Marketing gives an important boost to your agent activity, creating opportunities for new listings and buyers.
Calculating the ROI on your marketing is then crucial, as it can guide you on where your marketing efforts are most efficient and where they can be improved.
To calculate realtor ROI:
Define objective or KPI value
Understand costs and actions
Track costs and results
Divide costs by results generated
Analyze and plan
Let’s look at each of these in turn.
Decide objective or KPI value
First, you will need to think through what value you will be tracking.
For realtors and agents, marketing efforts are often geared towards generating leads. Because of this, it is usually difficult to attribute a consistent cash value because some leads will inevitably close and others will not.
The alternative then is to create an estimated lead value to use for marketing ROI tracking purposes. To calculate this, take your average revenue generated per client and divide this by your average close rate.
This value will give you a figure with which you can measure the results of your marketing efforts.
Read more: KPIs for real estate broker growth
With your lead value in hand, you will need to think through what costs will count towards achieving this particular objective.
This can include:
Public relations fees
Consider the costs that will be attributed to your marketing calculations ahead of time to avoid any unnecessary complications in the future once a lead has converted.
Track costs and results
The next step is to begin tracking marketing costs and leads generated.
Be sure to keep accurate records of your marketing expenses to make this process easier.
Read more: How to track your real estate business
For leads, how you attribute these to specific marketing campaigns may depend on the style of your brokerage. Deciding which marketing effort is responsible for which campaign is a science to itself (called Attribution) however, a simple way to attribute leads is to mark all leads generated as being attributed to the last marketing activity that touched the client.
Another simple way to attribute your leads is on a general basis. This means attributing all leads as being the result of the entire month’s marketing efforts.
(We offer a solution to assist in tracking your pipeline and marketing lead sources, read more here).
Once you have your costs and lead results tracked you are now able to calculate the ROI on your marketing efforts.
To do this, simply divide the lead value by the cost of your marketing actions which generated that lead.
For example, if all marketing costs were $200, and a lead value was $1000, then your ROI would be 5x, or 500%.
If you are calculating on a whole-month basis, divide the total value of all the leads generated by the amount spent on your marketing that month.
Now that you have calculated the ROI of your marketing, you will be able to analyze the factors which contribute to your marketing effectiveness.
This can be done by comparing the leads generated by source. For example, is your Facebook campaign generating leads more effectively than local newspaper advertising?
By understanding this, you can take action to either improve the potency of your marketing efforts.
You could improve low performing campaigns, or cut them completely. For campaigns that perform well, you can also now confidently invest in these activities knowing they provide a healthy return.
At this point you may also want to keep track of whether your ROI is trending up or down. A downtrend may represent a change in the market, but also signal inefficiency in your marketing efforts that should be checked.
Calculating the ROI on your marketing activity is a simple yet overlooked performance management activity for many realtors and agents.
Take the time to define your objective or lead values, understand and track the costs that drive leads, then calculate and analyze your results. Be sure to maintain accurate records of your leads generated and costs incurred to make sure you are giving yourself or your brokerage the best chance of identifying areas for improvement or further investment.