Real Estate lead generation is something that every realtor will try at least once in their career. Some of you will build your core business based on new leads whereas others will fail and avoid it.

In this article, we will decode the science behind lead generation and some of the key reasons why some real estate professionals excel at it.

“PPC* Advertising Is All About Figuring Out The Math In Any Industry” – Hubspot

*PPC stands for Pay Per Click.

Every form of lead generation in the real estate industry uses PPC ads to drive traffic to a website and generate leads; the two top performing platforms for generating leads are Google Adwords and Facebook Ads.

Technical Terms Associated With Real Estate Lead Generation Campaigns

In this segment, we will cover some of the technical terms that you should familiarize yourself with, in order to better understand the math behind lead-generation.

CPC – CPC stands for Cost Per Click. Every time someone clicks your ad and lands on your website or landing page it costs you money. Lower is better.

Impressions – The total number of times your advertisement is shown in front of users. More is better.

CTR – Click Through Rate (CTR) is the percentage of people who clicked on your ads versus total impressions. Higher is better.

Conversion – When a user fills out a web form, and you get their information, that is a conversion, and you must track these!

Cost Per Conversion – The total cost of Impressions and or clicks before 1 conversion happens. The lower the better.

Cost to Acquire a Customer (CAC) – Yes, the CAC. The most important number in lead generation. This equals the total cost of conversions before you get a client and close a deal. The smaller the CAC, the better! 

The Math Behind Lead Generation

Your ultimate goal is to have a low cost to acquire a customer. However, your ability to do sales, follow up, and beat out your competition, comes into play with the CAC.

Therefore, your goal for the lead generation piece of the puzzle is to maximize the click through rate and reduce the cost per conversion for acquiring each lead.

When your click through rate increases, you are getting more clicks for the same amount of money spent per thousand impressions.

Before we teach you how to increase click through rate and how to lower the cost per conversion, we want you to first understand when you can get charged with PPC Ads.

PPC Science Overview FB Ads

Types Of Bidding Methods For Generating Real Estate Leads

CPM Bidding – You get charged after your advertisement gets 1000 impressions. The average in real estate is $3-$8.

CPC Bidding – You get charged only when people click on your ad. The average in real estate is $1-$2.

Auction Bidding (programmatic)- For really high-value budgets (not recommended). Used to buy ad spots on multiple sites using Facebook Ads & DoubleClick

CPC vs CPM – Which option is better?

CPC bidding is more popular for real estate lead generation using Adwords because the “ad creative” on google for lack of a better word…sucks.

CPM bidding is more popular when you are using Facebook Ads to generate both buyer and seller leads. This is primarily because you have creative freedom to make Facebook Ads looks awesome (for branding purposes) and convert better than average.

Here’s a general rule of thumb: if you suck at advertising, do CPC. if you think your ad is good, do CPM – you will lower your cost per conversion and CAC.

3 Key Variables That Determine How Many Leads You Will Get

Figuring out the cost per click and cost per conversion is actually easy. The real challenge is understanding what variables really determine the outcome of your overall lead generation campaign.

Although there are many variables involved when you are looking to generate real estate leads, we have categorized most of them into 4 main clusters for you to easily understand.

#1 Conversion Rate On Your Landing Page

Getting a higher Click Through Rate (CTR) at a lower Cost Per Click (CPC) is one side of the coin. The other side to master real estate lead generation involves having a compelling landing page, designed to maximize conversions.

For example, if you spend $20 and send 20 people to two different landing pages then the total number of leads generated from each of these pages will likely differ quite a bit.

The chart below explains everything in detail.

real estate lead generation cost per lead chart

For both the pages, the click-through rate (CTR) and cost per thousand impressions (CPM) is same.

However, due to the difference in the conversion rate, 10% vs 40%, landing page B ends up with 6 more leads than the other.

Note: “this process of testing landing pages to improve your results is called “A/B Testing.”

#2 The Ad Creative & Ad Copy

Having an eye-catching ad creative is absolutely critical in keeping your cost per lead low for your real estate lead generation campaigns.

If you are bidding on different keywords using Google Search then you should focus on testing multiple variations of the ad-copy in order to find out which one is performing better.

The more A/B testing that you do on your ads, the better. The data from these A/B tests can be used to constantly improve your campaigns.

Home Value Ad Types Examples

PRO TIP: Change your ad creative every 2-4 weeks.

Here’s why: if you keep using the same graphics over and over again, ad fatigue sets in with the people who have already seen your ad. Therefore, they are less likely to click on your ad. Therefore, the cost per lead and your cost to acquire a customer will increase.

Here are types of images that you should use for buyer and seller campaigns:

  • Images of family owners holding keys to their house
  • Images of recently sold houses
  • Image of a really nice detached home

Resource: ShutterStock.com

Note: When using Facebook Ads, you automatically have access to all of Shutterstock for free.

#3 Audience Targeting On Facebook

In order to keep the cost per lead down, you need to show your ads in front of the right people.

Showing the ads in front of the right people can be achieved using the right audience targeting.

Although there are lots of ways you can target people using Facebook Ads, we will keep this segment short and highlight the key strategies that you should implement as a realtor.

  • Behavioral Targeting – Targeting users based on behaviors.
  • Life Event Targeting – Targeting users based on life events. For example newly married and newly engaged people are more likely to buy a home.
  • Likes and interests – Target a section of people based on likes and interests.

An example targeting scenario for getting high-quality sellers would be:

  • “Homeowners for 10+ years, and interests based targeting as re-financing”
  • “Likely to move” – behavior targeting”
  • “Family income between $100k – $$200k”

Facebook NetWorth Targeting

What Is Your Close Ratio?

