A Realtors web marketing budget what should it be?...
How much can each unique visitor cost me? And a bunch of other questions I might want to know if I was a Realtor
Ok guys, this is a bit of a long one and it jumps around a lot (because I am writing as I work through my thoughts, but hey that's why we have blogs right?
I really found it interesting once I got into writing it and I hope that you will as well. Check it out and give me comments, as I have really been thinking about this a lot lately and I think a lot of others have been as well given the current economic scare contrasting against the "new year I need to get motivated" mentality.
Ok I started with some numbers (I am pretending I am a Realtor here)
Average commission (based on 3% commission and $300,000 average
sale price) = $9000 USD (You will need to factor in your own spit
with broker and any other costs associated with processing a
transaction) - To make this easier though, I am just going to call
it a flat $3000 per 100k.
Minimum website conversion rate goal (Unique visitor to lead) for me this needs to be 5%. This means I need 5 leads every 100 absolute unique visitors as an average over time. If yours isn't you have some work to do on your website or perhaps you need a new one. (And yes you should enable registration)
Minimum lead to sale conversion rate: Again for me, I think that this needs to be a minimum 1% average over time. This means that for every 100 valid web leads that you receive (they give a real name, and either email address or phone number) you should be able to convert them into a closed transaction.
Ok so in my mind (for this excercise) I am not exceptional, and I am not terrible either - I am IMHO, an "average" Realtor with a good website and proper IDX. If you are an exceptional Realtor (in terms of the processing of web leads) I think you could get a lot higher in terms of lead to sale conversion % which will basically add 100% to your earned commissions for each % increase you can acheive.
But anyways I digress - this blog post is to try to help Realtors figure out what they can afford (or what they should be spending) on their website marketing / lead generation.
An important first consideration - you don't work for free!
Obviously if any process carries a lot of financial risk, takes quality time away from your life and family and adds significant stress, you should be compensated (A break even proposition is never attractive).
So what do you need to pay yourself per transaction? What is the "minimum" earned income (after expenses) that I would love to be able to brag to my friends about - "There isn't a single customer at Real Estate Webmasters that didn't earn at least "X" after expenses (before taxes though) :-)
For me (in a perfect world) this minimum would be $75,000 USD - naturally this number is influenced (and would change) depending on many factors probably most of all "cost of living / housing" which varies so widely from region to region - but it is what it is, feel free to replace it with your own minimum pre-tax paycheck for the year if you care to go through this excercise.
Alright so can we get to some math already! (That's always fun right?)
So I need to make $75,000 USD and in a perfect world all my leads would be free, so I can just divide that by $3000 to figure out how many $100,000 multiples (in terms of closed dollar volume I need) right? Sure why not - some simple math says that I need to sell 2.5 million dollars in real estate in order to earn my 75k right? But we all know that it costs $ in real estate to sell property (either side) - so how much does it cost? This is where I am really looking for some comments from Realtors after my post. How much of your commission check are you willing to give up (all in) in order to close a transaction? 30% 40% 50% 60%? (This includes split with broker and all other associated costs inluding web marketing and lead generation AND my website / IDX itself) for me the magic number is 50% - (I am assuming I am in a market with $300,000 here for my little demo).
Ermm ok, even I am starting to get a bit lost here - I think I need a recap -
I am an agent with an 80/20 split (I forgot to mention that) - I sell homes every time for $300,000 (because it makes my math easy) I have a per transaction fee of $200 and I "need" at least 50% of my $9000 commission check if I am going to be able to justify this hardass life I live as a commission based self employed person. That means I need $4500 per transaction (Each one starts at $9000)
My broker took $1800 (split) and $200 (fee) and left me with $7000 (note to self, negotiate a better split or find a new broker heh)
My chunk is $4500 of the $7000 that is left (if I play my cards right) which basically tells me that for each "closed transaction" I achieve it can have burdened me no more than $2500 USD - sweet, this is my "cost per transaction" (sometimes called cost per acquisition).
Alright - if you remember WAYYYYY back at the top of this post, I posed the question how much can each unique visitor cost me. Well, now that we have our cost per acquisition figure ($2500 USD) and we have the dollar figure that we want to "earn" (pre-tax) of $75,000 and we have the rest of our costs factored in (which left us with $4500 USD in our jeans) I think we have all we need.
First - let's figure out the transactions and get those out of the way. To earn $75,000 USD after costs and before tax if you are able to keep an average of $4500 per commission check you need to close on 17 deals at 3% average sale of $300k - This sounds totally do-able does it not? (Assuming you have the leads of course)
And based on the numbers I started with above you are going to need 20 unique visitors for 1 lead (5% conversion) and 100 leads for one deal to close (1% lead to sale) so you need 2000 unique visitors to close one deal. (I also think this sounds MORE than reasonable. And now you need to close 17 deals to reach your $75,000 so you need 34,000 unique visitors over the course of the year to acheive the right amount of closings AND (because you only have $2500 USD per transaction and it takes 2000 visitors per transaction your average per visitor cost can only be $.80 per visitor.
Sweet we are done! I will do all the final math for you so you don't have to.
In order to earn $75,000 USD per year selling $300k houses on an 80/20 split your website and web marketing budget must be exactly $27,200.00 USD.
Some alternate scenarios to consider:
Improve your website conversion: This example was based on 5% - if you were to be able to improve your website conversion to 10% you could earn the same amount of $ at only $13,600 or better yet with the same $27,200 investment earn $150,000 USD in commissions (AFTER) expenses.
Improve your lead to sale ratio: I honestly believe anyone who applies themselves HAS to be able to able close 1% of leads over time but I have had MANY members and clients report significantly higher numbers, especially from very targetted campaigns such as PPC campaigns - so keep in mind for every 1% increase in lead to sale you increase your yearly paycheck by $75,000 USD (If you could close em at 5% you would earn $375,000 AFTER your $27,200 cost is already covered.
Now I did base this on $300,000 USD average sale - if you are in a $100,000 USD per sale market you can basically cut the commission figures by a factor of three while keeping the costs the same and if you are in a $900,000 per sale market you can just as realistically tripple the income figures while keeping the costs the same.
You will need to change the numbers if your split is different, you have higher or lower per transaction fees etc, etc but hopefully this post gives Realtors some perspective about web marketing and what it takes (and costs) to earn a living from the web.
Btw - if you are lazy or not so good with numbers, by all means fee free to post your stats in the comments section of this blog post, and I would be happy to crunch the numbers for you. What I would need would be:
- Average home sale price in your market
- Commission rate (if different than 3%)
- Agent / Broker Split
- Per transaction fee (if any)
I think it would be really interesting to see how things might shake up when applying some real data.(PS It's really late, and I reserve the right to go in and edit this post to make more sense after reading it in the morning.)