How Real Estate Agents should measure Marketing ROI: the Right Way and the Well Intentioned Way

ROI Real Estate

As Agents work to pivot and re-group, we’re seeing an influx of new agents and a resurgence of effort from existing agents. With so many realtors in the game, carefully selected marketing has become a key differentiator of the best agents. And when it comes to marketing, there have never been so many choices… so knowing what works for you in your market has never been so important.

So let’s talk marketing ROI, and why we should be a little more careful in how we analyze it.

ROI is just “return on investment.” In the real estate business, this usually refers to the amount gross profit off of marketing-generated leads (less marketing expenses) as a percentage of marketing dollars spent in the same time period. That’s:

But beware!

Oftentimes it is this very equation that causes an agent to abort good efforts in the name of “business sense.” Why? Two reasons: first, a marketing effort by itself might not work. Your marketing plan should be a concert of several different channels playing in harmony with each other, delivering a consistent, top-notch message; and second, marketing programs often need a year or more to truly build traction, especially for agents with less than 5% market share. The standard marketing ROI equation ignores these truths.

So, we’d like to offer a slightly modified ROI equation with the big caveat of be prepared to wait. For this equation, we let the marketing do its magic, then we calculate.

First, let’s define the pieces of the puzzle:

  • Average customer commission. This is how much commission you earned in total last year divided by the number of sides you completed.
  • Lead conversion rate. This is the percentage of leads that become customers. Do you track this? If not, take an educated guess.
  • Marketing cost. This is the total cost of the marketing program you are honing into. This can be actual or anticipated and must span a specific time period. Include a percentage of staff time dedicated to helping with this type of marketing.
  • Leads generated. How many leads did you receive from the marketing program you are honing into? This must be measured over the same time period as your marketing costs.

Next, you’ll want to determine your Time to Break-Even. Because so much of your marketing is intended to communicate what you’re already doing, the more active you are now, the quicker you will get results from new marketing efforts. So if this is a new plan, or one you are considering but have not yet tried, put a deadline on the break-even and discipline yourself to wait until that date before you decide to measure marketing ROI and being running calculations.

In general, your Time to Break-Even should be set based on what the industry declares, and then adjusted based your market share. It is simple to figure out your market-share:

If you’re unfamiliar with housing turnover, it is simply a measure of how often people in your target market move. If 100 homes sell in your neighborhood of 1000, your turnover rate is 10%, and there are 100 listing prospects in your area per year. Here is a great article from Joe Manusa on housing turnover.

A good baseline on any new channel, especially direct mail, is 1 year (if you are hitting your farm with quality mail at least once per month). If you have greater than 20% market share, you might expect results a little sooner, and if you have less than 5% market share, you might be waiting 2 or more years. You should also adjust your time to break-even according to the turnover in your area. If you’re marketing to 10,000 homes with a 5% turnover, you should expect to wait longer (paying more in marketing costs) than if you marketed to 5,000 homes with a 10% turnover.

Now that you have established your Time to Break-Even, here are two ways to look at your marketing efforts. The first is a way to see what the performance of efforts should look like after they have already broken even. The second is a way to “spit out” how many leads you need to generate from the marketing channel for it to pay for itself, so you can gauge how realistic the new method is. If you only need a few leads a year to make it break-even, you might adjust your Time to Break even.

Measure Marketing ROI after Break-even:

Number of Leads needed in 1 year to Break-Even:

We hope this helps as you forge ahead this year. Best of luck, and never hesitate to reach out to us here at Discover if you’d like feedback on any of your marketing decisions. Please click below to download a complimentary calculator.

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