Using a PPC ROI Calculator to Estimate Your Real Estate Advertising Returns
By Courteney McDonnell
“I’ve been burned in the past.”
“I don’t have the money.”
“I don’t want to deal with nurturing online leads.”
I often hear these phrases when discussing lead generation with real estate professionals. It makes sense though. Investing, in anything, often suggests that you’ll see an immediate return. When investing in online advertising, though, leads come in but aren’t necessarily ready to speak about next steps. The leads might not even be legitimate (e-mails bounce and phone numbers are dead ends). The feeling of being “burned” is an understatement in many of these cases — especially when you entrust that investment with someone else. But when NAR estimates that 52% of people begin their home search online, online advertising is an option that’s hard to ignore.
Why Calculating Your ROI Matters
Before investing in online advertising — whether you handle it yourself or outsource it to a professional — you must calculate your potential return on investment. It sounds obvious, but it can be challenging to figure out on your own. It’s almost harder than calculating return on tangible items. You should invest expecting to grow your business.
Define the Variables
What are the constants in the equation? Let’s begin with some current common factors:
- The average close rate of an online lead is 2.0–4%.
- Let’s also consider that, on average, it can take 4 – 6 months to close an online lead.
For this reason, you should think about calculating on a 12-month period.
Now, consider some of your own averages:
- What is your average selling price?
- What is your average commission?
Once you’ve considered all of your numbers, take a look at the following formula. Use this format to help you calculate your potential ROI.
Here, we’ve applied a few example numbers:
In this example, the agent is seeking 30 leads per month (around 360 leads per year). The realtor’s average close rate of an online lead is 2.5%, the average selling price in his market is $250,000.00, and his commission is typically 2.5%. This return looks nice — a shiny red number that suggests a return of over 56k, even with lower variables. What’s missing? The amount he invested. This is where budget, market averages and your own research come into play.
“One way to keep momentum going is to have constantly greater goals.”
— Michael Korda
How to Determine Your Budget
At this stage you should decide whether you will manage your own online advertising or outsource to a team of professionals. Regardless of the route you choose, here are some terms you should be familiar with:
- “Cost Per Lead” (or CPL). Vendors will likely provide an estimated CPL in your market. The estimates may vary.
- It’s also likely you’ll hear the term “adspend” (the amount of money you’re willing to invest in online advertising). For the purposes of this article, “adspend” is synonymous with “budget.”
Let’s say you’ve called a vendor and the rep estimates the average CPL is $20.00/lead. If you’re looking to get 30 leads/month and the potential, yearly return of $56,250.00 (as demonstrated above), you should expect a monthly adspend of around $600.00/month. You should adjust this budget based on your needs and desire to grow, but know that if you cut on budget you’ll have to do more work on the lead management end to secure the same numbers you would with a fuller budget.
Improve Your Return
Expecting a bigger return? Consider investing in a CRM or marketing automation tool so that you’re better with nurturing leads. The proposed example assumes your close rate is at the low end of the market average (2.5–3%). Real estate agents who apply lead nurture best practices can see close rates increase to 5–6%. You probably don’t have time to continually send e-mails and call the leads. That said, one e-mail and one phone call usually won’t cut it for online leads. A CRM or marketing automation tool that offers drip campaign functionality will automate a portion of the lead nurture process.
If you have a flexible budget: Increase your monthly budget. Consider advertising in multiple channels (like Google AdWords, Facebook and Bing).
If you don’t have a flexible budget: Consider lowering your monthly budget and settling for fewer leads per month. Then, upon closing some of your leads, you’ll be in a better position to reinvest part of that return into your lead generation budget.
If you outsource to a team that manages online advertising campaigns: Find a vendor that provides insight and updates. Start slow if you opt to manage your own online advertising — don’t try to conquer every ad outlet all at once. Set your budget for the month and ensure your daily adspend fits within that budget.
By estimating your return and accurately determining your budget, you’ll be better prepared to get the most out of your advertising dollars and grow your business with online leads.
Did this post help you accurately calculate your advertising budget and ROI? Let us know in the comments below!
Published on May 9, 2014