We all know that leads are the basis of the real estate business. Without them, regardless of source, we don’t have a business. So, where do your leads come from?

Leads (Lead Generation)

Knowing how to generate leads is the difference between success and failure in the industry. We need a full pipeline at all times so we can combat the average agent’s roller coaster income.

Where do agents get their leads? The list is long…

  • Sphere of Influence
  • Home Search Website
  • Signage
  • Social Media
  • Open Houses
  • Cold Calling
  • FSBO’s/Expireds
  • Zillow/Trulia/REALTOR.com/etc…

and the list goes on and on. We can name sources all day long but are you thinking like the true business owner you are?

Do you know your ROI on your different lead sources?

If not, you should.

Cost Per Lead (CPL) vs ROI (Return on Investment)

A lot of agents will brag and say their cost per lead is really low. To that, you should say “Yeah, but what’s your ROI?” This is confusing to some. Here’s the Cliff’s Notes version with totally made up numbers for easy math:

Say you are spending $500 per month on lead source “A” and you get 10 leads per month. So $500 a month x 12 months = $6,000 and 10 leads x 12 months = 120. Let’s plug it in to the equation:

$6,000 spent / 120 leads received = $50 Cost Per Lead

Great, BUT how many of those 120 leads actually end up buying/selling a home with you? If they were all trashy leads, then who cares what the cost per lead is – it’s too much!

Now, figure your ROI…

Let’s say you can track $25,000 in commission dollars generated from the leads received from the source above. Now, let’s figure ROI using the following formula:

Commission $ generated – $ paid for Lead Source = $ Generated / Invested in Lead Source = ROI $

Plugging in the numbers above, the formula would look like this:

$25,000 (commission generated) – $6,000 (paid for leads) = $19,000 generated / $6,000 paid for Lead Source = $3.17 ROI

Basically, that means you generate $3.17 for every $1.00 you spend with this particular lead source. Not bad to generate 3X what you are spending!

You can use this formula for all your lead sources to see what is making you money and what is costing you money! What if you were paying $250 per month for a lead source and generated 50 leads per month?

$250 x 12 = $3,000 spent and 50 x 12 = 600 leads received

$3,000 / 600 = $5 Cost Per Lead

Those $5 leads resulted in $10,000 commission income.

$10,000 – $3,000 = $7,000 / 3000 = $2.33 generated for every $1 spent

Not as good as the first scenario but over 2X the investment. The question now is, did you have to work harder? Your time is an investment too.

Sphere of Infulence

Sphere is obviously the least expensive because it’s people you know or are acquainted with. These are people you are in touch with often and they remember you are a real estate agent and recommend you to their friends.

You usually don’t start out in the business with enough sphere to keep you going. Most successful agents build their business by building their spheres bigger and bigger. We all want to be a referral based business, don’t we?

The ROI on this source is typically the cheapest!

Other Sources of Leads

Agents have a tendency to chase the newest, shiniest objects when it comes to lead generation. When someone is touting a way you can sit back and have qualified leads come to you with little to no effort, we think we’ve hit the jackpot!

Usually, it’s not a system you can sustain, way too expensive to begin with or on-going or just not true at all. It’s someone else’s “get rich quick” scheme they sell to agents.

There is not a right or wrong answer for best lead source. Each of us has to figure our CPL/ROI to be sure it’s worth spending our hard earned money on.

Bottom Line

Carefully track what each lead from a lead source is costing you and making you. Basic business math is your friend and can mean the difference between reaching your goals and not!