This blog is part three of a real estate PPC series. In part two, we talked about the cost of PPC.
PPC is hands-down the most cost effective way to generate real estate leads. Where else can you spend $12 to find a potential homebuyer? What other platform allows you to target buyers at the exact moment they’re searching for a home? Where else can you double-down and specify exactly who you want to target? If it were a competition, PPC would win time and time again.
In this blog, we’ll cover what type of ROI you can expect, what factors contribute to your expenses, and the commission you can earn from PPC. Read on to learn more about how PPC can boost your bottom line.
Determining your monthly PPC budget
Never let the impulse to save a few dollars today get in the way of the long term success of your business. In part two, we covered what determines the cost of your PPC budget, so be sure to give it a read if you haven’t yet!
To determine your budget, here’s what you need to know:
Your lead volume target
How much time do you have to follow up with leads? Do you have someone to make these calls for you, or will you be doing it yourself? Effective follow up is key to a strong lead generation strategy, so don’t aim to generate more leads than you have capacity for!
We recommend generating 1-2 leads per day, per agent on your team. This allows for enough lead volume to see a decent ROI on your campaigns.
Your cost per lead
According to WordStream, the real estate industry’s average CPL is $116. On average, Avenue clients pay 10 times less with a CPL of $12. Keep in mind that your cost per lead is dependent on your market, your competition, and your website conversion rate.
Calculating your monthly budget
You can use the following formula to calculate your monthly budget:
Number of agents * lead volume * expected cost per lead * 30.4 days
Here’s an example for a single agent who wants to generate 1 new lead per day:
1 agent * 1 lead per day * $12 cost per lead * 30.4 days = $364.8 per month or an annual budget of $4,377.60.
Other PPC Expenses
It’s common for PPC agencies to charge an ad management fee for managing your PPC campaigns, typically as a percentage of your ad spend. At Avenue, our 10% ad management fee is included in your monthly ad budget, so you don’t have to worry about adding this on top.
The ad management fee is a small portion of your overall budget that pays for all of the work our team does to get you the results you deserve. This includes creating landing pages on your website, setting up your campaign, creating compelling ad copy that drives people to CLICK, improving your quality score, optimizing keywords, regularly analyzing your campaign, and much more. There’s a lot that goes into it and we want to ensure that your campaign gets you the results you deserve!
Since your PPC campaigns are linked to landing pages on your website, you may want to include your website costs as part of your PPC expenses.
The setup fee for your Avenue website is $199 with a monthly package fee of $459 for your marketing services. This means your total annual website expenses is $5,707.
Total PPC Investment
To calculate your total invest, add these two expenses together:
PPC budget + website expenses = total investment
As per our example:
$4,377 annual PPC budget + $5,707 website expenses = $10,084 total investment.
To summarize, an agent who’s looking to generate 1 lead per day with a cost per lead of $12 should plan to invest $10,084.
Determining your gross commission income (GCI) from PPC
Now onto the part you’re dying to know: how does PPC affect your gross commission income? To calculate GCI, let’s use an example agent. Here are the factors that determine your GCI:
Lead volume target
Your lead volume target will be the same as what you determined for your PPC budget.
For our example agent, we’ll maintain our lead volume target of 1 lead per day, or 365 leads a year.
Lead-to-sale conversion rate
What’s the rate at which your PPC leads turn into closed sales? On average, agents see a lead-to-sale conversion rate of 1-3%. Of course, this figure can increase with a diligent nurturing strategy, compelling branding, and strong testimonials. To improve your conversion rate, it’s time to let your skill as a great real estate agent shine!
Our example agent has an average conversion rate of 2%.
Average home sale price
The biggest factor in determining your GCI will be your average sale price.
With the market as hot as it is right now, the average home price in Canada is $750,000.
Real estate commissions vary by market, but the buyer’s and seller’s agent will typically receive between 2-4% in commission of the home’s final purchase price.
For our example, we’ll assume our agent receives 3% in commission.
Average real estate commission splits traditionally range from 50/50 to 70/30, but largely depends on the brokerage you work for and the market you’re working in.
Our example agent has a 60/40 split with their brokerage.
Gross commission income
Now it’s time to put these factors together using three formulas:
Expected sales = annual lead volume target * lead-to-sale conversion rate
Income per sale = side commission * commission split * average home price
Expected GCI = expected sales * income per sale
As per our example:
365 annual lead target * 2% conversion rate = 7.3 expected sales
3% side commission * 60% commission split *$750,000 average home price = $13,500 per sale
7.3 expected sales * $13,500 per sale = $98,550 GCI
The ROI on PPC
ROI measures how much you earn compared to the initial cost of your investment. To see an ROI of 100%, you will need to double your investment. For example, if you spent $1,000 on PPC ads and generated $2,000 directly from the campaign, your ROI would be 100%. In other words, for every dollar you spent on PPC ads, you saw a dollar in profit.
