How To Cut Lead Gen Costs & Stop Sacrificing Profit for Growth

All right, welcome back, Business Freedom podcast listeners. It's gonna be a cool call today. I've got Matt Johnson, who is actually the producer of this podcast and he's a fellow podcaster as well. Matt, welcome. We're gonna get into just lead gen in the real estate industry and some of the craziness that we're seeing and just some guidelines how to go about making sure your business is profitable.

Yeah, this is gonna be an interesting and really kind of in depth conversation. So I'm looking forward to this one. I want to see what your perspective is on this because we're both seeing the same thing. The online leads makes. Makes those lead sources a lot less effective. And you mentioned before we started recording that there's a lot of other features, bells and whistles, hacks, and all this other stuff that's kind of coming out to try to make these lead sources more effective, but that all that does is just add more cost and more complexity on top of a lead source that's kind of, you know, getting more difficult to convert every single day. So I'm curious, like, what are you guys doing within your own team to kind of shift how you deal with this?

I mean, this to me, started back when, like, let's take Zillow. It's probably the most prominent example in our industry. And ignoring the drama around Zillow, just getting into the real estate business just as a lead source, just watching them increase their prices and, you know, more agents are in the lead source and just the conversions are getting harder. And most agents, solo agents, don't track anything. You know, they're solo, so they have a shot at making a little bit of money. If you're in a team environment, you need to cover overhead. It's just a challenging lead source. So we cut Zillow out 18 months ago. You know, all we're doing is premier. We don't do any realtor.com, we have no paid home search traffic right now, and we'll do three and a half million GCI this year.

Okay, so riddle me this. Knowing what you know now, would you have done the same thing? Would you have stuck with Zillow for as long as you had? Or was it a situation where Zillow served a purpose for a time being? And then you're able to replace the Zillow leads with things like organic leads, for example, because you had credibility built up in the website during that time that you're with Zillow.

Yeah, I mean, it, it probably isn't as provocative as I make it sound because we have been, you know, around for a decade, but I never, I never like went all into a lead source. Like it took me five years to get to 5,000amonth on Zillow, you know, so I never let a lead source be my entire business. I know guys that are doing like 500 transactions and 300 are realtor.com you know, wait till they figure out what Zillow figured out, you know, and their, their business is gonna, they're gonna go down to nothing. I've got guys I coach that we've cut out $20,000 a month of Zillow spend and every transaction that closed for him, he was losing money on.

Seriously.

We documented it. He didn't know his numbers quite as well as you should. So we figured it out and cut it out. Just a process to explain to his agents. They were happy, right, because they're not paying for the lead. But it just prices went through the roof. It just comes with a basic discipline around finances. Is that number one as a business owner you have to, you have to have some kind of economic model in mind, some rule around if I spend a dollar, I've got to make $10. 10% of my GCI has to go to advertising and marketing of all kinds. I just think what got us here is not going to get us there when it comes to lead gen.

So as thing, let me ask you a question about that particular person and folks like him that you coach and the process that you lead that person through, because I want to get a picture of what that looks like. So you're way overspending. Let's online leads right now. You know that you have essentially an unstable business foundation. And you're coming into a time now as we record this in early 2019, where the chickens might start coming home to roost, so to speak. Right. Financially. So how do you like, what's the process of kind of weaning yourself off of that and getting the other pillars of your business stronger so that you can afford to let that one pillar go?

Yeah, I think it's a mindset shift. Stop. Stop playing the game that the industry set up for us. You know, I don't know. I gotta believe maybe this happens in other industries, but like, I don't think other industries has like a Zillow, you know, where they really want the whole commission check. But for now they're just gonna sell you leads and then in the background they're building an inside sales team to call the leads for you to then refer Them and you pay them 40. Like it's a weird thing, you know, you kind of get hooked on a thing and like Zillow reviews, like you're, you're putting all of your social proof, like go to Zillow. You know, you're putting all your. But nobody else does that. There aren't no dentists are on Zillow. And granted, you know, people see the Zillow advertisements on tv so they're going there. But I went to, I was checking out on my dentist and it's a dentist that is, it's like a legit operation. Like you go there, they give you a tour, like a really nice process. And I check out and these guys started on the radio at the same time I started on the radio and I actually listed this guy's house. This was probably seven years ago. I checked out and she said, hey, have you given us a five star review on Google? I'm like, no, I haven't. She's like, take out your phone. She's like, go to Google, type this in and write some nice words. I did. I'm like, do you get paid for that? She's like, yeah, I do. And I looked and they had over a thousand reviews on Google. And she said, I'm saying why? Why are the owners having to do this? And she said, the owners told us that their returns on radio have been decreasing every year for the last five years and they get more business now from Google than they do from radio.

