stevenjsands.com - Internet Lead Costs

The costs for running ads on social media vary greatly from platform to platform. Even ads placed on the same platform, such as Google Ads, range quite a bit. The disparity is based on several factors such as the keywords being used and the number of clicks your ad receives. Google Ads are based on costs per click. So the more clicks your ad receives, the more you will pay for your ad.

National Averages

There are some national averages that can be used to determine a base line for ad costs. Wordstream.com publishes and updates benchmarks for Google Ads. Their most recent update was August 27, 2019. They provide by industry average click-through rates (CTR), cost per click (CPC), conversion rates (CVR), and cost per action (CPA). With these rates, we can get an understanding of what the average costs are to get a lead and to eventually convert a lead into a buy or sale real estate transaction.

Now keep in mind, these are average rates. As you will see, using these costs will prove to be too costly for most real estate agents to advertise with Google Ads.

First, we will calculate what it would cost to advertise. Then we will see look at a case study which used the Bottom of the Funnel process. This process is detailed in my Top & Bottom Funnel Leads post. In the case study, you will see how a brokerage significantly reduced their advertising costs.

From the WordStream.com link, there are three rates which will be used. The average CPC for real estate is $2.37. This cost is basically established by Google. CPC is defined as the actual total costs Google charges for each click divided by the total number of clicks. The average CPC of $2.37 which WordStream.com lists is the average for the real estate industry. While individual average ad CPC will vary, $2.37 is the one we will use for our calculations since it is representative of the real estate industry.

The second rate used for our calculations from WordStream.com is the CPA for the real estate industry. That number is $116.61. Basically, this represents the cost required to find one real estate lead.

To find the conversion costs of what it takes to get one real estate client through Google Ads, one more rate is required, the CVR. Using the WordStream.com CVR calculator shows that the real estate conversion rate is about 4.4% for search ads. The average rate I have seen from real estate coaches, seminars, and webinars is 3 to 5%, which is in line the 4.4% that Wordstream.com details. For our calculations, the more conservative CVR of 3% will be used.

Baseline Costs

Using the CPA of $116.61, CPC of $2.37, and the CVR of 3%, we now have enough data to establish some baselines. Once those baselines have been determined, we will then see how they can be improved. Keep in mind for the baselines estimates, we are calculating national averages. Your actual averages are likely to differ, but a least you will have some numbers to compare against.

The number of leads it takes to get one lead through Google Ads is the first baseline estimate. For this exercise, a lead is defined as someone whose contact information you have obtained. The CPA of $116.61 is representative of that cost. Using the CPC of $2.37, the number of clicks required to obtain that lead is calculated as follows:

CPA / CPC =	Clicks
$116.61/$2.37 =	49.2 Clicks

The second baseline to estimate is the advertising costs it takes to generate one client. Using the CPA of $116.61 and the CVR of 3% will provide that estimate as shown below:

CPA/CVR =	Advertising cost to convert a lead into a client
$116.61/.03 =	$3,887

The estimated number of leads required to obtain a client is found by:

Ad Cost/CPA =	Leads needed to obtain a client
$3,887/$116.61 =	33.3

So, to summarize our baseline estimates, we have:

49.2 clicks required to get one lead
$3,887 is the cost of advertising to get one client
33.3 leads are needed to obtain a client

Reducing Baseline Costs

As you can see, if you use national averages, advertising to get one client can be very expensive. The question is: can this amount be reduced? If not, then it will be cost prohibited for real estate agents to advertise for leads. Fortunately, it appears that the number can be reduced to a much more affordable rate.

InsideRealEstate.com conducted a brokerage profitability study and found that while costs vary by market, brokers could target spending under $25 per lead as a benchmark. Of course, as one might expect, this study was based on brokerages which used their KVCore integrated platform.

In that study, Mike Pappas, President & CEO of the Keyes Company states by using an integrated approach, “What used to cost us about $100 to $150 per lead, now costs us under $10.”

This study provides some interesting details. The first is the Keyes Company initial cost per lead of $100 to $150 is in line with the $116.61 cost per lead that WordStream.com details. The second detail is the reduction of the cost per lead to under $10 per lead.

Assuming that you use an integrated approach as modeled in my post, From Internet Lead to Client, or you use the KVCore integrated approach, we can know see what the estimated impact of reducing the cost per lead is.

InsideRealEstate.com stated that it should under $25. Mike Pappas said that their cost per lead was reduced to under $10. For our calculations below, we will use $15 per lead, which is a good round number between the two.