Tuesday, February 20, 2007

How does the local agent cover the cost of their marketing?

I had an interesting conversation with a colleague the other day regarding the calculation of their return on investment for their marketing activities. The conversation started because of the observation that one of the most media present agents in the area has ads appearing on every sign post, bus stop and street corner. Both my friend and I are doubtful that the agent is making a decent return on investment, but it was worth some time to do a few rough calculations.

This may or may not apply to you own investment in marketing, but here is my rough assumptions and calculation.

- Average take home per sale $10,000 (hey, it’s San Diego County)
- Monthly rent for space on a bus stop: $700
- Monthly mailing of postcards or letters: $2000
- Monthly cost of local media advertising: $1200
- Monthly online marketing: $200
- Area farming: $600
- Miscellaneous marketing activities: $2500
Total monthly marketing costs $7200

Now in general your marketing cost should be between 10% and 20% of your revenue; with some businesses investing as much as 50% of their income in marketing their real estate businesses. If we assume that due to the new shift in the market the agent has more listings than sales and is pushing around 40% of his revenue into attracting new clients; the agent should be collecting about $18,000 per month. Given the average commission of around $10,000, it should just take the sale of two homes to cover that agent’s investment in marketing. The agent has a lot of listings in the area so I have no doubt that they are at least selling two homes per month.

My math is most likely wrong, but it was an interesting conversation and analysis.

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