What is the ROI of Online Real Estate Leads?

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Transcript

Craig Rowe: [00:00:00] And welcome to another Inman Insider Webinar. I'm your host technology columnist, Craig Rowe. Thank you very much for joining us. And welcome to the fourth quarter of 2023. I hope your market's offering you as much opportunity as you can handle. I know it's a little strange out there these days.

But that's what we're here to talk about. How to financially manage opportunity and ensure the costs for business aligns with your profitability goals, which is a wordy way of saying, how do you measure ROI on your leads? And to chat with us today about that is Alvaro Arize, CEO of technology company CINC. You once knew probably as popular CRM Commissions Inc., but the company has since evolved into a business solutions provider for the real estate industry. And a big part of that is helping agents not only uncover new business, but to show them how that effort is part of a [00:01:00] larger picture.

And that's what we're going to get into today. And partly it's because CINC sent me a press release. A few weeks ago about their Guaranteed Sales Program, which as a journalist, it's my job to be cynical about those kinds of pitches. And we'll see if you guys think differently about it after the next 30 minutes. So with that, let's welcome Alvaro and CINC. Thanks for coming. Good to see you. 

Alvaro Erize: Oh, my friend, Craig. Thank you. Thank you for having me. A pleasure to be here. And honestly, happy to talk about. And of course, we'll talk a little bit at CINC and I'm happy to talk about our guaranteed program. But most importantly, having worked with so many teams and incipient teams as they grow, sometimes profitably, sometimes not, I have strong opinions on what, what can lead to profitable growth or not and how to look at it.

By the way, I apologize for my accent. I'm from Argentina. Please let me know if I [00:02:00] need to speak slower. 

Craig Rowe: Don't apologize about where you're from. 

Alvaro Erize: That's okay. Having won the World Cup recently, I never apologize for being Argentinian, but for my accent, I do but yes. And so I brought a few slides if it's okay for me to show them Craig.

Let me see. So my, main goal for today is to really tell you all how, do I look at the most important costs of growing a business, a real estate business through online lead generation. We've done a long study, at CINC out of more than 10 million leads that we've delivered and hundreds of thousands of closings to what should you really expect out of your online lead generation?

And there are different models out there. So how do those compare and what you should be looking at?

And I'd say the following, and this is not really real estate knowledge is more general business, but I've always liked to think there's two types of costs in your business. There's [00:03:00] fixed costs and variable costs. And the good thing about fixed costs is that they become less important as you grow, right?

They're horrible at the beginning when you're starting a business because you have to bear them. But as you grow and grow and the more successful that you are, the less that those matter, right? Your office space. having an admin, having a software platform in general to run your business. All those things are tough at the beginning, but once you get going and you have some size behind you, those start mattering less and less.

On the flip side of that, variable costs become more and more important the farther you grow, right? And that's where a lot of clients that I've seen get in trouble. Right? When they try to grow at all costs, and they incur things that make them less profitable on an ongoing basis. One of the biggest ones for teams is a commission split. Many times on eagerness to get more agents.

Team leaders try to put very aggressive [00:04:00] commission splits in favor of the agent. And then they're not able to run a business that supports the agent as they should, because they don't have a split that allows them to do that. So that's, of course, one of one of the main ones when you're thinking of variable costs.

The most important, from my point of view, is your lead gen costs, right? Transaction coordination. All of you pay more or less the same per transaction. That's okay. Question is, how much are you paying ongoing to get one extra deal from online leads, right? What is the cost of you securing one more deal out of this particular lead source?

So some people talk about ROI and you can calculate the ROI if you know how much you paid for one deal and you know how much GCI you make from a deal then that's your ROI. If you get 10 and you paid one, you got 10 times your money. But because deals are all more or less of the same size, I usually focus on what's your cost to do one deal, which the easiest way of understanding that [00:05:00] is saying what's my cost for one lead? And then how many leads do I need to have in order to close one deal? 

Before I go on, we have good numbers from our side on this. I'm intrigued. And I don't know, Craig, if you have a number in your mind. I know I have proposed that we do a poll to see if people know at home what they think they're paying on a per deal basis.

Craig Rowe: Yeah. I think it varies wildly, right? Based on how your marketing is and based on what do you have to spend in order to offset those fixed costs, right? Leads, cost of leads, man, it infiltrates a lot of your business spend, right? 

