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Calculating Conversion Rates for Real Estate Leads

Calculating Conversion Rates for Real Estate Leads

Posted by Jon Yourkin on May 25, 2018 3:32:58 PM

Last year I had a blast during my webinar discussing how to optimize the real estate funnel from top to bottom. During my webinar, I received a lot of questions about calculating conversion rates for real estate leads. And one of the biggest issues I hear each day after talking with Realtors is that they have no idea what the conversion rate is with their marketing efforts or marketing channels.

If this is you, don’t worry. I can walk you through the calculations I use every day when I analyze our marketing efforts here at Realvolve!

As a busy real estate agent, it feels practically impossible to sit down and understand the numbers behind your marketing efforts (given you’re probably juggling multiple things at once). But it’s really important to your business and clients that you learn how to calculate conversion rate: the rate at which your real estate leads eventually turn into clients. And as a bonus, it comes in handy when you want to hire a transaction coordinator, assistant, or new agent; when you want to invest in technology tools; or when you decide to expand into a new market.

One quick way you can gain confidence in your real estate business and marketing efforts is to know how many leads are needed to generate a certain number of clients. To do this you need a couple data points:

  1. Marketing or advertising expenses
  2. The # of leads generated
  3. The # of leads who became a client or customer
  4. Bonus: $ Revenue (more on this later)

Most businesses operate on monthly advertising budgets. So in this example, I am simply taking the number of leads generated and dividing by the number of clients or customers gained for that month. So if you generated 500 leads for April and 25 of them became clients, this is a 5% conversion rate. Not too shabby!

Here’s what the equation would look like: 25 ÷ 500 = 0.05 (or 5%). Or simply put: (# of clients or customers) ÷ (# of leads you generated).

You have your conversion rate for April (5%). Now let’s see how this can help you make “data-based decisions” about where to focus your time, efforts, and—more importantly—your marketing dollars!

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Conversion rates help you understand the end result

The habit of beginning with the end in mind was introduced 25 years ago by Dr. Stephen R. Covey in his groundbreaking bestseller, The 7 Habits of Highly Effective People, and it holds true when using conversion rates to improve your real estate business. In order to achieve your goals, you’ll need to work backwards!

For example, let’s say you want to achieve $40 million in sales, and you’ve determined that every client you gain in your business averages out to be $400 thousand. This means that you’ll need to have at least 100 transactions for the year.

Here’s how you can work backwards with your conversion rate to determine what it’ll cost to generate those clients:

Goal #1, Determine Transactions Needed: To achieve $40 million in sales, how many transactions will I need based on $400K per new customers? ($40 million ÷ $400K = 100 Transactions)

Goal #2, Calculate Number of Leads Required: To achieve $40 million in sales or 100 transactions, how many new leads will I need to generate with my marketing efforts? (100 Transactions ÷ Conversion Rate (5%) = 2,000 New Leads)

Goal #3, Cost Analysis: To achieve $40 million in sales or 2,000 new leads, what will it cost me in my marketing efforts? If you know your cost per lead (which you should), this is pretty simple: (2000 new leads x $10/lead = $20,000)

The big decision for you now is NOT how to spend $20,000 wisely, but rather how to improve your lead conversion rates!

Not all funnels are the same

As mentioned, I hosted a talk on optimizing the real estate funnel. In that talk, I had a unique section on conversion rates and how they vastly impact your funnel, based on where the lead comes from (online, Facebook, your blog, etc.). But remember, I also highlighted that not all funnels are the same. Let’s look at this theoretical example:

not all funnels are the same

You can see that one marketing channel (Google Adwords) has a higher conversion rate (5%) of moving people from an online visitor to a lead, whereas another marketing channel (Facebook Ads) has a much wider top of the funnel (more traffic), but is showing that the lead conversion is lower (2%).

But before you write Facebook Ads off as a complete failure or stop investing in this marketing channel, let’s look at the “conversion from lead to client” of this funnel. It’s at 20% and is actually performing much better than Google Adwords. WOW… this just screams… LOOK AT ME!

pick me minion

Let’s do some math!

conversion-table-real-estate-leads

Even though Facebook leads have a lower percentage of conversion, they are much better leads and are worth more to the real estate business! To determine which lead is worth more, simply divide the total revenue you gained from a specific marketing channel by the number of leads you gained.  

And improving your lead conversion rate by just 1% (120 leads) on this channel (funnel) can have a PROFOUND impact on your business, costs, and overall profits. In this example gaining 40 more leads, would help you gain 8 additional customers, eventually boosting your revenue to $192,000

conversion-table-with-improvement

Where should you invest to meet your goals?

Each marketing channel you use will have distinctive (and varying) conversion rates, forcing you to make a decision: Where should you invest your money to meet your transaction goals?

If you notice Google AdWords has better lead conversion rates, allocate more budget to it and work on your follow up, communication, and relationship-building with Realvolve to improve on converting these leads to customers.  

And if you want to improve your lead conversion rates for your Facebook Ads but don’t want to increase your budget, try some different offerings, or different ads. Yes, the best ads do center on listings, but there are other ways to capture leads from Facebook advertisements: targeted audiences, video ads, hosting a movie event, landing pages, or even showcasing of one of your featured blog posts and capturing leads with an opt-in form.

Anything but typical

You might be wondering, What’s the typical lead-to-transaction conversion rate for real estate agents? Most real estate agents and brokerages have self-reported a customer conversion rate of 3-5%. However, this might be a bit optimistic based on the market the agent is in. The National Association of Realtors® disclosed that the rate is closer to 0.4% - 1.2%. Basically, this means that for every 200 leads you can obtain, you’ll only convert one or two of these to a customer or client.   

In closing, any variable can be tested and measured. And the more you know about your unique marketing channels (or funnels), the smarter decisions you can make about the direction of your marketing efforts for your real estate business.

What conversion rates are you seeing for your marketing channels?

Let us know in the comments section!

Topics: Real Estate Leads, Lead Conversion, Real Estate Marketing, Real Estate Business

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