It's funny you mentioned that and we didn't plan on going down this path, but I just talked to a team leader in Nashville who has the same thing happening, right? So they have 200 plus reviews on Google. Their next competitor has 12. I mean it's. The gap is insane because no, just nobody is trying to build the reviews there and, and of course I think they're more sustainable right now. Zillow is the category king in real estate. So it made sense for a long time for us to pour all of our time and energy into building reviews there. But yeah, if something happens, something is much more likely to happen to Zillow than it is to Google. And it is an interesting kind of end run strategy around what everybody else.

Is doing in our office. We have, you know, those thermometers, the side by side thermometers. We have Zillow and Google and we have 535 reviews on Zillow and we're doing a Zillow review contest. We've added about 100 legit reviews. In the last four weeks. And so the goal by the end of the year is to have more Google reviews than Zillow.

Nice. All right. And you've got about 10 months.

Shift it to Facebook and then Facebook, we're going to have three of them and we'll have more Facebook, you know, and just get, get away from the things that the industry wants us to play in.

Okay.

An add on like a structural. I don't know anything about structurally or y lopo or anything. I do, but I don't want to because it's attaching to a lead source that's like really, really dying, you know, like.

Yeah.

So not dying because lots of guys can still make it work.

Right.

Our approach is to get the listing and then there's five commission checks. You can go after you sell the listing. You can get a buyer off marketing the listing. The seller has to buy a home. There's a home if you do it right in the neighborhood that you can sell. And then what's the fifth? There's one more in the neighborhood. Anyway, there's five commission checks that we go after and then we track that. So we put everything we can into the database, into, you know, we do expired FSBOs inbound and outbound, the things we know that work. And then we just, we really focus on monetizing and we track. Are we, you know, two to one? Are we one? You know, how close can we get to five to five?

Okay, interesting. Yeah. I was thinking about something. When we talk about online leads, if you're a team leader and of course nothing is really passive, but if you're not working the leads yourself and you have a team of leads that are working them and you're essentially almost like a pass through entity for the leads. Right. Especially if you have your lead generation costs halfway or mostly offset by lender vendor partners, you're not necessarily spending that money. So there's a strategy there where you could be literally close to zero cost in your lead gen. But let's say you're not and let's say you're footing half the bill for your lead gen cost, but you don't actually do any of the work other than supervising leading, training the agents who are converting. What do you feel like in percentage terms that were. Is that worth. Is it worth 10% of the commission? Is it worth 40% of the commission if the, if the only thing the team leader is doing is leading, managing, training the agents who are closing the deals?

Yeah. In terms of what should the economic model look like for the team leader.

Yeah, when you're looking at it as a business owner versus a salesperson and you break out of the salesperson mindset of 70 to 80% margins, you know.

Yeah, we follow a pretty strict, we got a little, little drunken sailorish on our expenses last year and we reigned it in back, back to model. But our model is 30% payout to agents and ownership is not in production. So that's blended buyer and seller. 10 to 12 on advertising, including our database, events and giveaways, 10 to 12 on administrative staff and 10 to 12 on overhead. Okay, so we were lower than that last year. We made a MIS hire and a recruiting hire. We hired a full time recruiter, full time inside sales manager. We did some stuff that brought those returns down. But generally we know the model, you know, so we know when our lead gen gets out of whack or we know we can't, you know, If I'll spend $10,000 a month, but I got to see a pretty quick path to 40 to 50.

Yeah. And I can see if you're talking about, I mean, you're talking about a recruiting manager and an in house isa manager, you're talking about. Both of those are probably 50k plus a year positions. That's six figures in outlay just on the overhead, just to manage and train and lead and recruit the agents that are working the deal. So that makes sense. That changes the economics of everything. It's not that you couldn't do it, but you'd have to probably scale it up way past where you were comfortable.

It'd probably be another couple of three years with the right hires to get the model back in place.

So yeah, which makes sense. And we don't know that we've got that long for this whole thing to keep working necessarily.

Yeah. And really to me it's, you know, you need to make sure today, going back to the economic model. Make sure today you know who you're going to be three to five years from now. And.

Well, that's a good question because there's been a lot of guys that are in a race to build up the biggest database possible and build up a permission based list, a marketing list that they can keep on marketing to the guys that have been paying Zillow, realtor.com, etc. Do you think it'll pay off for them? Just a longer timeframe if they, if they stay consistent with marketing them, will they look back and go, oh, that was a huge mistake, I should have built my database another way or will they go, eh, you know, it was a little risky. My economic model was a little out of whack. But it was worth it in the end because now I have a database of 30,000 people I can, I can contact.

Yeah. Assuming they have a system to monetize the database at a high level. I mean, I don't know, I guess I'm just, I'm falling out of love with all of the ways that the industry wants us to spend money and we just pull back the reins on all of it. Our goal is probably we'll be at 7, 8%. You know, when, when my model calls for 10 to 12, we cut back to 8% and really still do radio. And I'm falling out of love with that. You know, we're, we're at probably about two, little under two times return on radio when I've had it as high as seven to eight times.

Goodness.

