The Cost of Getting A Lead, Dave Ramsey, and One Night Stands.
They spend thousands of dollars every month just to get a name, a phone number or an email address.
I'm talking about the real estate agents who you see listed as the "featured" agent on Zillow or Trulia. These agents and their teams are spending upward to $20,000 and more monthly to get your information! I'm not kidding! There are real estate teams that are spending $35,000 a month for lead generating programs. These teams are bringing in a lot of money but a lot is going out. I recently read an interview of one of the top agents in Southern California who was considering dumping his team as the expenses were killing him. Yes, he was a multi-million dollar closer but the cost of generating business was taking all his profit. The individual agent who pays to be featured on Trulia, Zillow or other web sites is paying anywhere from $500 to $3,000 a month for lead generating marketing. Add in the cost of direct mail campaigns, social media marketing, and broker coaching services, these agents are shelling out a hefty amount of resources for a lead.
In real estate, a lead is not a guarantee of a transaction. It's just a name and hopefully a valid email or phone number where the agent can begin to solicit for business. How many times have you searched a website and in order to get the results or list of homes you had to enter your name and email? Well, this is what these agents are paying for - that information you entered (and maybe intentionally mis-entered to avoid being harassed). Lead generating is the number one activity in building a real estate business. It's also the number one expense. Marketing companies love to sell lead generating programs to agents as there is high profit there and unfortunately a gullible audience who is willing to pay for a bunch of useless data. Have you seen the movie "Glengarry Glen Ross"? "Where are the leads? We gotta have the leads!" To avoid the low-life opinion of "leads", marketing companies will tell agents "oh no we don't provide leads, we provide you with referrals. These are actual people seeking a real estate agent and they want to buy or sell now." So the lead is now called a referral. And yes, agents pay a lot of money to receive that referral. They pay a hefty monthly fee to be the "exclusive" agent for that particular zip code. Again the Trulias and Zillows out there are making a lot of money off agents who have been taught this is how you build a business. It really makes me sad to see agents signing up and paying for old data and wrong data, and thinking that by being the featured agent for that zip code, they are going to get a lot of business. The sad reality is that Internet leads account for less than 5% of the average agent's closings. But they spend way more than 5% of their marketing budget for these leads or referrals.
Creating lead / referral programs has become big business, though. Even Dave Ramsey, the financial guru, is making a lot of money off of agents through his ELP program (Endorsed Local Provider). I like Dave Ramsey for his Financial Peace program but not his ELP program. Agents who want to be a part of his ELP program pay an upfront fee of $3,000 plus a monthly fee and then assign 28% of their commission back to Dave when the referred transaction closes. Plus when a prospective buyer or seller registers for Dave's ELP program, they are provided the names of 3 agents so there is no exclusivity for agents in the program. Just a lot of dollars heading Dave's way, which is a brilliant move for Dave.
Agents will refer clients to other agents for a variety of reasons such as location or expertise and we do pay a referral fee to each other, usually between 20 to 25% of the commission side. However, these referrals are legitimate sellers or buyers ready to start the process with the referred agent based upon their referring agent's recommendation.
The whole problem with buying leads is that it is not sustainable. The outlook of agents who depend upon this type of business development is transactional and in essence they have a lot of "one night stands." Once the transaction is closed (even sooner), they move on to the next lead to try to convert that one into an actual client.
Fortunately I was introduced to how to work by referral my first year in real estate and I've always believed by taking care of my clients, they in return will refer me. And it has worked since 2006. I don't pay for leads, I don't buy ads. I keep in touch with my clients, many of whom have become personal friends. My so-called "marketing" budget supports Girl Scout projects, school jump-athons, annual sponsorships, football team programs, college scholarship programs, and the Spreading the Good News program. I'm a relationship-based person. I like to put a face and a personality to my files. I can look at past folders and remember that family's "why" in purchasing or selling. If you diagrammed my business, you would see a giant spider web that is connection after connection. This friend referred their uncle, this family member referred their best friends who then referred a family member, and so on. The cost of this level of trust and relationship? Priceless!
