Real estate investment requires all sorts of marketing, from simple word of mouth to wide-scale marketing on the internet to fill vacancies. Measuring the effectiveness is important, because paying for advertising that doesn’t work is expensive. There are two important types of measurements we’ll focus on, but first, a word about tracking.
There are a couple types of tracking you’ll need to do.
First, have a channel-level tracking profile. This means that you’re going to want to know how each site/or channel is performing. Ask your own questions like:
- How long until my ad is on page 2….or page 10
- How many clicks, emails or phone calls do I get?
- How many views does my ad get?
- How often do the leads I get from a certain ad turn into real tenants.
Second, you’re going to want a lead-specific (individual person) profile. When someone actually comes to view a property or fills out a rental application you should have a record of how they first contacted you. This means there’ll be a line in your tenant records saying ‘email from craigslist’ or something similar. Every few months, go through your tenants and see where they came from. Most importantly, use this information to start defining what your prefect tenant looks like. If you only deal with furnished executive rentals, you might eventually find that while one site doesn’t refer many applications, when you do get a tenant they stay for 5-7 years and never miss a rent payment. Armed with that knowledge you can make much smarter decisions about where to spend your advertising dollars, and how long you can afford to let a suite sit vacant.
The most important metrics we’re going to track are conversion rate and return on investment (ROI).
Conversion Rate = # of times viewed/# of responses
The responses can be whatever you want, and it’s likely best to consider a few. Not all conversions are created equal: phone calls are usually better leads than emails (more likely to become tenants). Measure several conversions and understand which ones really matter to your business. It doesn’t matter what the email conversion rate is when every person who emails becomes a great tenant.
Return on investment is an easy formula, but sometimes difficult to measure completely.
ROI(%) = {Return (Profit) / Investment} X 100
The investment is the easy side of the equation to measure. The return is the more complex part. I’ve had tenants live in the same suite for nearly 20 years, likely generating tens of thousands of dollars in profits. To make things manageable, start by assigning some arbitrary numbers by following these steps.
- Assume a tenant stays for a year on average and the monthly cash flow is $100 per month. The value (return) of leasing that unit is $1,200.
- Assume you have to show the unit 6 times before you get the right tenant and they take the unit. The value of showing a unit is then $200.
- Assume that you get 20 phone calls and emails (new leads) to find those six showings. The value of a phone call or email is $10.
Now that we know the real value ($1,200) of the average tenant, we can figure out what our ROI is. It’s easy to spend $100 on advertising when renting a unit. If you spend $100, your ROI on your advertising spend is 1,200%. If you can manage to cut out the advertising that dosen’t work and only spend $20, now your ROI is 6,000%. Spending less to get more is just smart.
One final thought about ROI: determining your return can be complex, particurlay if you’re new to real estate investing. Don’t be afraid to pick arbitrary numbers. If you have existing data, gather it in one place and use it. Find out how long your average tenant stays and what the cash flow from that unit is. Start tracking activities, collecting data and using it to make your business more efficient.
The best tool you’ll have for tracking all of this is a simple notebook. Write everything down as it happens each day.
Then it’ll be a simple, if time consuming, task to gather information like how many calls you had on a particular property. But you’ll be well on your way to marketing smarter.