Alvaro Erize: And you have to, in order to know it, which was, that's the first thing that you should be thinking right there at home, which is, do I know this number?

If you do not know this number, then this is something that you need to invest time of yourself on your business because you should know [00:06:00] what your conversion rate is for each of your lead sources. And then if you know that and you know your cost per lead on each of those lead sources, you should easily be able to calculate what's your cost per sale.

And honestly, more than calculating, that's the number you should have in your mind, right? If you make your GCI is $12,000, $10,000 that if you're paying more than $3,000 or $4,000 per deal in what you're spending on lead gen, that deal is not going to leave you much money. 

Craig Rowe: And they need, when you say spend time finding out what this cost is, and that's not just some sort of figurative bit of advice, like that is hard business advice that you like actually sit down. And put papers or your laptop in front of you and figure out the cost. Maybe it's, you look at your last five or 10 deals, look at all the expenses for each one of those transactions and find a good average, but knowing that going forward, that'll be worth the three, four [00:07:00] hours it takes to figure that out, right? Cause you can base so much of your business strategy going forward on those numbers. 

Alvaro Erize: A hundred percent. And, especially because if you, when one thinks, Oh, should I try to recruit more agents into my team or not? It depends. If you're losing money on every deal, you don't need to grow, you need to get more efficient. If you're making money on deals, then it's a great time to grow. How do we see the results of the poll? 

Craig Rowe: I'm seeing them as the majority, 30 percent think that they're spending $1,000 to $2,499. 14 percent think that's their average. Followed closely by what's on each side of that above and below, $2,500 to about $5,000, and then 500 to $1,000.

Alvaro Erize: Perfect. And so, you say the most... Common answer was $1,500 to $2,500, right? 

Craig Rowe: Yes. $1,000 to [00:08:00] $2,499. Yeah. 

Alvaro Erize: Yeah. And that's, and if you think about it, that in itself, that cost per sale is not completely unreasonable if you're making a $10,000, $12,000 commission. Even if you're taking a split with an agent, you're at least even if you're keeping only $6,000 for your team, if you're paying $1,000, then that's it. It's leaving you $5,000 of profit. It's not real. There's other costs that you should account, but at least net revenue, if you want to call it, right? And so for me, We're going to talk about different type of lead sources, but I want to start by the one, of course that, we care the most, which is SEM, buyer leads, what people call top of the funnel, right?

And, this, there's a lot of talk about conversion. There's companies quoting 5 percent conversion, 3 percent conversion, there are NAR polls that have zero real data behind them because they're basically just polling agents and agents say what they think. We've done, and I'll go into what [00:09:00] our analysis later that proves this point, but I can tell you that a well run efficient team doing top of funnel leads should be converting at 1%.

Now, that might seem low. This math here will show you that's actually fantastic return. If you're paying $6 per lead $6, $8, $10 per lead, and you're converting 1 in 100 of those leads, then you're paying between $600 and $1,000 on a per cell basis. Which if you're making a $12,000 GCI, that means you're making 12 times your money, right?

Or 20 times your money. That is an amazing return. And that is why many times when clients tell me, how do I get to a 2 percent conversion? I go like ehhh, if you're getting a 1 percent conversion, throw more fuel into the fire, get more agents, put more leads in and do more of this 1 percent instead of... We can all convert at 4 percent if we're going to have 10 leads that we're going to drive insane during the whole year.

So at some point, once you're getting this cost per sale, [00:10:00] You should be growing and not worrying that much about getting a little bit extra result, right? 

Craig Rowe: Yeah. And are you, factoring this average into new business, right? Let's say because then some people are going to have a referral from five years ago that they worked with.

And that is essentially... no lead is free, right? You did something in the past to pay for that. It's averaging out. But those leads certainly cost significantly less, but they contribute to that GCI. 

Alvaro Erize: Well, but you make a great point, which is the 1 percent you're not going to get it within 6 months.