Now we’re getting into sales, which is not real estate lead generation. However, your close ratio impacts your cost to acquire a customer, which is why we need to talk about it now.

First, you actually have two close ratios: your close ratio for turning leads into appointments, and your close ratio for turning appointments into clients.

This should not be confused with your ratio of deals that close, which has less to do with your sales ability and more to do with the market turnover rate. For example, say you get 40 if you meet with 10 sellers, and 8 become your client, and 5 end up selling their home, your close ratio is 80%; based on the market turnover rate, those 3 clients just weren’t meant to sell their home this year. Therefore, don’t get frustrated! Stick with them and keep them as your client. They will sell their home eventually.

Therefore, in order to be a smart marketer, you need to start tracking your results in order to figure these two close ratios!

Here’s an example scenario:

  1. You pay $50 per lead.
  2. Call 20 leads before you get 1 appointment.
  3. 2 Appointments lands 1 client

You close ratio for turning leads into appointments is 5%. Your close ratio for turning appointments into clients is 50%.

Now, depending on how many clients you want, you can scale out this math equation.

Benchmarks for Lead Generation

Here are our estimates based on the data we’ve received by doing lead generation for realtors in every type of market across the US and Canada:

Cost per lead:

  • Hot Markets: $15 – $30
  • Moderate Real Estate Markets: $30 – $50
  • Slow Real Estate Markets: $50 – $75
  • Average across the board: $37

Lead to Appointment Ratio (heavily influenced by your sales skills):

  • Great: ~10 leads to 1 appointment
  • Good: ~20 leads to 1 appointment
  • Average: ~30 leads to 1 appointment.
  • Below Average: ~40 leads to 1 appointment
  • Poor: ~50 leads to 1 appointment
  • Stop: > 60 leads to 1 appointment

Appointment to Close Ratio

  • Great: 90%+
  • Good: 75%+
  • Average: 60%
  • Below Average: 50%
  • Poor: 33%
  • Get training: < 33%

Cost Per Appointment

Here’s the formula for finding out the cost per appointment

[Total number of leads] * [Cost Per Lead]

So, if you are paying $37 to acquire a lead in your target area, and you are booking an appointment for every 20 leads,

Your Cost Per Appointment: $37 * 20 = $740 per appointment

In this example scenario, it takes $740 to get an appointment with one of your leads.

The Importance of Close Ratio

Figuring out your close ratio is absolutely crucial in order to figure out your customer acquisition cost (CAC). It’s an integral part of real estate lead generation that some realtors completely ignore.

If homeowners interview w1.7 realtors, then your close ratio should be above 50%; now, for easy math, let’s use 50% for this example to figure out the CAC.

Cost Per Appointment: $740

Close Ratio: 50% (1 in 2)

Customer Acquisition Cost: (CAC): $740 * 2 = $1480

Your magic number is: $1480

This means it takes $1480 to acquire a new client using lead generation.

Now here are some benchmarks for ROI:

  • Great: > 5X
  • Good: 3X – 5X
  • Stop: < 3X

Therefore, if your NET commissions are less than 4440, then, in this scenario, I would not do lead generation.

If your net commissions are between $4440 and $7400, then I would continue to do lead generation.

If your net commissions are greater than $7400, I would double down and spend more money on lead generation because you’re killing it!

Implication 1: If you’re doing lead generation, run these calculations, and figure out what your CAC is, then decide to: stop, continue, or double down.

Implication 2: If you have not started lead generation, then you need to spend $500 in lead generation to get data, and then predict what your CAC will be, and then decide to: stop, continue, or double down!

How to Decrease The Customer Acquisition Cost (CAC)

Now that you know how to calculate your cost to acquire a new client from lead generation, it’s time to implement some of the best practices to decrease your CAC.

#1 Lead Nurturing System Using Emails

An effective way to follow up with your leads is to nurture them using drip emails.

Drip emails refer to a series of emails that you send your existing database in order to keep feeding them valuable information and content.

There are three main reasons why drip emails exist:

  • in order to act as an amplifier when you call a prospect
  • to keep the prospect more engaged and interested
  • initiate enough value so that the prospect contacts you back for your services.

Lead nurturing campaigns take a bit of a time to setup, however, they work! And if you’re going to invest thousands of dollars in lead generation, you might as well maximize your money!

#2 Have a phone based follow up system and stay consistent

Once you get a lead it’s highly recommended that you call them within 5 minutes…like if you don’t your chance of conversion goes down by 2-3X. Just listen to top real estate coaches like Tom Ferry and Grant Cardone – they all have data to support that the longer you want to call a lead after they fill out the form, the lower your close ratio, and the higher your CAC.

Therefore, the faster you can call the lead the better your chances to book an appointment, close the deal, and lower your CAC!

Also, create a script and stick to it – scripts are for PROS! Have different scripts for different kinds of leads, and stay consistent!

#3 Use a CRM for effective lead management

When your prospect database grows bigger you need a CRM in order to categorize all the leads into distinctive groups.

We recommend that you go with the following CRM’s:

How does using a CRM help you reduce your customer acquisition cost (CAC)?

A CRM helps you collect more information about all your prospects. This information can be used to personalize a phone call every time you call them.

For example, if you know the birthday of your prospect then you can create an automated email to wish them on their birthday.

Summary

Lead Generation is a science so be a scientist, do the math, and listen to the data.
And just remember…..ALL THAT MATTERS IS YOUR CUSTOMER ACQUISITION COST (CAC)!

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