all other options, including any competitors in your marketplace?
The simple question is, what’s the reason to do business with you?
Now, I don’t want to get into that right now. What I want to get into are these two really critical metrics for you to track that, again, most agents don’t even know exist. I do this on a regular basis in our business.
If you believe what I told you that you’re actually in the business of marketing, these are the metrics to watch. Now, if you don’t believe that, I’ll prove it to you. When somebody goes to list their home with you, what’s your job at that point? It’s to put it on the market, which means market it, which means marketing, and so that’s the business you’re in. You’re in the business to market, you’re in the business of marketing and most agents just think that slapping a sign in the yard or putting it in the MLS is good enough. That’s not enough to differentiate you.
This is your customer acquisition cost. Now, most agents if they have online lead gen or they pay for things like Zillow or Realtor, for example, if they’re disciplined they’ll measure what’s called the cost per lead. That simply means if you have pay-per-click advertising, for example, and you are paying per click, just as it sounds, let’s say it’s a dollar per click and every time somebody clicks they go to your websites, 10 clicks equals 10 bucks. Out of that 10 bucks, if one person fills out the form on your website, your cost per lead is 10 bucks.
Now, this is what I walked around looking at in my real estate career for years. I didn’t understand customer acquisition costs and it’s very important to know this metric. The reason why is it will make you much more bold and spending money in order to make it back, so your customer acquisition cost would be as follows:
Let’s say that your cost per lead is five bucks, that means every time somebody fills out a form, it costs you five bucks. Let’s say it takes you 50 leads to get one client. That would be a $250 customer acquisition cost. Let’s say it takes you a hundred leads to get to one client. That’s a $500 customer acquisition cost,
$5 a lead X a hundred leads to get one sale out of those leads = $500 customer acquisition costs.
(Lead Cost (CPL)) X (Lead to Client Rate) = (CAC (Customer Aquisition Cost))
Now, let’s say that that’s exactly where you’re at and your average commission in your market… let’s say that your average price range is 200 grand. I think that’s a pretty decent round number for most markets in North America, and your average commission, let’s say 3%. That would be a $6,000 commission, so that’d be $6,000. Literally, what you’re doing when you understand this metric is you’re trading $500 to get $6,000. I don’t know about you, but that’s a pretty good business model to me. The challenge is, most agents walk around, they look at their cost per lead or they look at their cost of their advertising and they never understand this metric.
The second metric is what’s called your cash conversion cycle, your CCC. Now, I didn’t know this metric myself, didn’t test track it, didn’t have any idea. I just knew if I kept spending X amount of dollars I’d get Y amount of leads and that would Z amount of transactions on a regular basis, or at least a cumulative average over a quarter over half of the year. Your cash conversion cycle means simply this:
If you spend that $500 and you get 100 leads and that equals one commission or $6,000, how long did it take you from the time you spent that 500 bucks to get back that $7,000?
If you got a hundred leads for 500 bucks, that’s going to take you about 30 days, so the first 30 days is going to be in the lead generation time. Let’s say that that’s a 30-day timeframe and let’s say that they’re a buyer lead. If they’re a buyer lead and you just start working with them, even if you find them a house today, you still got to wait 30 days for that sucker to close. I’m just using simple numbers here to give you a concept and get awareness around these metrics.
Let’s say that that’s the case, so 30 days to go through and sift all of the leads after you generated them or to generate them and sift through them as they’re coming in, find them the right house, which normally it’s going to take longer than that. It’s going to take a couple of weeks, but let’s just say it’s another 30 days from that date to close. That’s a 60-day cash conversion cycle. Now, most of the time it’s actually going to be closer to probably a couple of weeks of working with them, once you’ve got them as a customer, showing them homes, then writing them up. But for the sake of this example, it’s 60 days for your cash conversion cycle, which means you can spend $500 and in 60 days on average you’re going to get back $7,000.
Spend = CAC (Customer Aquisition Cost)
Wait = Average Time to Close Sale
Recieve = Commission
Now, these are rough numbers. I’m just giving you an idea, again, of the concept of how to track these things. I’m not promising anything and I want to make that distinction because I don’t want to confuse anybody. But, if you know you can spend 500 bucks and in 60 days you’re going to get back $6,000 commission, you’ll feel a lot better about spending that $500 up front.
Now, here’s why a lot of agents, this costs them so much money because they don’t know these metrics, they don’t know these numbers. What happens is they’ll spend the money. They don’t know when they’re going to get it back. They don’t know how much they’re going to get back and, obviously, this divided by this equals your return on investment. If you know if you spent 500 bucks today, 60 days you’re going to get back 6,000 would you be willing to spend 500 bucks a day? I don’t know about you, but even if I didn’t have 500 bucks a day, I will go find it. It wouldn’t be a lack of resources at that point. It would be a lack of resourcefulness if I didn’t go get 500 bucks knowing I would get $6,000 back in 60 days.
How this translates into growing your business
This is the way that you run your real estate business like a business and understand marketing, the business that you’re actually in for yourself and for your customers, in order to grow at will. Once you’ve got these numbers down, you can simply double the $500 ad spend in order to double your business, which is wonderful. That’s when you can really grow at will. That’s when you crack the formula, so to speak.
Hopefully, this resonated with you. If you’d like some help with these things, that’s what we do here at Market Maker. I’d like you to go to marketmakercall.com, watch a short video on how we generate leads for you, nurture those leads in a way that elevates your status and authority and the might of those leads, and then ultimately delivers them to your calendar as a pre-positioned appointment. It is exclusive. It’s one agent per zip code. Again, it’s marketmakercall.com. Go check it out. If you like what you see, fill out the form and we can talk to see if we’re a fit to do business together. In the meantime, start tracking these things. This is very important for your business. Thanks so much for reading. Make it a great day.