Case Study: How to Calculate Marketing Returns as a Wholesaling Newbie

by | BiggerPockets.com

If you haven’t read yet, marketing is the name of the game with real estate wholesaling. One question that is often asked is, how much should I spend for a good return? Well, wholesaler, here’s how to calculate marketing returns.

I will attempt to answer this questions, but it’s hard to quantify each market. What I mean is each market is different, and because of competition, the returns vary. However, I do know the most important thing about marketing for wholesale leads is to be consistent. A part of being consistent is to have a desired budget to spend on each campaign, so let’s start there.

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Setting the Framework

I will use direct mail as the framework for this discussion. I know there are many marketing strategies, such as online marketing strategies, cold calling, driving for dollars, and bandit signs, but in my opinion, direct mail is the easiest to quantify. If you have a different opinion on this, I definitely welcome comments below.

I am still learning a lot about online marketing, so I can’t direct you as much on this topic. I’ll stick to direct mail, something I am very familiar with.

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Although I am not sending 40,000 pieces a month, I am generating a good return from my initial investment. The reason why my initial investment is still generating leads is because I make sure to reinvest in my marketing. By reinvesting back into your business, this will ensure you have longevity.

One other thing I would like to add before we jump into numbers: Not only do you have to be consistent; you have to remain optimistic. It is easy to become discouraged when you have a less than anticipated response from your sellers. I will show you what I mean when we get to the numbers.

Wholesalers: Here’s How to Calculate Marketing Returns

We must remember marketing — and especially direct mail — is a numbers game. The more you push out, the more you will get in return. This is the reason why many experienced investors spend thousands of dollars on direct mail.

There are a few things you need to make sure you track when doing any marketing besides the obvious profits and losses. You need to track your response rate, close rate, average deal size, and contract to close timeframe. There are many tools you can use to track this data. There are also many affordable tools that can help you get started.

As I stated above, it is easy to become discouraged and distracted because if the phone is not ringing, there is an natural tendency to do something. I am guilty of this — I am a doer and if there is nothing to do, I find things to do in order to stay busy. This is not always good because busy does not equate to production.

So how do you calculate your returns? Normally, there is a 1% response rate when it comes to direct mail. If you send out 1,000 postcards/letters, expect to get 10 phone calls, and maybe of those 10 calls there is a deal. In my case, it takes 30 leads to produce a contract, so 1,000 mailers wouldn’t work in my case. In some markets, a 1% response rate is good, and in other markets, a 1% response rate is horrendous. Again, it depends on the market. We will use the national average of 1%.

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Case Study

Joanne has $3,000 to get started with marketing, and she is going to use it all for direct mail. Let’s assume Joanne is mailing postcards at $0.52 a piece. Joanne first needs to pull a list. She is going to pull the list with Rebogateway.com, which will cost $45 for a monthly subscription. Now she has $2,955 for mailers. Again, she is going to use the entire amount on postcards at $0.52 per mailing. So she is able to mail 5,700 pieces (we’ll use round numbers).

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She mails to the list and receives 57 phone calls. In her experience, she lands a deal on every 30 quality leads. So this will constitute Joanne getting one deal from this mailing. Joanne also knows that on the average deal, she can net $12,000. So Joanne’s $3,000 investment can gross $12,000.

Joanne can then use the $12,000 minus any miscellaneous fees to reinvest in her business — and continue to increase the amount of mailers she can send out, which will increase the number of leads, then the number of closed deals.

My Experience

The Joanne example is basically how I was able to get started. I started with an initial investment of $2,019.89, which resulted in just under 4,500 pieces, and I was able to close a deal that was $19,000 gross. The 4,500 pieces made my phone ring just under 30 times, which is under 1% (law of averages will result in a 1% response rate). Out of the 30 calls, there was one deal, and that one deal I was able to put under contract for $50,000. I then sold it for $69,000 via Craigslist. Not bad for my first independent deal.

Please let me clarify — this was not my first deal, but my first independent deal. I started bird dogging and doing acquisitions for a local investment company. What I learned from my experience with that company gave me the knowledge and the faith to step out and try it on my own. I do not want to give you any false impression or false hope that it’s quick money. I worked for two years using trial and error until I was able to go independent.