And so we do. And I have if we get in time to it, I have a slide about actual timing of buyer leads. And the true cycle is two to three years. So the idea is once you've been doing lead gen for at least two years, you should be converting at 1 percent because you're converting some of your old leads and some of your new leads all from this source, not mixing your referrals, your personal, all of that.[00:11:00] 

But on the first year, you will not convert a 1%. You're only hope, hopefully you're going to convert a half percent. And if we have time. I have very accurate and specific information about it. We will see if we can get to it, but I will say not all lead sources are the same. And so I have, for me, this is my guiding light of different models in the real estate business.

So today you have four ways of getting closings. One is. Your team leader, and this is meant for teams. I realize we have other people who are maybe an individual agent here, but you always will have either your own connections, referrals, sphere of influence, or those brought down from your team leader. As a team leader, these are the leads that you're giving to your team.

And yes, they, the CPS there, the cost per sale there is zero dollars, right? That's a lie because it's not zero dollars. You put, as you said, Craig, put effort into it. You probably bought some dinners. You did a pizza event in your neighborhood. You did [00:12:00] stuff for that. But it's not as direct as, I spend this money and I get this extra transaction right now.

When I say conversion effort is low, again, it was hard to get that lead because you did a lot for your personal brand. But once you have a warm referral given to you, hopefully that's the easiest lead that you can close. And the profitability is super high, right? Because again, you're not paying on a per deal basis.

Now, second column here, I have what I call top of funnel SEM leads, search marketing leads. That's what we specialize in. And you can see that. If you have a lead at $6, even with a 1 percent conversion, that's a $600 cost per sale. Again, in a sale where you're going to be making $12,000 or $6,000 if you're keeping half of it, that's still a tiny bit of the profitability that you're going to get. That means you can scale this very aggressively. Now the conversion effort is high. You have to call. you have to have AI. You have to have drips. There's work that needs to [00:13:00] go there. That's why teams are successful, right? But it is the highest profitability that you can get from online lead generation if done well.

The others are interesting, but they can get dangerous, right? And so again, I have nothing against Zillow or realtor.com. In their traditional model, you're paying leads as 300, 400, depends on your market. Each of you are having your own opinions there. Now, most of my clients report a 5 or 6 percent conversion.

I tried to be generous here and put a 10 percent conversion, which is for me, the floor of what you need to be converting for those leads to be valuable for you. But even in that case, so even with 10%, it means you're paying $3,000 on a per deal basis. That's five times more from what we just saw.

And if that conversion instead of 10 percent is 5%, which is what many of my clients report, then you're paying $6,000 per deal. And that's what people sometimes don't stop [00:14:00] to think, right? You're spending $10,000 a month on Zillow, and you're not really stopping to see how many deals you're getting and how much is that spent on a per deal basis.

In a team, especially where you're dividing your splits, paying $3,000 or more on a per deal basis is very dangerous because that's where your growth starts to erode, right? 

Craig Rowe: And, when you're paying that, you're still, there's still, that's not guaranteed. You're paying for that information. You're paying for that person's Online behavior, you're paying for all that information that qualified them as a lead, but they're still being contacted through other channels from other agents. It's not like you're talking to them in a vacuum. So even though you're paying more, but you're often putting in as much work once they're in your database. You still got to turn them. You have to convert them. 

Alvaro Erize: And hopefully [00:15:00] you're doing that very soon, very immediately, right? Because if you're paying $300 a lead. You don't want that lead to get last to them, right? 

Craig Rowe: Yeah, Zillow or whoever, again, they may not have given that lead to another agent, but other agents are beating that person up, right? If that person's out there looking for a house, you're not the only agent that knows it. 

Alvaro Erize: A hundred percent. And, the top funnel leads are the ones that allow you to get before by the time that they are at hand raiser at Zillow, they're putting signs all around that they're on the look.

So we are competing very strongly. Hopefully you still have better chance. And again, a 5 percent conversion could be good, but not at a $300 cost per lead. A 5 percent conversion and a $300 cost per lead means you're paying $6,000 per deal. You're probably losing money after all this. 

Now the other option that is available these days and is very popular, and we have at CINC a version of our business that does this, which is the referral business, the online referral, right? Where Basically you [00:16:00] get a warm lead from someone that already talked to them and got them to say, yes, I want to talk to an agent. And if you, don't pay anything for that lead up front, and if you close it, you pay 35 percent of your commission or 40 percent in some cases, I put it here at 35% which basically means you're giving a third of the commission away.

