How does a deal happen? We know that finding motivated sellers and closing deals is process. It’s the same type of marketing process that we see in most businesses. A sustainable business repeats this process over and over. You might envision this process as a funnel that looks something like this:
It begins with the target audience – in this example, we’ve created a mailing list of 2,500 recipients in our zip code. Since we’re talking direct mail, we should note that our example here might be on the THIRD MAILING to our target audience (because we know that awareness is created through repeated contact, right?).
From the target audience, we may have 250 that actually read the postcard. We don’t know this actual percentage but the point is, as much as we wish it were different, most people will not read our message. Those that do are our prospects.
From our prospects, we will have a small percentage that contact us – in our example, we got 12 calls. These responders may or may not have a property that meets our criteria. But we immediately answer each call or web lead (with “Thank you for contacting We Buy Houses!”) and discuss their property and situation.
After qualifying the responders, we will have identified a small number of actual leads. These are the people with properties that meet our investment criteria. In our example, we have 4 good leads. We set appointments with these people and go see their properties.
As a result of working these leads, we identify 1 great deal! Cha-ching! And the great news is, we’re about to run another campaign to fill the funnel once again…
ANATOMY OF A DEAL
So, let’s think about the percentages at work in our funnel:
- 2,500 in our target audience
- 10% of the target audience become prospects
- 5% of the prospects become responders
- 30% of the responders become leads
- 25% of the leads become deals
In our example, .04% of the people in our target audience became deals. Seems like a tiny number. But that deal could net you $20,000 or $30,000. And if you can repeatedly fill your funnel, you’ll make a great living doing something that you really enjoy.
KNOW YOUR FUNNEL
Now, this was just an example. Try to understand the percentages at each stage of your funnel. In the very beginning, when there is low awareness of your We Buy Houses business, the numbers will be lower (i.e., that first mailing might be a bit disappointing). Over time, these percentages should increase as people in your target audience see your bandit signs, your direct mail pieces, your flyers, etc. You want to repeatedly drop your target audience through marketing campaigns (funnels). And you’ll also want to constantly assess your target audience to make sure you’re going after the very best prospects in your market.
When we calculate the cost of our deals, we often forget about the marketing expense. It is a critical investment in the business of residential real estate investing. By understanding how the marketing funnel works, we can determine the average marketing expense of a deal. Let’s say, in our example above, that the postcard campaign cost $1,500. That’s the cost of that deal that came through the funnel. As we optimize our campaigns and increase awareness in our market, we might find that the average marketing expense per deal drops to $1,000. If you could spend $1,000 to bank a $30,000 deal – and do that repeatedly – that would be a pretty good business. And that’s what it’s all about!