Conclusion

The opportunity is there if you use a little seed money to get started. You may have to sacrifice in other areas of your life to get started. The formula is the same, although in some markets, it may take longer for you to close the first deal. Still, if you’re consistent, you will see how these returns will consistently produce.

Be patient and know that there is a process you have to go through in order to see results. I almost gave up during the first two years. In the end, though, those years of trial and error were just dirt thrown on my seed of tenacity, perseverance, and daily positive confession. When the time came, my seed took root and began to materialize. Whatever you do, don’t give up, no matter how much dirt is on your seed — and remember, marketing is a numbers game.

What kind of marketing budget did you get started with as a wholesaler — and what kind of returns did you see?

Let me know your questions and comments below!

About Author

Marcus Maloney

Marcus Maloney G+ is the Executive Officer of Equity Realty & Investments as well as 3rd Generation Management & Holding LLC, both are family owned and operated real estate investment firms. The firms' goal is to provide affordable solutions in real estate while providing exceptional opportunities for community redevelopment for the residents of Phoenix, Arizona and Chicago, Illinois. You can follow Marcus on Twitter

13 Comments

  1. James Yepez

    Thanks!
    I needed this one. I sent out 3750 postcards for January and received 1 phone which was a bad lead. I have another 1250 going out next week! Can’t wait to get some good leads coming in. I definitely am a bit discouraged but I know consistency is key. I will keep sending out mailers for the next 3 months.

    • Marcus Maloney

      James, that is one of the things the gurus fail to mention. You have to be willing to take the risk and know that direct mail is a numbers game and just remain consistent. They pitch send it and it will come right back in 30-60-90 days and some time you may not receive your first check for up to a year. Also even-though you received only one call some sellers will keep the letter and call you 3 or 4 months later. This happen to me and I thought I had a terrible campaign but then I received a call from a seller who had a fire and no insurance and the house was free and clear (perfect storm) and I was able to net 33k on that.

      Just keep plowing through you will see some results man.

      “Enjoying the Journey”

  2. Great article, Marcus. Thanks for sharing. I needed to hear this. I am working on a direct mail campaign right now, and I am using Rebogateway to market to leads who live out of state but own a property in the six zip codes in my surrounding area, and who currently have a lis pendens on the property. You would think that would be a fairly motivated list, right? Well, not so much. To date I have sent out a few hundred to out of state owners and have only received one call. But I agree with you that this is a numbers game, and I will keep at it. I was just curious. How did you break down your first list? Did you take 4,500 leads and mail to each of them once, or did you take a list of 1,500 leads and mail to them three times each? Thanks again, and I appreciate all the additional comments also. All good advice.

    • Marcus Maloney

      Mike,

      Great questions, interesting enough I reviewed all of my campaigns recently and found out that absentee out-of-state was my lowest performing campaign. I had the same philosophy as you. Out of state landlords with lis pendens should be highly motivated. However that was not the case for me either. My first list I used Rebo and had a mixture of leads, I had absentee in certain zip code, divorce, tax defaults, and out of state. I hit all list multiple times 6 times which during my evaluation of my campaigns I should have hit the list more times. My mailing I did 4500 total on my first mailing, but I continued to mail to that 4500 every other month. It just so happened that the first 4500 mailers I received a contract from an absentee owner in state. My suggestion is to calculate your budget and make sure you are able to mail to your list at minimum 6 times.

      Its funny you have to track your mailings and some of the strangest things you will begin to identify. Some of the specialty list such as notice of sale, notice of defaults you will not pull as many leads from rebo but those leads will perform very well. Absentee owners you will have to mail a lot more to but that list performs extremely well. I must say my best performing list is absentee in one of my desired zip codes. I had to mail more pieces but the number of closed deals was higher than all the other campaigns.

      Hope this helps.

  3. Cornelius Charles

    Good post Marcus. We live in Southern California and mail about 1000 mailers a month. Our response rate is currently 0.25%. We talked with some more experienced investors recently and are going to modify the lists we are mailing to and the letters we are sending. Hopefully that will give us a little uptick in response rate.

    • Cornelius,

      Yes its always good to evaluate your marketing I am currently testing letters, envelopes and stamps. If your getting a .25% response you may need to tweek something. However your in SoCal and their is a lot of competition such as it is in Phx so that response may be typical.

      How many times are you hitting the recipient to get the .25% response? If its not more than 5 times then you should work to continually hit that list.

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