Creating Leads Versus Converting Leads
by Dirk Zeller
Friday, August 10, 2012
Champion Rule: Creating leads is easy! It's managing and converting them that pose a challenge.
The real barrier in the equation isn't lead creation, as everyone believes. It's in the management, conversion, and commitment of the leads. Now, if you are an Agent reading this and don't have enough leads right now, you might think I am wrong. Bear with me as I present the evidence and truth.
There are literally thousands of ways for Agents to generate leads. The list is really endless with new avenues being created all the time. We have farming, cold calling, direct mail, expireds, direct response advertising, FSBOs, pay-per-click, calling our sphere, our website, calling past clients, REALTOR.com, calling current clients, relocation referrals, strategic alliances, open houses, IVR systems... you get the idea. The list is really endless with unlimited sources from which to create leads. Each with its own ratio of success attached to it.
I know Agents who generate all (or the bulk) of their business from only one of these sources, not a combination. I had a friend in Portland sell as many houses as I did while I was selling real estate . . . over 150 a year. He could connect over 80% of his sales to open houses. He did them every Saturday and Sunday. He was a master at meeting the people, connecting with them, and converting them to clients. The truth is I would rather have my skin eaten off by ants than do open houses, but it worked for him. The problem is not lead creation.
I get the same magic lead generation schemes daily via e-mail as you do. I received one the other day from one of those "magic guys" who is an Agent and Speaker in Canada. He was touting his latest protégé who did sixty transactions a year and generated over 1,200 leads a month. This all happened his third year in the business. By my third year in the business, I was doing over 100 transactions, so I wasn't that impressed. I realize, however, that the average Agent would be frothing at the mouth for 1,200 leads a month. The whole focus was to promote this Speaker's direct response advertising system that would create 1,200 leads a month for you if you followed his system.
I did what any good Coach would do and grabbed my calculator as I read the glowing copy of his marketing piece. This "new superstar" Agent generates over 14,400 leads a year! That means he has to invest his time and resources to manage, track, call, mail, e-mail, and try to convert over 14,400 leads annually. If their claims of that lead volume are true, that's a lot of leads to properly process. The key word being, properly process. The net result, in his case, of 14,400 leads is a mere sixty transactions. That represents a conversion rate of .004167. That is less than 1/2 of 1%! In other words, he has to talk with, mail to, e-mail to, send information to, track, and manage 240 people to get one person to buy from this magical, easy, instant lead generation system.
An intelligent person comes to one of two conclusions (or a combination of both). The first is that the quality of leads is poor (keep in mind that conversion rate is a function of the quality of the leads). The cost of conversion runs so high that, by the time the advertising and marketing expenses are paid to generate the lead and run all 240 through a lead follow-up process to get one transaction, there is little (if any) net profit left. The other conclusion is that the leads are better than his 1/2 of 1% personal conversion rate, and this Agent, like most, doesn't know how to control, convert, and commit the leads.
It is also quite likely a combination of the two. In any instance, the net result is vast logs of leads and few transactions. I have a client in Toronto, Canada who is one of the best Agents in North America. He has built a wonderful business with a large volume of production and a solid team. He has eleven Buyer's Agents who work for him. Soon after we began working together, we were evaluating the numbers and ratios of his Buyer's Agents from the previous year. In that year, the team generated 5,537 leads that indicated some level of interest to buy. They closed 276 transactions on the Buyer side from those leads. Again, I instantly reached for my calculator and found that their conversion ratio was less than 5%.
During our discussion, I asked my client what he needed to do to increase his sales by the 100 units he wanted in the next year. I had not yet shared with him the conversion number I had just calculated. He said, "I will need to increase my leads by roughly 30%." That would be the natural response from most Agents, even great ones. Why process, manage, pay to create, mail, e-mail, and invest staff time to deal with 30% more leads when there is a better way? When I asked him if there was another way, he was stumped. I said to him, "That's why you pay me the big bucks!" I shared with him that if we raised the conversion ratio a little less than 2%, he could add 100 units to his sales volume without the additional cost to generate another 1,661 leads.
This Agent's situation was certainly much better than the "magic guy's" example, but it isn't where we should be as salespeople. To have that many leads with that low of a conversion rate is really unacceptable; my client agreed, as well. The truth is most Agents don't know the number of leads they generate, much less the conversion percentage of those leads. They have no idea what is really working in their business because they don't source or track their leads well.
Champion Rule: Each lead costs money to create.
Don't think for a moment that there is not a cost attached to each and every lead generated. There are costs to acquire that lead in advertising, marketing, your time, etc. No matter what source you acquire the lead from there is a cost. You can determine your hard costs to generate a lead by tracking the dollars invested to create leads and divide that by the number of leads you create annually. That's just the per-lead cost to create it. Now, you have to manage it, track it, call it, and send stuff to it to convert that lead.
Just think of the investment we have in each lead…and my client thought he needed 1,611 more of them! Actually, all we had to do was increase his conversion rate by 2% to reach his goal. It was a measly 2%! We could and did do that – and more.
I had him give me one more number that clenched it. I asked him for the conversion rate of their Buyer Interviews versus their closed Buyer transactions. In other words, how many interviews did they conduct and how many sales did they make? The worst Buyer's Agent had a 46% close rate; the best Buyer's Agent had a 68% close rate. All the others were somewhere in between. So, the team had a less than 5% conversion rate for leads, yet an above 50% close rate on average, once they got them face-to-face. The barrier for most Agents isn't lead generation; it's lead conversion from the initial contact to the face-to-face meeting.
I would venture to say that wherever you are in your career today, whether you are a new Agent, struggling, or trying to break through to the Champion level, you can easily achieve a 50% conversion rate once you get face-to-face with a Buyer or Seller. Leads are the lifeblood of your business; but managing, controlling, and converting them to face-to-face meetings is the heart muscle of your business. Do you have a healthy heart?
I have been preaching and teaching this message for the last seven years. The real estate community is finally starting to get it. Your lead follow-up is like the hub of the wheel in your business. All avenues of lead creation lead to the hub of lead follow-up.
The ability to define, categorize, systematize, follow-up, control, manage, process, convert, and commit the lead is far more valuable and far more challenging than creating it in the first place.
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