How to improve sales 40% for $0
Question: What is a high quality management lead worth?
Answer: Nothing if you can't turn it into a client.
But it certainly isn't the lead's fault.
If you spend much time talking to management companies that are trying to grow, you could easily be persuaded that the only thing standing between any management company and wild growth is more leads.
And granted, maybe a stream of free, unlimited, high quality leads would solve quite a few problems. But I'm not Peter Pan and this isn't never never land. Leads cost $$$ to either buy or cultivate organically and the competition is fierce.
The truth is, most management companies don't simply need more leads; they need to figure out how to convert more of those leads into clients.
There's no sense putting more leads in your sales funnel if you have a leaky bucket.
Today we cover bedrock concepts about calculating sales ROI that are the foundation for the rest of this course:
Estimated Time: This lesson should take approximately 10 minutes.
Among all the property management companies we work with, conversion rates vary between 5-40%. The companies converting below 10% are experiencing a lot of pain, the companies at the top are making money hand over fist and crushing their local competitors.
The investment that top producers make to track and manage their sales process pays huge dividends in the marketplace.
To illustrate, let's take a look at three fictitious management companies:
Now, to see how their close rate impacts the bottom line, we have to make some assumptions.
NOTE: CLTV varies widely by company and $3,000 is meant to be a conservative, low estimate. Your company's CLTV may be much higher. We have clients with a CLTV that exceeds $11k based on 5 year customer retention. For additional reading see this article by Dave Borden from Property Manager Websites.
Working with the assumptions that the average lead costs $50 and that a new customer is worth at least $3,000, we can see what happens when we send each company a batch of 100 leads.
The impact on overall return on investment is staggering:
You can see that these companies have radically different problems:
Takeaway Your company's conversion rate will have a disproportionate influence on your overall growth.
If each of these companies decided to grow their existing monthly sales performance by 40%, there are two basic levers they could pull to trigger growth:
Option 1: Paying for More Leads
The first lever includes everything from building up your online presence to spending more money on Adwords. Regardless of whether you invest time or money, it's going to cost you resources that should be factored into your cost per lead estimate.
Using the assumed $50 lead cost above, each of these companies would need to spend an additional $2,000 each period to boost sales by 40%.
You've increased your marketing budget by 40% and received 40% more customers, but the cost of acquiring each customer remains the same.
One of the problems with this approach is that there's no guarantee that this additional spending will generate a reliable stream of quality leads. Even with solid pay-per-lead service like All Property Management, there are only so many leads to go around. And while investing that money in home grown marketing initiatives is a good idea, it could take many months to generate a reliable ROI.
The other problem is that this model isn't very efficient, since it does nothing to improve your overall ROI in the long term.
Option 2: Improve Your Conversion Rate
Research show it's five times cheaper to keep an existing customer than to acquire a new one. Similarly, it makes far more sense to maximize your existing flow of leads by improving your conversion rate before spending more money on new marketing campaigns.
So let's say you decide to invest a couple thousand dollars in sales technology, training and coaching to improve your companies close rate.
Over three months the number of leads coming in stays static, but the number of leads closed grows 40% while the cost per lead drops 29%. So the growth in new contracts is identical to option 1, but the marketing budget and cost per client are 29% lower because of the improved conversion.
Going back to our previous example companies, here's how the 40% improvement in conversion rate would affect each of them.
That's an incredible recurring payoff for a one time investment in sales performance.
It's an investment that continues to generate results long after the leads you could have bought for that same spend would be long gone.
Takeaway Investments made in improving your conversion rate provide an ongoing return that extend far beyond the latest batch of leads you generate. It's a recurring form of leverage that shouldn't be ignored.
"The Harder I Work, the Luckier I Get" - Samuel Goldwyn
It's no coincidence the companies with the highest close rate invariably end up generating the most leads.
Up to this point the examples we've used have all assumed each company is receiving the same number of leads, which is totally unrealistic.
The bulk of leads will always flow towards the companies with the most efficient sales funnel.
This makes for either a vicious or virtuous cycle, depending on which end of it you're on.
The key driver is that as conversion rates improve, the cost-per-contract goes down and ROI goes up.
Here is another way to visualize this relationship.
Companies with higher conversion rates are highly immune to lead price increases whereas companies with lower conversion rates pay dearly when lead costs rise even slightly.
The net effect is that high converting management companies have a radically more efficient sales and marketing machine.
To illustrate this, look at where various lead sources fall on the cost-per-contract spectrum.
Companies that suffer from poor conversion literally run into a glass ceiling; their high customer acquisition costs price them out of many marketing channels where their competitors can still advertise comfortably.
By contrast, companies that convert well are able to operate with relatively little competition at the top of the marketing spectrum because of their lower cost per contract.
This is the ultimate form of marketing leverage.
Takeaway Top performers get more out of every marketing channel AND have more channels available to them. They can afford to experiment with more expensive, less common, marketing channels like radio and they can also choose out outbid their all their competitors on pay-per-click or pay-per-lead marketplaces.
Conversion rates drive lead prices.
As lead sources mature, smaller operators are eventually displaced by new entrants that are more sales centric and able to drive a higher yield at a lower cost. The new entrants eventually saturate and take over low hanging lead sources driving the lead prices up until the slack has been taken out of the marketplace and it's running at maximum efficiency.
Competition drives conversion which leads to greater profits that get reinvested into advertising thus driving lead prices higher over time.
Every marketing and advertising channel goes through this cycle.
Look at how the cost of Google's Adwords program has risen over time.
The chart of AdWords costs trending over time is taken from Search Engine Land.
Takeaway Improving your conversion rate isn't just about improving your margins, but also about keeping up with the joneses to remain competitive in the marketing channels that drive your growth. The companies that fall behind in the conversion game are naturally competed out of the marketplace.
Bottom line: Conversion drives growth. It's survival of the fittest and the gap only widens over time.