I just finished watching the first football game of the regular season, and one commercial that kept playing was Bud Light’s “Too Light, Too Heavy, Just Right.” That got me to thinking: How do you, as a real estate investor or Realtor, determine the “just right” amount of money to spend on marketing?
As I thought about the answer to that question, I realized two things:
1) Your marketing activities need to fit within your budget – you shouldn’t spend money you don’t really have; and
2) To optimize your spending on marketing, you should think in terms of the return your investment generates (your ROI).
Your marketing activities need to fit within your budget
It only makes sense that if you had $100,000 to spend on marketing, you’d buy more houses and make more money than if you had $10,000. But, alas, most of us don’t have $100,000 to spend on marketing. So we have to optimize our marketing expenditures based on a more realistic budget – whatever that means for you. To do that, think about:
- Maximizing your results. Whether you’re looking for conversions on your website, leads from your blog, or responses from a mailer, you want to make sure that your marketing is the best that it can be. Do that by trying, testing, tweaking, and trying (and testing) again . . . and again, until you get results you’re happy with.
- Trading more expensive marketing strategies for less expensive ones. A direct mail campaign can be a highly effective way to generate new leads, but it’s relatively expensive. Blogging and online social networking can also be effective at generating leads, and they’re dramatically less expensive.
However you allocate your marketing dollars, remember that you have to give some to get some.
To optimize your marketing expenditures, think in terms of ROI
I was talking with a prospective client the other day and he said, “Someone once told me that he had to spend $1,500 in marketing for every house he buys, and he makes about $25,000 or $30,000 per house. But I’m not sure I want to spend that kind of money.”
I didn’t have a good response at the time, but as I’ve thought more about it, I realized that to optimize your marketing expenditures, once you’ve determined the maximum amount you can spend (by setting a budget), you need to think in terms of the return on your investment, or ROI.
So while $1,500 is a lot of money, if it results in one home purchase and a $25-30K return, the ROI is nearly 2000% (that’s right, two thousand percent). That’s phenomenal!
To calculate your marketing ROI, you’ll need to know:
- Your “result rate;” in other words, your website’s lead per visitor rate, your blog’s lead per reader rate, or your mailer’s response rate, for example
- Your lead-to-client conversion rate
- The total cost of the marketing effort
- The income generated by one success (e.g. one home purchase for the investor or one commission for the Realtor)
Say, for example, that you’re thinking about doing a direct mail postcard campaign. You think that you can get industry-standard response rates of about 2%. That means for every 1,000 postcards you mail, you will get 20 leads. Typically, for every 20 leads, you get 1 client.
The total cost of your postcard marketing campaign is $1,400; that includes $900 for printing and mailing a jumbo-sized postcard and $500 for copywriting and design.
On average, you make $20,000 for every home you buy. So your return is $20,000. The return on your investment, or ROI, then, is $20,000 ÷ $1,400 = 1429%. Not bad. Not bad at all.
When you’re planning your marketing strategy, first set a budget. Then think about your marketing activities in terms of both their cost and the return they will generate.
Onward and upward.