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How to ensure your lead generation budget isn’t crippling your business
This sound familiar?
You saw a great lead generation strategy and after you watched the webinar, looked at the website and talked with the salesperson...you were in.
It’s 90 days later and you’re not sure if it was worth the money.
Unfortunately, you weren’t tracking the results you were getting and now, it’s not easy for you to make a definitive decision as to whether or not you should jettison the whole thing or continue pushing forward.
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This scenario is extremely common in the real estate industry and unfortunately, it’s threatened the very existence of many an agent’s business.
And real estate leads aren’t cheap.
To this day, unfollowed-up-leads, poorly-followed-up leads, poorly-augmented-leads and leads that were too expensive are the biggest source of financial bleeding in most real estate companies.
Not all is lost, however.
With a little attention to detail and knowing what to look for with respect to the results you get from your different lead sources, you can make sure that all of the leads you’re using are worth the money you’re investing in buying them.
5 C’s of Cost Effective Lead Generation
Which one of these metrics need the most attention in your business;
Customer Acquisition Cost (CAC)
Your Customer Acquisition Cost is the cost associated with getting a consumer to buy or sell a house with you, including research, marketing, advertising, prospecting time (including an Inside Sales Agent) etc.
The goal is to spend less to acquire a customer than what that customer will provide to you in net return by doing business with you.
CAC can be calculated by dividing all the costs spent on the various process and strategies to acquire your customers by the number of customers acquired over the period of time the money was spent. For example, if you spent spent $6,000 on marketing in a year and acquired 60 customers who bought or sold in that same year, their CAC is $100 each.
Now, the simple way to reduce your customer acquisition cost and make your sale more valuable is to spend less per customer.
That said, lowering your CAC doesn’t necessarily mean you’re going to increase the amount you earn per transaction.
The other side of the equation is to increase the value of each customer you bring in the door. In real estate, you can do that by:
Increasing your average sales price
Improve your conversion, having to speak and meet with a smaller number of people to get a deal done
Get repeat customers where you don’t have to pay to get their business on subsequent purchases
Get referrals from the customers you generate so you don’t have to pay to get their business either
Increase your commission and collect an admin fee on your transactions to make each transaction more profitable
When you do this, you can invest more into lead generation and even lower your CAC at the same time.
The important thing is that you track it like a fiend and make sure you’re spending is in line with your results.
More importantly, you want to only give your lead generation strategies 90 days to prove their worth before you make major adjustments or jettison them altogether.
Don’t hold onto a lead source for a long time hoping it will pay great dividends. It can cost you a lot of money and lost opportunities.
Cash Conversion Cycle (CCC)
The Cash Conversion Cycle measures the speed at which a real estate company can convert cash on hand into clients, then into sales of homes, and then back into cash.
More specifically, the CCC tells you how long it will take you to get your money back on any investment you make in the growth of your business.
For instance, on lead generation, the CCC on an investment in expired and FSBO leads is likely going to be shorter (and less expensive) than a direct mail campaign to a neighborhood that you’re farming.
As well, the CCC on a direct mail campaign will likely be shorter and less expensive than that of a billboard.
You get the picture.
What’s important for you to realize here is that you need to make sure you have enough core capital in your bank account to sustain your business in order to make certain investments in lead generation and conversion strategies.
My suggestion is that you have at least 90 days business expenses in the bank before you start swinging for the fences so to speak.
The same thing goes for hiring people.
Before you hire someone to join your team (not including sales people) make sure you can handle paying their hourly rate/salary for at least one sales cycle...90-days-plus salary reserves should suffice.
Unfortunately, the CCC is a calculation that many real estate agents haven’t paid a lot of attention to historically. Instead, they’ve thrown money irresponsibly at lead generation strategies only to find out they got little to no return on their money while putting their businesses in jeopardy at the same time.
In most cases, it’s not their fault as they likely weren’t aware of the CCC. Now that you are, please take heed and make sure you know how long it will take to get your money back when you spend it.
Cost Per Lead (CPL)
The Cost Per Lead metric measures the cost-effectiveness of your marketing campaigns as it relates to generating new lead. For the purposes of this discussion, a lead is someone who has expressed interest in buying or selling a home with your team.
It’s closely related to the CAC metric I discussed earlier in this post. However, the purpose of this metric is to provide you with the bottom-line dollar it costs to generate a new business opportunity for your team and nothing more.
The ultimate goal, of course, is to minimize the cost per lead. A low cost per lead with a high volume of quality leads is good indicator that your campaign is doing well, but if your cost per lead is too high, continuing the campaign is extremely difficult to justify.
It’s also important to note that your costs are going to vary by lead source, so you’ll want to know your baseline for each source of leads you pay for and understand if the returns warrant the costs on a consistent basis.
Cost Per Appointment (CPA)
Even if you don’t have an Inside Sales Agent ( ISA ), it’s important that you track your Cost Per Appointment.
Like your CAC, and even your CCC to a certain extent, your CPA takes into consideration the lead source, conversion strategies and skill sets of your sales people as part of the metric.
For instance, your ability to convert over the phone and face to face have a huge impact on your cost per appointment.
If you’re good on the phone and can get appointments, then your CPA is going to be lower. To that point, your CPA can and will vary based upon your strength in converting each listing source over the phone.
To determine your CPA, you’ll need to know the following:
The type of lead you’re calling
How many leads from each type of lead you need to contact to set an appointment
The cost of each of those leads
How many hours of prospecting it takes you to set an appointment
Your value per hour
Once you know these metrics, you can determine what it costs you to set an appointment for yourself.
If you have an ISA, then you would would figure in your ISA’s cost per hour and the bonus he/she would get when that appointment turns into a sale.
There was a study done by Vendere Partners a few years back on how many NO’s it took to get a YES when cold calling.
After taking into consideration a number of variables with respect to data and conversion, the study determined that it took about 118 NO’s to get a YES.
Now, had they determined the cost of the data and the hourly rate it took to get all those NO’s on the way to their YES, then they would have known their CPC.
CPC is important because it can help you create a tremendous amount of predictability in your results by understanding the time and effort it takes to get a contact. As well, it can help you from overspending on leads and hourly prospecting because you’ll know how much time you need to spend on the phone and how many leads you’ll need to call to get a contact.
Once you have that contact, you can then extrapolate how many contacts you need for an appointment, a met appointment, a listing taken and a sale.
Armed with that data, you can reverse engineer your numbers to figure out how much it will cost you to make enough contacts to get a sale.
The power of predictability in this case can be very rewarding financially as it will help you scale your prospecting efforts while helping you reduce costs on lead and manpower expenses.
Excellence, my friend, is in the details
The better job you do at tracking the details for the things that impact your business, the more excellent your results will be.
Are there other metrics you can and should track? Absolutely.
But for now, staying on top of these 5 can have a geometric impact on how much money, time and energy you save and make in running your business.