3 Ways to Grow Your Business (Part 1): Increase Number of Clients and Conversions

The fundamental purpose of prospecting is to get people to raise their hand and say “I’m interested in buying or selling.” When they do that, you’re one step closer to a new client. But prospecting to get more clients is only one of three ways to grow your business. Those 3 ways include:

1. Increase your number of clients - This involves lead generation and increasing conversion rates.
2. Increase your average transaction value - This involves finding ways to make more money or to increase how much money you receive from the real estate transaction.
3. Increase the frequency of purchase - This involves keeping in touch with past clients until they are ready to buy or sell again as well as increasing the amount of referrals you receive from past clients.

How To Increase Your Number of Clients

Most real estate agents focus their prospecting efforts around generating more leads. Their fundamental belief is that “real estate is a numbers game.” The more leads they can generate, the more leads they can close. This generally is true, but it’s not always the most cost effective way to increase your number of clients.

Every prospect that comes to you comes at a cost, which marketers call the “client acquisition rate.” Your customer acquisition rate is simply the amount of money it takes to acquire a client. It includes the cost of all the marketing and promotions you send out, as well as the time you spend answering questions and selling your services.

Let’s take a basic example of how this might work. This example will involve 3 steps:

1. You run an ad in a local newspaper advertising the free report on your website.
2. For those who download your free report, you send an automated 7 day e-course via email and 2 postcards through the mail offering a free consultation.
3. You spend about 3 hours (since your time is valuable, for this example we’ll say a consultation with you is worth $75/hour) talking with prospects who contact you for a free consultation before they sign to list their home with you.

Let’s say you run a $100 ad in the local paper advertising a free report. Ten people respond by visit your website to download your free report. Of those, six (or 60%) agree to receive your 7 day e-course. Three (or 50%) then agree to meet with you about listing their $250,000 home. And one (or 33.3%) signs up to be your client.

In this model, it costs $799.80 to acquire one customer and when you sell their listing, you’ll net 1.5% of $250,000 or $3750. You’re spending 21% ($799.80/$3750) of your income just to acquire this client!

Yes, I realize the data looks better when you don’t include your consultation rate in the mix. However, the truth is that you are spending your valuable time - the only thing you can’t get more of in business - with prospects. Your time is not a commodity - you should treat it as having value. To get your average hourly rate, take what you earned last year and divide it by the number of hours you worked. Or, you can divide your average commission amount by the number of hours it takes on average to buy/sell a home for a client.

Now, imagine if you were to increase your consultation conversion rate so instead of signing up one (or 33.3%) person, two (or 66.67%) become your clients. All numbers remain the same except instead of it costing $799.80 for one person, it costs that for two people - or $399.90 per person, and you end up netting 1.5% on $500,000 or $7500 when you sell both homes. Now, instead of spending 21% to acquire a client, you’re spending 10.67% ($399.90/$3750)!

Now, let’s keep the same scenario and percentages, but raise the initial response of the ad from 10 people to 20 people and say you end up with two clients.

Now, your cost is $1479.60 for two clients or $739.80 per client. If you make $3750 per client, you’re spending 19.7% ($739.8/$3750) of your income to acquire a client. That’s somewhat better than the initial example where you ended up with $799.80 per person but it’s not quite as good as if you were to increase your final consultation conversion rate from 33.3% to 66.7% or four new clients - for $1479.60/4 = $369.90 per client! That’s only 9.8% ($369.90/$3750) of your income to acquire a client.

Clearly, just generating more leads isn’t the answer. You must also work to increase your conversion rates so that the same number of leads yields more clients.

PS - I wish everyone a happy and safe holiday. Merry Christmas.