What is the Value of a Real Estate Lead?

To understand the overall impact of your marketing activity, you need to define the value of a lead, or potential customer.

By doing this one exercise, you will gain valuable insight into how to improve your marketing and lead generation efforts…

… and help answer a simple question: is my marketing working?

What is a lead?

In commercial real estate, a lead (also referred to as a “prospect”) is anyone that shows interest in buying, leasing or investing in your property.

A lead generated from your company or property website could contact you by filling out a contact form, registering to gain access to something, or by simply sending you an email.  They key is to track this activity so you can measure your lead generation and understand its impact on your business.

How to calculate value of a lead?

The value of a lead can be calculated by a very simple formula:

Average commission x Conversion rate = Lead value

There are simply two inputs that you need to know to plug into the formula. Let’s break it down:

1. Average commission or sale 
How much money do you make from a typical closed transaction? Although every market, property and deal is different, you need to look at your historic sales and create a good approximation of how much money you make on average.

2. Conversion rate of transaction
What percentage of the leads you receive convert into a closed transaction? Again, this will probably be different depending on the size of the deal, property, market, etc. but you need to make a good approximation.

Here’s an example:
Let’s say on average you make $40,000 for each closed transaction and you typically close 1 out of every 20 potential customers (leads). That means the value of a lead would be:

$40,000 x 5% (1 out every 20 leads) = $2,000

So, the value of a lead (or potential customer, or “prospect”) is $2,000.

This now gives you a framework to put your marketing activity into a quantitative context.

With this information you can now set objectives and have a better idea of the number of leads you need to produce from your marketing activities. For example, if you want to make $300,000 in commissions in the coming year then you would need to produce 150 leads ($300,000 total value / $2,000 lead value), or approximately 12.5 leads per month.

How to generate more leads?

Online lead generation is a numbers game and there are really only two ways to increase your numbers.

Either: 1) increase visitors or 2) improve conversion rate.

To increase your lead volume, you need to increase visitors to your website or property listing. There are plenty of good marketing ideas but the key is to create a well-defined game plan, stay consistent and continuously measure success.

Also, make sure your website is optimized as best as possible before launching your property online. This can have an important impact on your conversion rate, or the ability of your website to convert visitors into leads.