If I could pick one metric to fully eliminate from the real estate industry it would be CPL. (Cost per Lead)
This metric has caused thousands to waste millions of dollars, structure their businesses poorly, and waste countless hours of time. Long before entering the RE industry I worked as an affiliate marketer. I get paid $X per lead, and my cost is $Y per lead. The difference was my profit. I can attest first hand that living, and dying by the magical CPL is a pretty horrible way to live, and run a business. (that’s why I got out of that racket). Now let’s get into exactly what’s so messed up about this CPL business so we can all join the road to recovery.
1. Your ROI is Ridiculous:
I hate you guys. As an affiliate marketer I used to spend thousands of dollars per day, and was lucky to make a 25% return on my spend. (usually it was negative %) Today I see brokers spending $500 per month; that’s $16 per day folks, and making ROI’s in the several X,XXX%. According to the NAR 2015 Member Profile less than 2% of you spent more than $15,000 on marketing last year. That’s just absurd. Now I’m not saying you should max out that credit card just yet, but if you’re getting a steady return on an investment with a traffic source like Adwords or Zillow then your focus should not be on reducing CPL. It should be on spending more! Yes the law of diminishing returns will come in to play here, but with your average ROI; worrying about going from $8 per lead to $14 is just stupid, and short sighted.
2. How People Buy Homes .vs. Supply and Demand.
Here’s probably the only 2 things that a real estate professional needs to understand about Search Engine Marketing (SEM).
1. This is how online home shopping works.
- City: Charleston, SC = 1,317 homes for sale
- Area: James Island, SC = 273 homes for sale
- Neighborhood: Bayview Farms = 4 Homes for sale
City –> Areas –> Neighborhoods. This is the cycle every online shopper goes through. More people start their search at the City or Area level than at the neighborhood level. Many Agents understand the concept that the person who is more at the neighborhood level is further along in the process, and plausibly more likely to buy. Again MANY agents understand this, and because traffic is fairly proportional to the number of results an economics 101 situation occurs.
Lots of advertisers + Little searchers = High Cost.
Google gives zero shits about the cost of the homes being advertised. “Luxury” keywords do not command a premium because the properties are mansions. All that matters is that fewer people search Luxury, and lots of realtors advertise luxury so the cost per lead is high. Over the past few years those of you advertising online have probably noticed an increase in cost per lead. No Zillow & The Google are not out to get you; it’s just that the market is doing better, and more agents are willing to buy advertising.
3. Comparing Pineapples To Peanuts:
Apples and Oranges doesn’t do it justice for how far fetched I’ve seen agents/brokers compare traffic sources, and lead gen systems. Simply put using the same examples we saw before; If you want to go after luxury only or further along leads then you’ll have to pay. I see agents debating on where they should be spending money between Zillow, Adwords, and Facebook all day long; when those sources aren’t even on the same planet as each other.
Want the best advice? All of them. Day one in the real estate biz? Probably Zillow. Have a growing team of hungry agents to feed? Probably Adwords. Have a good mobile presence, and have well sorted system for working online leads? Now add in FB.
What makes this issue so complicated is the varying CPLs. Zillow is way more expensive than adwords, and even more so than facebook.. Throw CPL out the window, and what do you really have?
- Zillow: People inquiring about specific properties. People under the impression they’ll talk to an agent.
- Search: People are searching for something specific. This could be a house or just browsing a city.
- Facebook: People were bored at work , and aimlessly looking for something to capture their attention.
Think of it this way, and it’s pretty clear that zillow/search are a solid way to get in touch with active shoppers. All of them have the potential to feed you tire kickers, but some more than others. I love FB ads, and it’s a fantastic lead gen source, but I’ve noticed a lot of folks going full tilt on FB for nothing other than lower CPL. Frankly they don’t have the teams in place to handle that volume of tire kickers.
So to wrap up my little rant…
- Focus on what your business needs from lead gen not just the costs.
- There will be competition, CPLs will fluctuate. Don’t base your business model on them.
- All Leads are not created equal.
- Your ROI is crazy high. Focus on selling, prospecting, and team growth and you’ll make a lot of money.
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