To calculate your ROI, use this formula:
ROI = (GCI - total PPC investment) / total PPC investment * 100%
Let’s calculate our example agent’s ROI.
(98,550 GCI - $10,084 PPC investment) / $10,084 PPC investment * 100% = 877% ROI
That’s an impressive ROI! This means that a typical Avenue client running PPC ads and selling homes at an average price of $750,000 has the potential to earn back almost 9 times their initial investment.
Improving your ROI
Although some factors like side commission, commission split, and the home price are fixed, there are still a few areas you can improve on to increase your ROI.
Lower your cost per lead
Your cost per click (CPC) and website conversion rate are the two main factors that impact your cost per click.
The best way to lower your CPC is to really pay attention to your PPC ads. Improving your quality score, running relevant ads, optimizing keywords to what your target audience is searching, and letting your campaign run for at least 6 months will help reduce your CPC.
To increase your conversion rate, it all comes down to your website. Is it easy to navigate? Is your landing page relevant to what your target audience is searching for? Do you have an effective lead capture enabled?
If you’re able to lower your CPL to $10, that can have a big impact on your ROI.
ROI with $12 CPL: 877%
ROI with $10 CPL: 953%
Generate more leads
It goes without saying that the more leads you generate, the more you’ll get out of your PPC campaign. If your CPL is already fairly low, we recommend increasing your ad budget as much as you can comfortably manage in order to increase your lead volume. Don’t forget: more leads means more time nurturing them. When setting your lead target, make sure that you have the capacity to work with a higher volume of leads.
Take a look at how much our example agent’s ROI increases by doubling their leads:
30 leads per month = 877% ROI
60 leads per month = 1,255 % ROI
Increase your lead-to-sale conversion rate
Generally, online leads in real estate convert into sales between 1-3% of the time. If you’re able to increase your conversion rate by 1%, that can make a big difference to your ROI.
Let’s compare the returns of an agent with a 1%, 2%, and 3% conversion rate, using the same figures from our example agent.
$5,707 yearly ad budget, 365 leads generated annually and 1% conversion rate = $49,275 returns
$5,707 yearly ad budget, 365 leads generated annually and 2% conversion rate = $98,550 returns
$5,707 yearly ad budget, 365 leads generated annually and 3% conversion rate = $14,825 returns
Conversion is the name of the game. As you can see, you don’t have to have a ridiculous budget or generate hundreds of leads in order to benefit from PPC ads - it all comes down to converting leads to closed deals.
So how does a 1% agent become a 3% agent? It’s simple: by having a slick follow-up strategy in place.
It’s very rare for leads to turn into clients straight from your ads; most buyer and seller leads often require more than one email before they’ll respond. We see a lot of agents abandoning their follow-up strategy when they don’t make contact after the first reach out, or attract leads who require a bit more nurturing than referrals might.
Need some help strengthening your follow-up? Check out our best practices guide here.
Maintain long-term campaigns for long-term results
PPC is more than just a short-term solution because it can take up to 6 months for your PPC campaign to gather enough data and start generating optimum results.
When you use PPC over a span of several years, you’ll start to see increasing rates of return for the money that you invest. This is because your dedication to giving search engine users the information they want will help improve your quality score. And, as mentioned before, a good quality score means you save more money on your PPC costs.
Long-term campaign benefits
– Decreased cost per lead: As your campaign optimizes, your cost per lead decreases.
– Better control over campaign costs: More data allows you to fine tune your campaign and optimize your ads even more. This means you pay less money to maintain the same level of results.
– Grow your ROI: Investing your PPC returns back into your ad budget can significantly impact your ROI.
– Target higher quality leads: Once you know what type of ads and headlines grab your target audience’s attention, you can double down on its success.
The benefit of PPC is that you’re attracting qualified leads for a fraction of what you’ll earn from that lead. While many agents might be hesitant to spend so much on the ad spend, the ROI of PPC far surpasses the initial investment.
No marketing strategy has guaranteed results, but with a fully optimized campaign and strong follow-up strategy, we’re confident you’ll be as big of a PPC fan as us.
Do you want to get the best ROI from your PPC campaign? Book a call today to discuss how you can use PPC to reach new customers and improve your bottom line.
Missed the other blogs in this PPC series?
Part 1: The Value of PPC
Part 2: The Cost of PPC For Real Estate
Part 3: The ROI of Real Estate PPC