ROI for Real Estate PPC
What type of ROI should you expect from real estate PPC? How do you increase the ROI of real estate PPC?
In this section of our real estate PPC guide, we'll cover the factors that go into balancing the expenses and commissions you can earn from PPC with some advice on how to improve your return on investment.
- Calculate Your PPC Budget
- Calculate Your Gross Commission Income (GCI)
- Calculate Your ROI
- How to improve your ROI from PPC
Calculate PPC Income
Real Estate Webmasters has a handy tool for calculating the potential return on your PPC investment. Click on the image below to give it a try...
Above: A preview of Real Estate Webmasters' PPC income calculator
How To Set Your PPC Budget
In our last blog, we covered the expected cost of real estate PPC. If you haven't read it, now's the time!
To set your monthly PPC budget, you'll need to determine the following:
Expected Cost Per Lead
According to WordStream, the industry average cost per lead in 2018 was $116.61.
Contrast this to Real Estate Webmasters, where our PPC clients averaged a cost per lead (CPL) of $21.06 in 2018—approximately 1/5 the average industry cost.
That said, we've seen cost per lead range anywhere from $5-50 for REW clients. This is based on factors like your competition, your market, your website conversion rate, and the skill of your PPC specialist.
Example: Let's assume I'm the average REW PPC client, so I'll estimate a cost per lead of $21.
Lead Volume Target
We recommend generating 1-2 leads per agent per day.
Example: Let's generate 1 lead per day for a single agent.
PPC Program Fees
Most PPC agencies will charge a fee on top of your ad spend, typically as a percentage of your budget.
At Real Estate Webmasters, your total monthly PPC budget includes a 25% program fee.
The program fee is the small portion of your overall budget that we collect to personally manage your campaign. This includes a multitude of tasks, including writing your ads, building the campaign in Google Ads, creating landing pages on your website, developing high-performing keyword lists, regularly analyzing and optimizing your campaign, communicating those results to you, and more.
There's a lot that goes into it!
Example: We'll use the 25% PPC program fee.
Calculating Your Annual PPC Budget
We'll determine our monthly PPC budget with the following formula:
PPC Budget = Cost Per Lead * Lead Volume / (1 - Program Fee)
Plugging in our example figures:
PPC Budget = $21 cost per lead * 30 leads per month / (1 - 0.2 program fee) = $787.50 per month
This equates to an annual PPC budget of $9,450.
Other Technology Expenses
Depending on how much traffic you're driving to your website outside of PPC, you may want to consider your website costs as part of your PPC expenses.
Example: In our case, let's assume I'm a brand new agent with 0 traffic outside of PPC. To be conservative, I'll incorporate my entire website cost into my ROI calculations.
My website setup fee is $5,000 and my monthly SaaS fee is $499, so my total annual technology cost for my first year is $10,988.
Total PPC Investment
Adding these two expenses together:
Total investment = PPC budget + technology expenses
Bringing these all together into one figure:
Total investment = $9,450 annual PPC budget + $10,988 technology expenses = $20,438
In summary, if I'm an agent who's just invested in an REW website and I'm looking for 1 lead per day with a cost per lead of $21, I can expect my first year expenses to total $20,438.
Calculate Your Gross Commission Income (GCI) from PPC
Let's get to the good part: What type of Gross Commission Income (GCI) should you expect from PPC?
Above, we set our monthly budget based on our anticipated lead volume.
Example: In my case, I'm aiming for 30 leads per month, or 360 leads per year.
Lead-to-Sale Conversion Rate
How many PPC-generated leads will you turn into real-world sales?
Based on past client performance, we consider 2% to be a reasonable conversion rate for agents who practice diligent lead follow-up.
Most agents fall within a 1-3% lead-to-sale conversion rate.
Of course, this is where your skill as an agent comes in. A great agent can improve this figure with a strong follow-up strategy, compelling branding, and a reputation of past sales.
We'll cover how to improve lead conversion rates later in this PPC blog series.
Example: I will use 2% as my sales conversion rate.
In most markets, the buyer's agent and seller's agent will each receive 2.5-3% in commission of the home's sale price.
Example: I make 3% commission per sale.
Whether you're an agent or broker, you'll need to factor in your commission split.
Commission splits range from 50/50 all the way to 100% depending on your brokerage and production as an agent.
If you incur a per-transaction fee, you'll also want to factor that in.
Example: I have a 60/40 split with my broker and a $0 transaction fee, which is typical for most mainstream agents.
Average Sales Price
Of course, your average sale price will be perhaps the biggest factor that impacts your bottom line.
Example: I sell homes at an average price of $350,000.
Gross Commission Income (GCI)
Putting it all together, let's calculate our income from PPC in three steps:
Expected sales = Annual PPC Leads * Lead-to-Sale Conversion Rate
Income per sale = Side Commission * Commission Split * Average Sale Price
Expected GCI = Expected Sales * Income Per Sale
Example: Condensing these calculations with our numbers into one figure:
Expected Sales = 360 leads * 2% Lead-to-Sale Conversion Rate = 7.2
Income per Sale = 3% commision * 60% split * $350,000 average sale price = $6,300
GCI = 7.2 sales * $6,300 income per sale = $45,360
Not too shabby.