And especially in teams where then you're having to split between a team leader and an agent. That makes this one, in my opinion, in the end, a team killer. And I always say this to my teams, which is you should use this as a compliment for an easy deal or two, especially for a newer agent that needs a little bit of an easier picking.

But if you're growing your business through this particular channel, you're not going to have a team two years from now because you're making less money and your agents are making much less money because they're splitting with the referral then with you. And so sooner or later, they're going to go and sign up for Zillow Flex directly or for Ojo or for HomeLight or any of the services that do it.

Craig Rowe: They're not going to stick to a team [00:17:00] where they're just, where they're losing money. 

Alvaro Erize: Exactly. So this is my, and if we said nothing else in this webinar, this for me is what I would want you all to take away. You need to look at your cost per sale. For that, you need to know your conversion.

And that way you need to really know whether you want to grow this particular area of your business or not. Now, we tend to go for the least effort and that many times leads us to the lower profit. And sometimes we need to, if we don't stop and look at the numbers, we don't go no, I need to put my effort where I'm going to get money.

Hiring agents, retaining good agents is the hardest job that you have as a team leader. You should spend that time of your agents. In, in, in transactions that will make them money and make you money. And that's why knowing this is so important. 

Craig Rowe: I want to, work backwards from here. This is something I run into a lot. I'll get because of what I [00:18:00] write about all the time, I'm always looking at, I'm always looking at software products. CRMs, marketing whatever, They all, in a lot of them can function in a lead generation capacity and often get people just email me and they just want to know what CRM is best. What product. And they're going about it in the wrong. They're going the wrong direction. They need to look at something like this. They need to break down what they can spend. per lead based on their profitability goals, right? Like you said, a couple first years are going to be thin. You're going to be living on fumes. You really have to get by. 

But once you start to grow, find out what these costs are, and then find a transaction, find a business that's Technology solution that is going to overlap with these goals, right? One that is going to be able to help you convert the right kind of leads, find the right audience, right? To continue at this pace. You got to figure out the business, the [00:19:00] strategy before you go into the tactical end, which is what technology is. 

Alvaro Erize: It is. And unfortunately, the most profitable, which is the top final lead investment is a long term thing. It is the thing that at least you need to be thinking in two years.

And so it's funny because So I have a few slides here. I'll go fast over. So the 1 percent is real. These are real clients side by side in CINC, and you can see clients that are converting at 4 percent and clients that are converting at half a percent, right? But the 1 percent already is completely attainable. But it's not easy. This is people that have invested the time and the effort. And again, I don't obsess people with getting to these 4 percent because I'd rather be at a 1 percent and growing at a great pace. But you don't want to be at the half percent because that's when growth starts to work against you.

So I want to get you to a good level of profitability and then grow it, right? Make more money. The one thing, of course, the biggest issue here is time. But one of the best things that we've learned through this is that [00:20:00] a time of closing of buyer leads is actually much shorter than we originally thought.

So we're still going to preach to you that you need to follow up for two or three years. But Craig, if I had asked you before this, actually, I don't know if you read it already, but if I asked you before looking at the slide, what was the sweet spot where you felt most of the buyer leads will close? Is it at six months, at 12 months, or at 18 months? What would you have said? 

Craig Rowe: Oh, yeah, probably second six months. 

Alvaro Erize: And that's what we all. Like going into this analysis when I was doing it, and I've been at CINC for seven years. And we've all been hearing the same things, and we all thought it's really the 12 month mark when you start really closing.

That's because you start putting leads at the beginning and then it happens that these that are closing at the six month mark, you got them six months late. And in the end, it is absolutely true that 60 percent of the closings will happen in the first year. In fact, 40 percent of the closings will happen in the first six months.

So that [00:21:00] is pretty, pretty cool because it means that you can up your spend now and have an impact that is much shorter than I originally would have thought. But it's still, it still is true that if you don't follow up long term, you're only going to get half of your closings. So you're not going to get to that 1%, you're going to get into half a percent.

