Calculate Your Marketing ROI as a Real Estate Agent
As a real estate agent, you’re running your own business, and you’re likely paying for your own marketing as well.
It’s good practice to track the ROI of your marketing from the moment you start. Sometimes, agents will start a marketing campaign with a modest budget. Over time, that budget may expand as they start to see results. Before they know it, they’re spending thousands on marketing without knowing whether the costs are worth the returns.
While they may be seeing results, they may not know exactly how many marketing dollars are translating into returns, and at what percentage. Calculating your marketing ROI as a real estate agent is relatively easy, but you must first identify your target goals.
For example, are you calculating based on the number of leads you’ve generated, the number of clients you’ve gained, or the number of dollars you’ve earned because of your marketing? Most marketing departments focus on leads, but it may be more prudent for you as an agent to focus on monetary returns.
The Simplest Way to Calculate ROI
The simplest way to calculate the ROI of your real estate agent marketing is to integrate the calculation into your overall business, which looks like this:
(2017 Revenue – 2017 Marketing Investment) / 2017 Marketing Investment
So, if you had a return of $60,000 in 2017 and spent $2,500 on marketing, the equation would be as follows:
($60,000 – $2,500) / $2,500
It looks as if your marketing ROI is 2300%. That’s phenomenal!
But this calculation doesn’t quite get to the heart of the matter. It’s not as if all your business came from your 2017 marketing spend. Some of it comes from the relationships you’ve built up over time, from word of mouth, and from delivering for your clients.
Marketing ROI and Revenue
If you want to assess the success of your marketing over time, it makes more sense to look at your net revenue growth over time.
Net revenue, or “true profit,” is your gross profit from commissions minus all expenses and taxes. Your Expenses include your marketing spend, recurring bills, paying an assistant, or even gas for your car so you can get to showings.
You can determine your net revenue growth by subtracting the net revenue of a previous period from the current one. Let’s say you started a new marketing campaign at the beginning of 2017. You should subtract your net revenue for 2017 from your net revenue for 2016. If you made net revenues of $60,000 in 2017 and $50,000 in 2016, your net revenue growth was $10,000 in 2017.
You can then calculate your marketing ROI by dividing your growth by your marketing investment:
2017 Net Revenue Growth / 2017 Marketing Investment
$10,000 / $2,500
In this case, your marketing ROI is 400%, which is still substantial. The amount you spent on marketing was returned as revenue three times! This is a better indicator of the direct impact your marketing campaign had on your net revenue.
You can use similar calculations to determine your marketing ROI in terms of lead growth and client growth if you prefer:
(# of Leads in 2017 – # of Leads in 2016) / (2017 Investment – 2016 Investment)
(# of Clients in 2017 – # of Clients in 2016) / (2017 Investment – 2016 Investment)
Realistically, most marketing ROI’s won’t be in the range of 2000% or even 400%. However, you can optimize your marketing budget by tracking this information regularly and using similar formulas on your specific marketing strategies.
Optimizing Your Marketing Spend
To truly understand where your marketing dollars are going, you need to get granular. You’re probably spending money on multiple marketing strategies, such as paid digital advertisements and direct mail campaigns.
To determine how effective these strategies are, you should first determine your cost per lead (CPL) for each.
CPL = Strategy Cost / # of Leads
If you spent $500 on digital ads and they gained you 5 leads, your CPL is $100. If you compare this to a direct mail campaign that cost $1000 and brought you 4 leads, you’d notice that the digital ads were more effective. Each direct mail lead cost you $250.
However, you can also examine the quality of the leads you’re receiving by examining how many of them end up buying. To do this, you need to know your customer acquisition cost (CAC) for each strategy.
CAC = Strategy Cost / # of Customers
So, if digital ads brought you 5 leads but 4 of them weren’t a good fit and went elsewhere, your CAC for digital advertising is $500. Meanwhile, if direct mail brought you 4 leads that all bought houses, your CAC for direct mail was $250. Looks like direct mail got your more clients! You may want to keep using it.
Furthermore, if those direct mail clients each gave you $10,000 in commission revenue, then direct mail had a 4000% ROI while digital ads gave you an ROI of 2000%.
Doing these calculations can help you determine which strategies are most effective so you can get smarter about how you invest your budget. If you track them over time, you can plot them on a graph to see where you’re headed and when you need to adjust strategy.