I think direct-mail marketing for real estate agents is insane! It’s probably the single dumbest idea agents waste their time and money on! I’ll show you exactly why.
First, you need to understand that I’ve personally done direct-mail and I’ve wasted my own money, so please understand that in condemning this idea as “insane”, I’m also condemning myself. But when it became apparent that it was a bad idea, I quit doing it. As Will Rogers so eloquently put it, “When you find yourself in a hole, stop digging.”
But I’ve seen agents continue to “invest” (read:”waste”) their hard-earned commission dollars on one direct-mail campaign after another direct-mail campaign. Maybe it’s the narcissistic tendency in some agents to see their face and name in all the neighbors’ trash cans. I don’t know. But I do know it was Albert Einstein who first said, “Insanity is doing the same thing over and over again and expecting different results.”
But don’t take my rant as reason to stop throwing your money away! Let’s look at the actual numbers. First let’s look at the response rate for direct-mail campaigns. The Direct Marketing Association “claims” to have analyzed 1,122 industry-specific campaigns and determined that the average response rate for direct-mail to be 2.61%. (If you ask me, it sounds like one of those studies conducted by the tobacco industry that claimed smoking was safe, but then again, I’m probably cynical.)
Maybe their numbers are right. Maybe when you send out 1,000 post cards, you get 26 leads, but for most of us who have tried direct-mail, the results haven’t even been close to that number. My last campaign I sent out 1,500 pieces and got one call, and that was typical for me. My farming list was 1,500 pieces, and the most I ever got was 3 calls.
But, as they say on TV, “past performance is no indication of future results.” For the moment, let’s all imagine a “perfect” direct-mail world where that very rosy 2.61% response rate number is actually true. Let’s use that number and do the math. Let’s analyze the cost-per-lead as a result of that “perfect” direct-mail campaign.
OK. First we’ll start with the mail piece itself. The cheapest mail piece of all is a postcard, so let’s use that. I know of offshore printers who can produce a very nice, glossy, full-color postcard for only about $0.15 each when buying in bulk. The current postage rate for a small postcard is $0.28 per card. Add to that the printing cost and you have a conservative hard cost of $0.50 per-piece.
Now let’s add your labor involved in doing the mailing. I bought a specialized printer for doing postcards, I used my database and mail merged the addressing, and I rented a Pitney Bowes postage meter, so I had it down to a very precise mailing operation. I doubt many agents go to that much trouble, so their time investment is probably much higher.
Nevertheless, we are talking about the “perfect” direct-mail campaign, so let’s use my time investment of 5-6 hours to prepare the copy, print and address the postcards, sort, stack and tray the mailing for the post office, and then deliver it to the post office for mailing. Now suppose your time is as low as mine was. Five hours at $50 per hour is another $250. (That’s what your time is worth if you want to make $100,000 this year.)
Now let’s add it all up: A one-thousand piece mailing costs $500 in hard cost and $250 in time cost, for a total of $750. Now, because this is the “perfect” direct-mail campaign, we will figure you got the magical 2.61% response rate, or 26 leads for that investment. That gives you a cost-per-lead of $28.85 for the “perfect” direct-mail campaign. Now let’s look at your budget per lead.
Nationally, the average sale price for residential real estate is $206,500. The average commission side is 2.6%. That means the average gross commission income (or GCI) is $5,369. If you invest the recommended 10% of GCI for marketing, you can afford to spend $537 per transaction. On average it takes 24 leads to produce a transaction so your budget per lead is $22.37.
That means that in our “perfect” direct-mail campaign, our cost-per-lead is almost 30% over budget. The reality is that I don’t know of a single agent who has received even a 0.5% response rate. If you have a typical response rate, your cost-per-lead is more like $150 or nearly 700% over budget! In other words, it would probably be more effective to just write your name and phone number on $20 bills and hand them out than to do direct-mail. And that’s my quick answer.
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