If you don't, so I don't want to change that. We've been preaching long term follow up, you should do it, but you are going to get 40 percent of those closings in the first six months from the moment that those leads come in. Now that's, that last comment is the one that creates confusion because if someone starts at CINC today and goes, Oh, in six months, I want to have converted 40 percent or 0.4 percent of the leads that I got in these six months. They're going to be disappointed. Why? Because you didn't get them on day one. Yeah. Got them through the six months. 

That's why when we built our guaranteed sales program, we used, so what, we did in our program, and we had never done it before. And that's why I respected your skepticism was we said, now that we know [00:22:00] the numbers and we know when people close and how they close, we know that if you start getting 70 leads a month on day one, and you get them consistently for the year, which we can provide. We know you're going to close two deals in that first year, which will completely recoup all your investment.

And then if you keep going, you're going to close six deals in the second year, right? And that gave us the confidence to do something we hadn't done before, which is we said, look, if you do what we say, that if it's important you're doing your calls. you're following our playbook. we have success coaching one on one. If you show up for the meetings and you do all these things, if you didn't close two deals by the end of the year, we'll give you the platform for free till you do. But that's just because now we know what that playbook is. We didn't know it three years ago. We know what to hold you accountable to.

And that's why we're very excited about it. That's why we went public with it a little bit back. And but, again, independently of whether you're doing it with CINC or with someone else, what I want you to know is yes, that first year, if you're doing [00:23:00] this consistently, you should close business.

You should get your money back. Again, CINC does the thing where we subsidize the, lead gen spend on that first year because we know you're gonna have to get through that draft, right? But, you should be betting on your second year. First, your first year should pay back your investment. That's a reality.

But your second year is where you should be making six figures, right? Where you need to be making 100k or more, maybe 200k out of your online lead gen. And that's what you should plan with. If you decide to come and visit us and talk to us about it, we'll talk to you about that plan and how we guarantee those two first transactions. And then we, work on how to get you to those 6 figures in the 2nd year. 

Craig Rowe: Okay. I'm more open to it. 

Alvaro Erize: Look, we, every client that we get on a guaranteed sales program, we have a tracker at CINC where we have client by client where they are, because if not, we're paying for it after a year. So we are. And if we, if you don't come to a meeting, we call it and we say, Hey, you didn't come to the meeting. You need to do it because we're in this with you, right? 

That [00:24:00] as the takeaways, CINC or no CINC, think of cost per sale. Think whether you can afford to have more of these kind of deals. Is it a deal that, okay, you had it, but or is this a deal that leaves you money that allows you to do more of this? If it is, then don't be scared of betting back into it. So many times I see clients that are having awesome results with us.

And I talked to them two years later and they grabbed their heads and they're like, why didn't I invest double, right? If I did 10 to 20 times my money, why not just do double? And so invest in it. If you're doing a buyer leads top line. My numbers are not some anecdote. I can tell you that you should end up converting at a 1%.

If you're doing this consistently for two years and you're doing your job and you're doing your calls. even in this market where we've seen a little bit of a reduction in conversion, it hasn't been dramatic. It's a 10, 15%. It hasn't been dramatic. The ROI is there, but you need to have the consistency.[00:25:00] 

Craig Rowe: This is the time to do it as well. And this is what brings me into this personal issue I have in the lead gen space, which led to my cynicism on this was that I see so many, I see so many promises to real estate agents about lead sources, and you see them marketing themselves on social media, like crazy. I can guarantee you 10 listing appointments this month, just follow this. It's, for all the folks in attendance, please don't go down those rabbit holes. There is a lot of garbage out there, especially now. 

What you saw today was a better way to look at yourself as a business, right? And to consider again, cost per sale. That is important stuff. You have to understand that as independent contractors, you guys are, you have to manage yourselves as a business. Cost in, cost out. What's it [00:26:00] what is it going to take to get that next sale? And I guarantee you're not going to get it from that guy you're clicking on Instagram really.

It's whatever it might be. And I'm calling them out as often as I see them. But what this is about is like putting in the effort. Using technology to support it. There is a lot of value, even objectively speaking, to what we've what you've seen today for sure.

Yeah. Looking, I don't see a ton of questions for us. So I want to, a couple things I want to get into is how would you how do you guys summarize search engine marketing or search marketing? 

