What is the Lifetime Value of a Lead?
We’ve got a new way for you to think about how you calculate the value of a lead.
By Travis Saxton, vice president of technology
What is the value of the leads you generate? To illustrate, here’s a story from a fake sales associate, Joe, that represents a situation that we see often.
Joe is an aggressive sales associate who advertises online. He’s spent money online to generate business to his website and, more specifically, Joe is dominating one neighborhood on a granular level. In fact, no other agents are equaling his efforts. Joe generates a lead through his online efforts. The lead cost Joe $35 to generate.
Many sales associates assess leads for straight transactional value. One lead equals one potential deal. Let’s think of it another way. We know real estate is a relationship business and, while online lead generation is growing and not going anywhere, it still only makes up a fraction of your business. The largest portion of your business comes from referrals and happy clients. Of course, many of those transactions are initiated with an online lead. As people migrate to and from your market and grow older, your sphere naturally denigrates, and you need to replace it with new business. For some sales associates, this is their only source of business – not Joe.
Joe does a great job of taking care of his $35 lead and produces a transaction. The customer is thrilled, and Joe collects a testimonial from this customer. Joe also hosts and pays for a housewarming party, inviting the customer’s new neighbors. Naturally, Joe is there, and now a $35 lead has turned into a $535 transaction. ($500 for the party). Some agents stop here, but not Joe.
Joe stays in great contact with his customer and his customer’s neighbors hoping to become their real estate professional of choice. Joe spends time generating CMAs, market reports and newsletters relevant to people in this neighborhood. Joe was so impressive with his neighborhood knowledge and effort that his sphere is growing. Now, one $35 lead with proper TLC has produced three transactions that could multiply as this new sphere continues to grow. This is how to conduct your business.
In Joe’s new listings, he now has a larger budget to spend on marketing, drone videos, virtual reality tours and more. Joe knows that the effort put in today will bear fruit. Now let me ask this. What was that lead worth to Joe?
We often struggle with this question as there are a lot of variables. In this scenario, one lead, a party, and diligent communications produced three and possibly more transactions. So, the lifetime value of this lead could have been worth thousands of dollars, depending on factors such as price and commission rates. REAL Trends is doing our best to take the guesswork out of valuing a lead. We’ve partnered with Adwerx to bring you an online calculator that helps you calculate the lifetime value of a lead in your specific market.
This article originally appeared in the June 2016 Issue of the REAL Trends Newsletter is reprinted with permission of REAL Trends, Inc. Copyright 2016
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