 # Advertising Spend & ROI – The Metrics that Matter

Real estate professionals, like other salespeople, live and die by the quantity and quality of the leads their team generates. But, many cannot accurately track the effectiveness of their marketing and advertising spend, and attribute conversion to closed transactions to particular sources of leads. To begin the process of analyzing your ROI, start by tracking some key metrics, like advertising spend.

To calculate your potential ROI for a 12 month period, you’ll need the following numbers:

• the number of leads you generate per year

Once you have all these numbers, simply multiply the leads you generate per year by your average close rate. Then, multiply that number by your average selling price. And finally, multiply that number by your average commission.

[(leads per year x avg. close rate)(avg. selling price)](avg. commission)

For example, if you generate 1,000 leads per year, have an average close rate of 3%, have an average selling price of \$200,000, and have an average commission of 3%, then your return is \$180,000.

[(1000 x .03)(200,000)](.03) = 180,000

Treat this number as a gross sum. When calculating your return, you’ll need to factor in your cost of investment. To do that, you’ll need more numbers. Here’s how to get them:

A real estate conversion rate is the rate at which your leads turn into clients. The simple equation for finding your conversion rate is to divide the number of clients you gained that month by the amount of leads you generated.  So, if you gained 100 leads and ten of them became clients, then your conversion rate for that month is 10% [eg., 10 clients/100 leads = 10%].

Once you know your conversion rate—how many leads it takes to get one client—and you know your cost per lead—how much money you spent to get a lead—you know how much money you need to invest in ad spend in order to attract enough leads, so you have enough leads to convert into clients.

Using the examples noted above, if your CPL is \$20, and you need 1,000 leads to meet your annual return of \$180,000, then your annual ad spend is \$20,000. ##### Calculate what achieving your goals cost

Another, equally important perspective on calculating ROI, is “backward engineering” your sales target for a given period.  While calculating your conversion rates as described above is important, it can mean a lot of trial and error.  Driving your lead generation efforts toward a goal, and constantly calibrating to achieve them, can avoid extra time and money to get there.  To calculate this, follow the logic in the equations below:

# of clients needed = (sales goal) / (average home price)

# of leads needed = (# of clients needed) / (average conversion rate)