Expected ROI from PPC
ROI is calculated as the growth you earn on your investment. To be clear, an ROI of 100% means you've doubled your investment.
Here's the calculation:
ROI = (Return - Investment) / Investment * 100%
Summing everything together from our example:
ROI = ($45,360 - $20,438) / $20,438 * 100% = 122%
What does this mean? An average agent running PPC with Real Estate Webmasters who sells homes at an average of $350,000 will likely more than double their investment.
How to Improve Your ROI from PPC
How much can you impact the ROI you receive from PPC? A lot.
While some factors are more or less out of your hands (side commission, split with broker, average sales price), there are a few levers you can pull to impact your ROI in a big way.
1. Lower Your Cost Per Lead
As we discussed in our cost of PPC blog, there are two main ways to impact your cost per lead:
- Improve your Cost Per Click (CPC)
- Improve your website conversion rate
The best way to improve your Cost Per Click is to hire a PPC specialist with experience running real estate campaigns. High-quality ads, regular campaign optimization, clever keyword targeting, and letting the campaign run for at least 6 months will go a long way to keep costs down.
To improve your conversion rate, you also need great landing pages. In real estate, that means a beautiful website with clearly displayed listings. Using forced registration is also the key to capturing more leads.
To give you a sense of cost per lead's impact on ROI, here's a comparison of ROI with a $10, $21, or $30 cost per lead.
$10 CPL = $193% ROI, $21 CPL = 122% ROI, $30 CPL = 85% ROI
The take home message? Effective campaign management and a great website can go a long way to improving your returns.
2. Generate More Leads
Your website and SaaS costs are fixed. Therefore, the more leads you generate on top of that, the more you get out of your investment.
There are two ways to generate more leads:
- Achieve a lower cost per lead for the same budget
- Increase your PPC budget
Above, we discussed how to achieve a lower cost per lead. But if your campaign is already optimized, your only option to generate more leads is to increase your PPC budget.
Let's go back to our example. Say I've decided to generate 60 leads per month instead of 30. Yes, my PPC budget has to double, but because of the fixed cost of my website, my overall investment only grows by about 50%, while my sales grow by almost 100%.
30 leads per month = 122% ROI, 60 leads per month = 204% ROI
That's why we always recommend setting your PPC budget as high as you can comfortably manage.
Disclaimer: You can only work so many leads. Make sure that you or your team are ready to handle a higher volume of leads, as to not impact your sales conversion rate.
3. Improve Your Lead-To-Sale Conversion Rate
This is the big one. Your skill and diligence as an agent is the single best way to improve your ROI.
Let's look at the difference in ROI between a 1%, 2%, and 3% close rate, everything else being equal.
1% Conv. = 11% ROI, 2% Conv. = 122% ROI, 3% Conv. = 233% ROI
As you can see, conversion is everything. But what is the difference between a 1% agent and a 3% agent?
The answer: Lead follow up.
The truth is that most agents don't do a thorough enough job with online lead follow-up. Agents will often get discouraged by fake names and emails, or leads who aren't willing to buy as quickly as a referral might be.
In our next blog post, we'll discuss how to improve PPC sales conversion rates, but here are some quick tips:
How to improve your lead-to-sale conversion rate:
- Speed to Lead - Contact every lead within 5 minutes
- Follow Up - Don't give up. Try to make first contact at least 7 times.
- Hire an Inside Sales Agent - If you're too busy to call your leads, hire someone else to.
- Create Scripts - Perfect your sales pitch.
- Automate Follow Up - Use saved searches, action plans, and email drip campaigns to your advantage.
- Track Your Success - Tracking your conversion rate will make you more likely to hit your targets.
- Campaign Feedback - Tell your PPC specialist which lead types are converting to sales.
4. Keep PPC Running Long Term
One common mistake is giving up on PPC after only a few months because there hasn't been an immediate return.
But the longer you run PPC, the greater ROI you'll see.
Why staying with PPC long-term improves your ROI:
- Cost per lead - CPL tends to decrease over time as the campaign optimizes
- Sales cycle - Many online leads take 3-12 months to turn into sales
- Follow-up process - You will perfect a follow-up process that works for you over time
- Campaign feedback - Your PPC specialist can start to target leads for which you see the best results
- Upfront cost - The initial cost of a website isn't a factor in year 2 and 3
- Reinvestment - Investing the returns of PPC into a greater budget can exponentially grow ROI
- Future business - Closed buyer leads will turn into future sellers and referrals
On average, Real Estate Webmasters PPC clients see great Return on Investment from PPC, typically in the range of 100-200%.
Of course, no investment is foolproof. This isn't a get-rich-quick scheme.
However, with savvy campaign management (from your PPC specialist) and diligent follow-up (from you)—we're extremely confident you'll see great returns from PPC.
If you'd like to turn your website into a true investment, our PPC team is here to help.
Contact us about PPC to learn more.