And it's just, you know, there's more people on radio, you know, there's less inventory and all that stuff. But yeah, I just think it's, you know, if you got to decide today, you know, there's, there's big teams going the discount route, you know, like, just pay me a flat fee and we'll be good to go. And then we're on the other side. Like, we're very clear that we want to be the Disney, the Mercedes, the Ritz Carlton, whatever analogy you want to use, I feel confident that those brands are going to be making really good money in the future. I want to be that of real estate. No lip service to it. Just literally all the internal processes, all the little moments of truth and all of that, to me, I think that's the safest place to be. If you look at financial advisors, if you look at travel agents, lawyers, I mean every industry that's been disrupted by technology, you know, the guys that are providing a premium service, there's going to be a slice of the market that's willing to pay for that.

Yeah, 100%. The only question is how leveraged are you when this, the day of reckoning or something comes, when something major shifts in the market and the lower end of the market starts to get cut out or starts to have, starts to have to reduce their fees to stay in the market. Yeah. The question is how big is the team? What's your expense structure and stuff like that and can you make that adjustment? If you're small and, you know, relatively small and nimble and you're not over leveraged, then you can stay ultra premium without A lot of adjustment. So I think that's staying lean and mean. So getting back to kind of the process that you lead people through and then we'll wrap things up. So you want to shift the focus off of the paid lead gen. Basically reevaluate and sit down and really take a brutal, hard look at everything that's being spent, make sure that it's all being tracked. But let's say you decide I'm going to cut out one of my major lead sources. How long would you give yourself, if you're a team leader in this environment right now, to kind of wean yourself off of one of your major lead sources?

To me, it's once you determine. So take this real example. 21,000amonth on Zillow, 75 closings. It was 15% of this agent's business. It was. Once the truth was there, it was just a conversation with the team so they understood the move.

Gotcha.

We need to replace a deal and a half a month or whatever. The more than that deal and a half a week, you know, if we're going to stay. So he was willing to go down to 75 deals and they just need to understand that he was losing money once. Once he was cool with them on that. And it was explained in a way where they understood the financial implications. It was instant. They weren't under any contracts. It was instant. Everything went away. And the beauty of Zillow leads and any Internet lead is that 50% of the closings are 12 months after they register that lead source and make. Make some good money. You know, where the returns. Zero spend. And Zillow won't even let you retain Premier Agent anymore.

What do you mean they won't let you retain it?

For us, we spend a thousand a month to get the leads on our own listings. Mm. You know, that's Zillow Premier Agent. I don't even know the technical term for it. But if you cut your spend with Zillow now, they won't let you retain that status for your own listings.

Oh, really fun.

It's direct competition. They have a physical office here in Charlotte, second office they've opened.

Do they really?

Yeah.

Wow.

It's crazy. It's a whole new world. And, you know, I got a mailer for Open Door, you know, going through all the costs to sell a home and how 10% is a good deal, you know, because you're going to pay 12 to 15% if you, you know, if you use an agent, all your. And then I saw commercial for Zillow realtor.com All this happened.

Apple Bricks is starting to advertise.

Yeah. Redfin, the 1% listing, you know, so if you just gotta be clear, like, I'm gonna go down this path and people are still gonna go to Ritz Carlton, or I better figure out a way to make a margin on a $4,000 commission check in a 12,000 commission check market. And do that at a high level. Do something at a high level. Pick your business model and stick to it, but don't be in the middle where you're just kind of showing up for appointments and you're discounting your commissions because they're asking for it and they're saying, well, Redfin has 1%. Be like, all right, well, good luck. You get what you pay for. Yeah, we saw 3.9% average on the listing side last year in a market where average four agents were interviewing for the job of.

Yeah, there's. There's a guy out here in San Diego that runs a TV show where he pits real agents with real homeowners. And the commission is virtually never an issue. It's trust and availability, and it's. It's the quality of the connection. So that. Yeah, that's not that surprising. I think it would surprise the average agent. The guys that go in and close 80 or 90% of the listing appointments, they know better.

Yeah.

Awesome. Love it. Well, let's do this. So what's the. What's the best way to connect, reach out and learn?

Yeah, I mean, really, it's.

If you're.

If you're at a point in your business where you've kind of achieved the traditional success, you know, and it's not quite what you thought it would be. You know, it's probably more time, more stress, and not as much money as you thought it would be for some of the reasons we talked about today. Just go to realestatebschool.com the next step is just jumping on the phone and digging into the business and seeing if we can help you figure out where you are and where you want to go.

And.

And then if a relationship makes sense, we'll. We'll talk about it. But there's no. We just don't have a hardcore sales process. You'll. You'll know when you get on the phone with us if we can help you.

Yeah, a hundred percent. Always looking for people who are aligned, have those same goals and. And the same. The same mentality. So love that. And as for the podcast, just make sure to check it out. Itunes, Apple, podcasts are the best place to go. Grab it. You can always rate and review the show. And then if there's a certain guest episode that you guys enjoy, make sure to give them a shout out in the comments and the review. Thank them for their time and contribution. So Lars, this has been fun.

Awesome. Thanks brother. Cool.