Why Every Real Estate Agent Must Know Their ROI
Are you wasting your advertising dollars?
Do you even know?
When was the last time you checked your ROI?
If this is your first time here, Hi I’m Heather with Savvy Agent. Running your real estate business LIKE a business owner is really important to me. So, let’s take a second and talk about return on investment, which is what ROI stands for.
If you’re spending any money on your real estate business, it’s important for you to evaluate your ROI periodically.
Are you getting the value for the money that you’re spending? If you’re spending a significant amount of money, like on advertising dollars, well that value translates into return on investment, or ROI.
The reason I’m bringing this up is because my friends at Zillow, are making a lot of changes to the Premier Agent program. That has a lot of agents sort of up in arms thinking, “Oh my gosh. You know, things are changing. Is this going to be worth my money? We get fewer leads now than we did five years ago.” So on and so forth.
It’s certainly not a moment to be bashing on Zillow. (Don’t take this the wrong way.) But, it’s just smart business owners saying, “Hey, I pay this company money, and I want to make sure that I am making a return on my investment.”
So, how do you figure out your ROI?
Well, you take your net profit, divide by your total investment, times 100. And, you’ll get a number that represents your ROI percentage.
For example, let’s say you spend $1,000 a month on a lead source. That means for nine months this year you would have spent $9,000. And let’s say you have seven sales with a gross commission year to date of $36,750, but your broker has a split arrangement with you where your broker takes 15% of your gross commission, leaving you with $31,238.
(If you’re a team leader, at this point, you would also take out your buyer agent split, because that comes from your bottom line.)
But for this example, we’re a single agent and $31,238 is our net commission. We take that divided by $9,000 (our total investment in the lead source) and take the 3.47 result times 100 to get 347% ROI.
Personally, I like to work with that 3.47 number because I know for every dollar I spend I’m going to make almost three and a half dollars on this lead source, and that’s my ROI, 3.5X. (I rounded up there, you see?)
Once you’ve figured out the ROI for your lead pillars for the advertising dollars you’re spending, then it’s time to make important business decisions.
Are you getting the value that you expected to get?
Is it time to cancel?
Do you need to call your rep to say, “Hey, this is not what I expected it to be. What’s going wrong? How can I fix this?”
Maybe your rep can give you tips on how to convert the leads better, get more leads, or nurture them.
Perhaps you have systems that could use improvement.
Are you actually following up on those leads? If not, why invest in the first place?
So, that’s how you calculate your ROI.
Take all of that into consideration as you make smart business decisions on whether or not you should continue spending your advertising dollars the way you currently are or if you should invest more, invest less, or invest in something else.
And if tracking your sales and tracking your expenses is not something you’re currently doing, so when you watch this video, you’re like, “What? How am I supposed to do any of that?” that’s okay. I have a freebie right here so you can access my very favorite numbers tracker spreadsheet, which will help you get on the fast track to better accounting.
It’s actually a course in Savvy Agent Club called Accounting is Sexy. So, just think of that as you’re tracking your numbers and counting your money, because accounting is sexy, because money is sexy.
And when you don’t have money because you’ve made poor business decisions by wasting advertising dollars because you didn’t track your ROI, well, that is definitely not sexy at all. So, download that freebie. If you have any questions, you can comment on this post or you can email me, firstname.lastname@example.org. Thanks for tuning in, I hope you have a profitable rest of your day!