Using metrics that focus on quality, over quantity, can increase your transaction-ready leads.

Are you generating a large volume of buyer leads, only to realize they aren’t transaction-ready? Are you having to increase your marketing spend to convert the same number of sales (or less)? If either situation sounds familiar, it’s likely you need to switch up your approach to lead generation so you’re attracting quality buyer leads, instead of a high volume of low-quality leads. One tactic to help you make that shift is in the metrics you’re using to measure your realty group’s success.

How do real estate agents measure success?

While individuals in the real estate industry have their own unique ways to measure success, one metric is king: your paycheck. Second to that? Cost per lead.

Not looking beyond gross commissionable income to define success can be misleading. If that number’s trending up, you can’t assume business will continue to boom into the future. Commissionable income at face value doesn’t always give a complete picture of the business, especially if you aren’t taking into account how much you’ve had to invest to gain that commission. The same goes for cost-per-lead. While it’s important to track and keep within specific parameters, it’s not a metric that can reliably predict your success. It’s simply a measure of quantity and efficiency.

To stay profitable and help future-proof your business (even for lukewarm markets) it’s also important to measure your investment, understand the return(s) you’re gaining from it, then scale from there. Are you tracking your marketing spend all the way through the transaction? If you’re not, you’re not seeing exactly what it is costing you to bring in revenue.

Cost-per-close, cost-per-lead and other key metrics for a real estate business

Figuring out how to maximize your ROI starts by understanding your true costs. Commonly, that begins with examining cost-per-lead. That’s a good place to start, but if you aren’t tracking your spend all the way through transaction, you are missing a big chunk of the picture. We suggest looking at cost-per-close in addition. Here’s the difference:  

1. Cost-per-lead: how much you’re spending to attract potential buyers to your available properties. This is really a measurement of quantity and efficiency — the amount of money you’re spending to land a new lead, regardless of their true intent to buy. Lowering this means you are generating more leads for less money. It doesn’t mean you are generating more business for less money.  
2. Cost-per-close: how much you’re spending to close on a property. This is a measurement of quality and ROI. It measures how much you’re spending to achieve a return on investment — the amount of money you’re spending to land a new customer.  Lowering this means you are generating more income on less investment. 

On the surface, a low cost-per-lead figure may suggest you’re on track for success. You’re attracting a lot of traffic to your website and converting more of that traffic into leads. Both those things are good, if your goal is to build brand awareness and secure your position as a realtor of choice. Some companies, like Zillow, even recommend cost-per-lead as a key performance metric.  

If you want to measure how successful you are at converting your leads within your given budget, it is far more telling to look at your cost-per-close. This can tell you both the quality of the audience you’re attracting to your website who ultimately become your customers and how much money it takes to generate income. It can also help you understand where your best leads come from or where to improve your conversion rates.

Pro tip: Read how one broker is averaging $250,000 per year in gross commissionable income by keying in on cost-per-close metrics.

Take a look at this example of a cost-per-lead scenario:

Let’s say you’re a realtor spending $5 per lead and generating 1,000 leads at a 3% conversion rate and a 25% close rate. That means you’ve spent $5,000 to get roughly eight closes at $625 per close.

Your options are:

1.     You can either spend more money to get more leads, and continue to convert (and close) at similar rates (and lose that $375 difference between what you’re spending per lead, versus what you’re gaining per close).
2.     You could generate better quality leads (sometimes even at a higher cost) but improve results and ROI (cost-per-close).

Instead, refocus your investment on where it matters most

Here’s an example demonstrating the benefits of choosing option two. Let’s say you’re a realtor who has moved your marketing spend to a better website and improved your conversion rates by 7 percentage points for a new conversion rate totaling 10%. Now you’re spending $5 per lead, generating 1,000 quality buyer leads at a 10% conversion rate and a 25% close rate. That means you’ve spent $5,000 to get roughly 25 closes at $200 per close.

So, even though you’re spending the same amount of money, you have:

• More than tripled your rate of conversions
•  Cut your cost-per-close by over 30%
• Increased your properties closed by 212.5%

If you went with option one, you’d have to increase your total spend by almost $12,000 to achieve enough leads to get the same amount of closes. The likelihood long-term effects of this scenario is that your budget will get out of hand, even if you have implemented a cost-ceiling for your cost-per-lead spending.

Make your investment go further

To make your marketing spend go further, work to lower your cost-per-close rate. If you can achieve a lower cost-per-close, without adjusting your marketing investment, you’re getting a better ROI.  

Start by building your website with real estate website features that specifically work to help realtors close more deals through quality lead generation. If it’s also supported by a real estate CRM, you can gain more actionable insights from your data and continually adjust, depending on what your cost-per-close data is telling you. 

“What sets my approach to business apart from others’ in my industry is the amount of detail I look at in order to optimize commissions. To invest in software, it has to ultimately contribute more dollars in your pocket at the end of the day.” – Eric Richards, Broker, Springs Houses Online Realty, LLC

Not all real estate database systems are equal

The solution to keeping costs low and output high does not end with just any real estate database system. Look for a platform that:  

• Can tie together your online presence with IDX-enabled websites and ad management 
• Has an expert real estate CRM built-in to connect the dots between your efforts and analyze key performance metrics
• Supports actionable next steps through built-in CRM features, like automations, lead routing, dialer and ringless voicemail, and other follow-up nurtures. 
• Improves quality of leads, and supports easy follow-up and lead management with lead contact information in your preferred communication channels 
• Optimizes your investment by increasing conversion rates from the quality leads you’re generating