Deal-to-Leads Ratio, or How Many Leads Does It Take To...
Alright, here are some thoughts I want to put out there regarding a concept a lot of people ask about: How many leads does it take to get a deal?
I have a theory, and I have absolutely no data to back this up but it sure makes a lot of sense: in any given target market at any given time, there is a certain, yet unknown, number of motivated sellers who "need" to sell their property.
For example, if there are 1,000 potential properties in your target area, all owned by absentee-owners, a certain unknown number of those owners will be in a particular life situation that gives them an urgent reason to sell their property. Let's say there are 5 people out of 1,000 on this particular day.
So the question is, how do we get those 5 people to call us to discuss our buying their property?
- Do we put billboards up all over town and hope they see one the day they decide to sell?
- Do we run TV and radio ads 7 days a week hoping they see or hear one on the day they decide to sell?
- Do we put ads in the paper and online? What if they don't see the ad?
- Do we setup a website with a form for them to fill out? What if they don't find our website?
Of course I am biased here, but I submit that the ideal solution is direct mail. But not just any direct mail, I mean direct-response mail that is designed to elicit a response.
No direct mail piece, no matter how well written, will CREATE motivation in a person's life. Rather, the sole purpose of the direct mail piece is to get the people who are ALREADY motivated to call you. If the mailer gets people to call you, then it has done its job.
I have seen a lot of people out there fail in direct mail when they think of it as simply another form of advertising.
Direct Mail Should Not Be Used As Advertising
It's far too expensive, risky, and time-consuming to use direct mail as an advertising medium. What do I mean by advertising? I mean sending a postcard that has a flashy graphic on it and your headshot, with a blah message written to noone and everyone at the same time, with a weak call to action, that LOOKS LIKE AN AD from some slick corporation. If you're mailing this sort of thing, I know exactly what paltry response rate you're getting because that's where I started.
Why would our 5 motivated sellers in our target market even notice your "ad" when they're inundated with 14,000 ads a day (some stat I read a few years ago), let alone pick up the phone to call you?
Instead, direct mail should be used as just that: mail sent directly from one human being to another human being. It is my opinion that when dealing with such things as selling a property to someone, people would rather do business with a person than a company.
How Do We Get The 5 Motivated Sellers To Call?
What would be really great is if we could KNOW who all the motivated sellers in the area were on that day, and send a letter or postcard just to them and have them call us back. But of course that's not how it works. We have to mail to all 1,000 of our potentials, just to get to the 5 motivated sellers.
But what do we mail them? We need to mail them something that is most likely to get them to respond.
Yellow letters have come under fire for producing bad, unmotivated leads. Even I have discounted their effectiveness because while they produce a lot of leads, the leads they produce are not always very motivated. This is the reason I don't personally use them, nor do I recommend them in all situations. However, for the sake of discussion here, one can make an argument for them.
Imagine you are one of the 5 motivated sellers in the area today - you just got laid off, your tenant moved out, and the IRS is after you for $15k. You get home and see somebody sent you a yellow letter. You are most likely going to call that person who sent the yellow letter because they represent a possible solution to your problem.
So if we send out 1,000 yellow letters, and get 100 people to call us back, including 4 out of the 5 motivated sellers that day, then has the yellow letter done its job? Yes, but with 96 unmotivated callers we have to sort through. (I can hear many of you whining, 'That's why I hate yellow letters!')
The question now becomes, how do we sort through all 100 leads efficiently enough to make this worth our while? Do we send each caller to a pre-recorded message which tells them we need to buy at a discount or with flexible terms? What if one of those 5 motivated sellers calls in and hears that message and thinks to himself, "oh, this isn't for me, I need to get $XXX,XXX (inflated retail price)" and hangs up without leaving his info?
It's a question of, do we want the caller to disqualify himself? Or do we want to talk to him anyway because there's a chance that if we talk to him we can show him what his house is really worth and make him an offer? In other words, do we want the caller to disqualify himself or do we want to maintain control over the disqualification process?
For me personally, I run all my callers through a pre-recorded message to let them disqualify themselves. But if I was really wanting to make the most of my direct mail campaign, I might want to talk to each one personally just to make sure I don't miss any of the 5 motivated sellers.
The Big Picture: Quality vs. Quantity
While some investors hate dealing with unmotivated sellers, others are profiting because they realize it's part of the game. When I hear someone whining about having to deal with too many "low-quality" unmotivated leads, I get a little frustrated. Frustrated because they're missing the point.
If you're getting a lot of unqualified unmotivated sellers calling you, be happy because it means your chances of getting the 5 truly motivated sellers to call you has increased in lockstep.
How Many Leads Per Deal?
People ask me this and it is frustrating because they always want a hard and fast number for them to base their business, their numbers, their cashflow forecasts, their judgments on. And if I give them a number (which I do reluctantly), they take that number as gospel.
Let me tell you, there are no guarantees in life. So if someone tells you you're going to get a deal for every 30 leads that come in, there are so many unknown variables involved that it is hardly worth basing anything on that.
If I say you're going to get 30 leads over the next few weeks, and you ask how many are going to be truly motivated, how in the world could I possibly answer that accurately? Let me ask you, which would you rather have: 25 out of 30 leads that are "motivated" but none of them turn into a deal; or just 1 out of 30 leads that is "motivated" but that one actually turns into a deal?
Now, I know that one can use statistical analysis to estimate the number of leads to deals you're going to get. But it's like we learned at the end of the movie Moneyball: no matter what the statistic says SHOULD happen, it doesn't matter a bit when it comes down to predicting the outcome of any individual event. If you flip a coin 5 times and it comes up heads every time, that has no bearing on what the outcome of the next flip will be.
Likewise, if in January you get 1 deal out of 30 leads, that doesn't mean it's going to happen again in February. Heck, what if you get 2 deals out of 30 leads because someone calls you and happens to have 2 houses to sell instead of one. "Well holy cow, we've just doubled our deals-to-leads ratio!" Well, did we? Or was it just a fluke? Did we just get lucky? Can we expect the same in March?
What if we mail to all 1,000 potentials in our area on Monday, but there is actually only ONE motivated seller in existence on that day in that market, and he's out of town? "Well shoot, these dumb yellow letters don't work!" Well, maybe they do and maybe they don't.
There Are No Guarantees In Life
Get this concept planted firmly in your being and you'll be among the top 2% of the population: There are no guarantees in life. All we can do is our best, and with the rest just keep it moving.
So to the question of How Many Leads to Get a Deal? There is no firm answer. It depends on your ability to follow-up and close more than anything. And if you are not good at that, then your leads to deal ratio will be fairly high. If you're really good, then it will be low. Don't blame the marketing medium if you have a high leads to deal ratio, for the blame of a successful person will always be on himself and not his circumstances. Take this to heart, my friend, and you will be a truly successful person.
P.S. Full disclosure here: I don't use yellow letters because they generate too many uninformed leads (people who don't know who I am or what I do). I was simply using them as an example in this post. Not to say they don't work, but it's not what I do. Maybe they will be the best thing for YOU!