How to calculate customer acquisition cost

Emerging technology within the real estate market has made the tracking of marketing expenditures more feasible than ever including customer acquisition cost. Brokers, agents and commercial developers can now readily generate leads from digital sources and track them through to the sale.

One New York City-based brokerage firm, Schonfeld Group, remarks, “In the past decade, we have elucidated our marketing spent and discovered at least 30 percent was being misappropriated. We have since transitioned to an almost entirely digital lead generation system in order to more effectively track sales.”

This brokerage firm has been able to reduce its customer acquisition cost by organizing controls to track the return on advertising investment and implement procedures to reduce it.

This article provides insight on how they transitioned from a traditional-based marketing schema to tracking every facet of their sales pipeline to increase their marketing returns by 85 percent and how you can do the same in your business.

Performing the calculation

The most straightforward method of performing the customer acquisition cost (CAC) calculation is dividing the total marketing expenditures by the number of new customers acquired.

For instance, a total of $100,000 marketing spend distributed across 100 new customers would result in a CAC of $1,000. The challenge lies within the ability to further associate the contribution from each marketing campaign.

You might have gotten 80 percent of your new customers from a single marketing channel that only accounted for 20 percent of your total marketing spend.

There are several ways to perform this calculation to a more detailed extent. Using a website equipped with tracking code, such as Google Analytics, can provide information about the referral source.

The most effective way would be to simply ask the broker team during the customer onboarding process and entering it into a database, even a basic Excel workbook would suffice.

The individual breakdown of the marketing channels, should be able to provide sufficient information to determine the CAC. Once you have deduced the return on investment for each marketing channel, you might endeavor to reduce the metric.

The following sections provide information on how the New York brokerage firm recalibrated its marketing campaign with information learned from the calculation, to improve overall profits.

Pay-per-click marketing

Pay-per-click (PPC) is still relatively new for real estate brokers, partially because it seems esoteric and complex. However, this is the very characteristic that enables the platform to be profitable for brokers.

Unlike simple newspaper advertisements, PPC marketing is able to be track every lead to determine the precise return on investment (ROI). Running a newspaper advertisement for brokerage services might appear to be more effective geographically, but this assumption is also misleading.

Most PPC platforms enable users to establish campaigns based on individual ZIP codes. Rather than paying for subscriber views to a newspaper outside of your service area, you might exclusively target clients at the time they need the service.

Online reviews

The importance of word-of-mouth referrals has been widely recognized as the holy grail in the marketing industry. However, such reviews are often isolated to the limited network of each individual.

Soliciting positive reviews from existing and prior customers on platforms such as Zillow, Google Places and Yelp can make a direct positive impact. Moreover, it’s possible for you to digitally track the success of these reviews by analyzing the referral traffic in your website analytics software.

If you own a real estate company that employs brokers, incentivizing digital referrals through the creation of a points system can be highly effective. Brokers will be more inclined to not only perform a better job but also to solicit reviews if they will directly benefit as a result.

Search engine optimization

Although cliche, search engine optimization (SEO) remains to be the most important channel for online traffic. On average, leads are not only more abundant but also more reliable than other digital advertising mediums.

Having a locally targeted SEO campaign means focusing on ranking for user queries related to your area.

For instance, a real estate broker in Fort Lauderdale would target “Fort Lauderdale Real Estate Agent.” The success of your organic search campaign might be directly measured by the amount of organic traffic ranking.

Goals and conversion funnels might also be setup within your website analytics platform to determine the percentage of leads generated from the organic visitors.

Social media

New marketing channels have emerged on social media that have opened new opportunities for real estate companies. Social media has now become a staple within agent business plan.

For instance, many people will initially announce the sale or search for a property to friends and family before searching for a broker. Brokers that have the ability to target these customers using social media analytics, in some cases, gain access to customers faster than other competitors.

Facebook also has an advertising feature that enables geographic- and demographic-based targeting.

For instance, an advertiser might target people who have recently encountered life events strongly correlated with new home purchases. Newlywed couples within specific ZIP codes might be shown advertisements linking to the website, which might also be tracked and monitored.

This information will help you calculate and reduce the cost of acquiring customers more effectively. New digital channels have caused a digression from traditional promotions with a shift toward those that might be tracked.

By restructuring your marketing campaign and measuring every channel, you can benefit from the changing landscape before you are left behind.

Chase Hughes is the managing director of Pro Business Plans LLC. Follow Pro Business Plans on Twitter or connect on LinkedIn.

Email Chase Hughes.