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My Real Estate CPL Went Up: Now What? 

My Real Estate CPL Went Up: Now What?

Seasonality can affect the average cost per lead in real estate, but it shouldn’t change your paid advertising strategy.

By Timothy Nishimura, Digital Marketing Account Manager, Sierra Interactive

It’s a common concern of many real estate teams to see higher cost-per-lead (CPL) rates around year end. At face value, the increase is frustrating, especially if you’ve been consistent with lead generation and paid ad efforts. Still, it’s important to not upend your ad campaigns on your changing CPL metric alone – especially not during Q4. Before you revisit your paid ads strategy, you need to understand why cost changes happen at year end, how it actually impacts earned revenue and what you should be focusing on instead.

Seasonality has a direct impact on your average cost per lead in real estate 

The housing market often sees a drop in demand leading up to and throughout Q4. Students return to school. Holiday preparations begin. Colder weather arrives. These are just a few factors proven year over year to shift buyer and seller attention away from the housing market during the last few months of the year. 

Although predictable, you should keep this change in interest, and corresponding lowered search volume, in mind when evaluating your expenses.

As general housing traffic decreases, many Realtors respond by increasing budgets to lead generation strategies like pay-per-click (PPC) advertising. The problem is there are side effects to managing seasonality with big budget changes. 

You can think of Google Search advertising as a closed system or ‘Zero-Sum Game’ where one person’s gain is another’s loss. When demand–or, in this case, search volume–wanes and advertisers increase spend to make up for the decrease in lead volume, market conditions change for all advertisers in that market, including yourself. Keeping this in mind and knowing this market shift happens each year, you may want to consider moving ad spend into lower cost channels, such as Facebook, when Google search volume dips, instead of raising your PPC Budget.

The takeaway: factor for seasonality before making any big changes. 

The mathematical impact of real estate CPL on potential earned revenue

CPL is a useful metric when planning advertising budgets, but it doesn’t actually lend itself to understanding the performance of ad campaigns.

Measure CPL against potential revenue 

Knowing how seasonality drops search volume during Q4, your CPL can seem even more out of control. That’s why it’s critical to take a step back and evaluate your CPL against potential earnings. 

For example: 

In the first quarter of 2022, the median sales price of houses sold in the U.S. was $433,100

While the average nationwide CPL varies, Sierra Interactive’s digital marketing team saw customers with an average CPL of $6-10 for buyer real estate Google search leads. 

Using the averages above, one transaction under a typical compensation plan could look like this: 

Median sales price (U.S., Q1 2022) $433,100
One transaction side  3%
Compensation plan (60/40, in favor of agent) $7,795
Median monthly ads budget across Sierra Digital Marketing customers $500
Adjusted GCI $7,295
1% of adjusted GCI $72.95

What does that mean? Even if your CPL temporarily increases at the end of the year, there’s a low impact relative to earning potential. Under ideal conditions, the individual average lead cost for Sierra Digital Marketing customers relative to the earning potential could be less than 1%. Hiking ad budgets higher gradually cuts into long-term earning potential.

How to determine a PPC budget (and stick to it)

Understanding that CPL is a byproduct of the market and can vary, you should consider the following when mapping out your PPC budget:

1) How many leads do you need a month? Consider your team size and revenue goals. The average incubation period of online leads is 12-18 months and online real estate leads close at a rate close to 1%.

2) What is a reasonable budget for your area? For example, an $800 ad budget in a small town with little advertising competition is going to go a lot further than in a large city that is flooded with competition.

3) What monthly PPC budget can you comfortably afford for the next 12-18 months? The fewer changes you make to your PPC budget, the better your campaigns will perform in the long run. Take the time to determine a sustainable budget and your ideal targeting before launching your ads.

4) Which KPIs are you looking at when evaluating performance and ROI? Remember, your CPL is a reflection of the local market, which means CPL is not a one-size-fits-all metric. Instead, look at your conversion rates and cost per close, which can indicate lead quality and identify areas for improvement with lead management.

If you work with Sierra Interactive to manage your paid ads, you can set up a meeting with a digital marketing account manager to implement targeting strategies that can help lower CPL and widen reach during market shifts without having to adjust your PPC budget.

The takeaway: increased budget is not always the answer. 

Remember: Real estate PPC performance is a long-term investment, not a short-term hack

While the market next year remains unpredictable, historical data points to a common trend: Though search volume decreases in Q4, it picks up in Q1. Knowing that, it’s important for Realtors to audit, measure and build stronger strategies now. 

Prioritize the long-term growth and success of your business, rather than short-term budget changes that may result in higher costs down the road.

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