Making the Numbers in Real Estate Marketing Add Up

by Sean Purcell

Real Estate Renaissance Man

Author website

In a recent Bloodhound post about Twitter (only Brian Brady could write the third post in just over a week on the same subject and generate so many comments!) there was a comment on marketing numbers that so intrigued me I felt compelled to respond in a post rather than a comment.  It’s been my experience that many of us do not accurately calculate the numbers when it comes to our marketing.  This should really come as no surprise – numbers and especially statistics can be beguiling and even misleading.  But if we’re not tracking and calculating our marketing efforts correctly, we’re just shooting into a dark room hoping we’ll hit the target.

The numbers quoted (or maybe it was just the idea) are credited to Larry Kendall, but they provide an interesting opportunity to work a real world example of marketing in general and Twitter specifically.  For this exercise I am pulling some examples from the actual comment, but just about every one of us has made this type of calculation before.  I follow each with a slightly different view.

I want 50 local people that I can really connect with (on Twitter).  If I have 50 people and they each know 50 people, I have a pool of 2,500 people.  Not quite.  It means you have the potential to reach 2500 people, but it’s unlikely.  For the purpose of calculating marketing numbers… you’re reaching 50.  This is akin to speaking at a seminar filled with 50 people from the neighborhood and assuming you’ve reached all 2500 people in the neighborhood – you haven’t.  If, on the other hand, you send a direct mail piece to all 2500 people in the neighborhood, then we say you’re working from a pool of 2500 potential clients.  Is it realistic to think all 2500 read that mailing?  Of course not.  But our expected conversion numbers take that into account.   The expected conversion numbers are simply based on a pool of 2500.  A pool of 50 will generate no usable statistical model from which to base a marketing campaign.

If the *normal* turnover rate in my local area is every 5 years, that means that 20% of the market is up for grabs. Each house has 2 possible transaction sides and that would mean that 40% of the marketplace has a commission attached to it.  Again, not quite.  Let’s assume for now that the average turnover is once every five years (which I believe has actually expanded to more like once every seven years), that still does not translate to 40% of the marketplace having a commission attached to it.  Twenty percent of the marketplace has a commission attached to it and that commission (for sake of argument) is 6%.  Whether that commission is split between two brokers or (unethically) double-ended by one broker doesn’t matter; for purposes of your marketing campaign twenty percent of the market is available at any one time.  Why is this important?  Again, if you don’t know the actual number of targets in the room, you might as well go back to shooting in the dark.

2500 people in my Twitter network = as many as 1,000 transactions.  Not to put too fine a point on this, but there are 500 transactions (20% of 2500).  If you are calculating your business – and more especially if you are creating your yearly business plan – you need to know the number of potential transactions as well as your expected capture or conversion relative to that number of transactions.

5% of the potential = 50 transactions.  As we now know, 5% would be 25 transactions (5% of 500 transactions).  More importantly though, we have arrived at the most integral question of all: What is my conversion rate? Owning 5% of the transactions in a marketplace, while a laudable and maybe even attainable goal, is quite an achievement.  The aforementioned 5% would most definitely NOT be my starting place.  There are plenty of very successful agents who have never achieved a 5% saturation in their marketplace.  The best way to calculate this would be to look back over at least the last five years and discern your actual conversion rate.  You can take into account whether or not that rate is growing, slowing or erratic when coming up with the final number you use for calculations going forward.  Absent a five year history, or in the case of entering a new marketplace, I would calculate my numbers this way:

From your Title Co. get an accurate count of transactions in your marketplace for the past twelve months.  Through the local board, Department of Real Estate or whatever source you can find, try and ascertain a relatively accurate count of the number of agents located within your marketplace.  (For now, we’ll discount agents from out of the neighborhood who are working a one-off deal in your farm.)  Divide number of deals by number of agents to get an average per agent, then divide that number by total number of transactions to get the average conversion rate per agent.  Now, the 80/20 rule is pretty universal (although my take on real estate is that it’s more like 90/10!).  If you want to be conservative go with 80/20.  Calculate 80% of the total number of transactions and divide that by 20% of the total number of agents.  Finally, take that new number (which is equal to total number of transactions per “top producing” agent) and divide by the total number of transactions in your marketplace.

EX:
500 total transactions
200 total agents
500/200 = 2.5 and 2.5/500 = .005 or .5% avg conversion per agent

400 transactions (80% of total transactions)
40 agents (20% of total agents)
400/40 = 10 and 10/500 = .02 or 2% avg conversion per top-producing agent
(incidentally, these numbers –  if scaled up – are not far off from San Diego’s actual numbers)

Now you know the conversion rate of an experienced, top-producing agent in your area.  Assume you are not one yet and set your conversion rate at somewhere between the average of all agents and that of the 20% who are producing.  From there, go forward with your marketing plan.

The point of this exercise is not to isolate the comment of any one person.  The point is this: if we want success in a commission based career, we must track our numbers and follow an intelligently thought out marketing plan.  Armed in this way, we can achieve our dreams.