Alvaro Erize: Yeah. So, for us this, what I'm calling that top funnel is... so you have two basic ways, right? One is through Google. Someone Google's homes in Atlanta and some links are going to show up. We want your sites to show up, but that's only part of it. Once people click on your site, because a lot of people [00:27:00] think that's just it. If your site is not a place that instills trust and that shows value to the consumer, they're not going to give you their information.

Even if you trick them into giving your information, then they're just a name and a phone number. But that lead is a dead lead. Even a Zillow lead, while very warm from the fact that they are someone looking for an agent, You don't get more information. What you get with an integrated platform is that every time that someone visits that site, you keep having information on that consumer and what time do they show up and what time are they looking for houses? How do they like to interact? What are they looking for? Of course. And you want a live lead. And for that, what you want is truly it's a site that provides value and instills trust and that people are going to come back to that site instead of Zillow, where they're going to get exposed to different agents, right? So that's option number one, which is through, Google search marketing. The Google, Bing like, there's options.

And then of course you have social, right? And social has had [00:28:00] bad rep in all leads from Facebook are not good. I have to tell you after looking at 10 million leads, good social marketing, good lead ads, good team listing ads, like certain products from Facebook convert at the same rate that Google. And they do it usually at a 30 to 40 percent cost lower so much. So I tried to convince clients all the time. Hey, put more on Facebook. If you have the right person managing it. And they usually it's hard to get them to because it's so ingrained in their minds and having looked at the data, the ROI is significantly better because the cost per lead is lower.

Now, conversion is a little bit longer term. So instead of 40 percent of closings happening in the first six months, it's like 30. So same amount of closings, but over a little bit longer, but not that much. Like you are still going to convert a 30 percent of all those closings in the first six months. So I'm, a big, I'm a big supporter of, social of social marketing done well.

And I think those two tools allow you to get to a client when they're still in the [00:29:00] thinking stage, not when they're already working with an agent. Yeah. It might take a little effort, but it certainly pays off. 

Craig Rowe: Yeah. When it's done. A lot of folks just think, Oh, I put my listing on Facebook. I got no leads. Is that all you did? You can't...

Alvaro Erize: the biggest thing that is very difficult for people to know what we do in the background is you pay every time that someone clicks, right? But that's how you pay Google, but you only get value if they actually give you their information. So guessing what is the right traffic to bring to your page so that you're not paying for clicks of people that will not convert is a huge part of the game.

And that requires.. And even better if you can guess who will actually close. So if you have, if you happen to have the luck of having a CRM integrated to a website where you have it end to end, then I can go and see if you're using our pipeline, which our good clients are. I can go and see which of the leads actually closed and come back [00:30:00] and feed that information into how to choose what traffic and what leads do I want.

Craig Rowe: Yeah. Your next audience. Yeah, great stuff. We are I guess we're a little over time, but that's all right. It was all terrific information. So how are folks going to learn more about what we talked about today? What's the best way for them to get a hold of you guys? 

Alvaro Erize: Oh, for us. There's a link somewhere where they can click. I assume in the chat. 

Craig Rowe: Oh, yeah. Up top. CINC guarantee sales program. It's at the top of the chat. For new clients. Yeah. Click there to learn more. 

Alvaro Erize: And I will say again, you'll feel our guys are not pushy on the sales side. If you want to learn more even if you don't think that your CINC is the best system in the market, and therefore, it's an investment to go in. Even if you feel I don't know if I'm at that level, if you want to talk to someone, our sales guys will be happy to really talk to you of like how to think about online lead generation, what to expect out of it. So whether you join us or not, I think it's good [00:31:00] for your thinking process of what to do with your business going forward. If what you want is to grow through online lead generation. 

Craig Rowe: Great, good stuff. And those in attendance, look, if this is stuff that interests you guys, please bring up these conversations with members of your team, with your brokers, with the colleagues you're working on. Think about this stuff and how you run yourself like a business and what it costs to earn those next leads because the market is weird, as we talked about. And there's a lot of frustration. There's a lot of knowledge getting thrown around out there. So make good decisions, use data, use the right technology tools. With that, we're going to wrap up today's Inman Insider webinar. Thanks everybody very much for joining us and we'll see you right back here again, real soon.

Alvaro, thanks very much for your time, man. I really enjoyed it. 

Alvaro Erize: Thank you, Craig. This has been a pleasure.