An unpredictable and changing market can make budgeting a real challenge, especially when it comes to marketing expenses. Immediately, questions arise: Should I increase or decrease the amount of money I’m spending on marketing? What’s the best thing I can do to market my business right now? Should I be spending more on brand awareness, social media or lead generation? The list goes on and on. While there are no easy answers, you can use this time as an opportunity to analyze your marketing metrics and past results. I want to challenge you to start thinking about your marketing return on investment (MROI).
Know what’s working and what isn’t.
It sounds basic, but understanding your MROI is critical to making better business decisions. Even if it’s 0 percent, every marketing tactic has a return and you should know what it is. I often see agents take a “spaghetti against the wall” approach. A bunch of marketing is “thrown against the wall” with hopes that some of it will “stick.” The focus is on output and “grabbing more spaghetti,” when in reality, the tactics that “stick” or are working aren’t ever analyzed. This leads to the cycle being repeated over and over again.
“Just do more” isn’t a real marketing strategy. It leads to wasteful spending, no follow-through, false attribution, strategies that change on a whim and a lack of a true understanding of which marketing channels are responsible for driving the best MROI. This is also how you get into the Shiny Object Syndrome trap. Good marketing is done with purpose. It’s targeted at the right audience, with the right timing, messaging and medium. It’s aimed at hitting pre-established benchmarks and ultimately is focused on increasing revenue, not just expenses. Knowing your MROI helps to provide clarity in all of this and takes “I think this is working” and turns it into “I know this is working.”
Know how to calculate your marketing ROI.
Calculating MROI can be complicated and take time, but it’s worthwhile to do. There are different MROI models depending on what variables you have, so find one that works for you. Here is how you can begin to figure out your MROI.
Let’s use digital ads as our example area to analyze. If you are doing cost per click (CPC) or a digital ad that is focused on driving traffic to your site, know the cost of traffic coming to your site from that ad. Understand your conversion rate or how many of those visits it takes to get a lead. Use that to calculate your cost-per-lead (CPL).
Simplified example: You are running a Facebook traffic ad to a “What’s My Home Worth” landing page. You spend $1,000 for 1,000 website visits which equals $1 per click ($1,000 / 1,000 visits = $1 CPC). You know you convert 2 percent of the traffic that visits your landing page into a lead, so that 1,000 visits convert to 20 leads (1,000 visits x 2 percent conversion rate = 20 leads). That means that the $1,000 it takes to get 20 leads = $50 a lead ($1,000 / 20 leads = $50 CPL).
Next is the conversion rate of your leads that turn into an actual home seller. That will give you the cost per acquisition (CPA). If you know you convert 5 percent of your leads that come from that landing page, the CPA for this ad is $1,000 (1,000 visits x 2 percent conversion rate = 20 leads). Then (20 leads x 5 percent closed lead rate = 1 closed lead). And finally, ($1,000 budget / 1 closed lead = $1,000 CPA).
If you make a $10,000 commission on the property you sold, that’s a 900 percent ROI. ROI = (gain from investment – cost of investment) / cost of investment. In terms of our example, MROI = ($10,000 commission earned – $1,000 cost of ads) / ($1,000 cost of ads) = 900 percent MROI.
Yes, it takes some time to calculate this math, but I would recommend doing this for all of your current lead generation and digital advertising sources. Start with the information you know and have access to and work from there. Think progress, not perfection! Go back and look at your spending. Does your spending match the places you are getting the best CPA and highest MROI? You can then dive deeper into your business numbers and look at the data which will show if it makes sense to buy traffic or leads. Ask yourself questions like: If I lower the CPC on my digital ads, does my conversion rate stay the same or go down? How do I bump up my conversion rate on my leads? How do I nurture my leads? And this is just for leads! While they will be different formulas, you can work through a similar process for radio segments, billboards or any other kind of advertising you are running.
Know what your time is worth.
Lastly, you have worth and so does your time. Sure, you were able to create that social media graphic, but it took an hour of your time—an hour you weren’t prospecting or following up with current and past clients. In this case, it may make sense to get some marketing assistance as long as the ROI is worth it to you and your business.
At the end of the day, it’s about finding the best and most efficient use of your resources to better your business. At HomeSmart, we know an agent’s time has value. We believe in 100-percent commission and providing our agents with free technology, so that they can run their business efficiently and how they want to, so they have more time and more marketing dollars to put back into their business and their pockets. Spend your money and time on the things that give you the most back so you can run a more successful, smarter business.
Adam Bauer is the vice president of marketing operations at HomeSmart International. Bauer is responsible for maximizing the company’s brand presence and marketing strategies. For more information, please visit homesmart.com/join.
