Realtors’ Tech Budgets Exceed Marketing

Clickz.com recently cited an NAR study on Realtor’s tech budgets. They say the average Realtor spent $1300/year on technology, up 52% from 2002! Virtually all agents work for firms with websites ad 50% of Realtors have their own site. Comparatively, the NAR found that typical members budgeted $1200 for promotion and marketing expenses for 2004.

Some things jump out at me when I read this… first, the $1200 for an entire year of marketing? that’s about $100/month - and that’s not only to market clients’ homes but to market your business as well? Very few businesses can survive on a marketing budget that consists of $100/month - I mean, that covers about the cost of postage for 250 letters & nothing else like design, printing, copywriting of the actual pieces - even if you do all that yourself, you’re still paying $40 for that ink cartridge in your deskjet printer & the time you spend on design & copywriting (figure out your hourly wage from last year’s salary and use that as an estimate). In fact, for each hour of cold calling, figure out how much that’s costing you per week - (ave hourly wage x number of hours/week cold calling) - that number should be figured into your marketing budget as well. And don’t forget the time & gas money it takes to go meet with a prospect who hasn’t signed with you yet - that’s marketing too.

The Business Side of Real Estate

Which leads me to my next point. Often Realtors fail to look at real estate as an entrepreneurial venture. They move into it thinking they’re going to make tons of money - they just need their license and the money will start rolling in. Unfortunately, there are very few businesses like this. In today’s highly competitive market, marketing is increasingly important in differentiating once company from another. Marketing drives the company’s revenue, meaning that you market to bring in prospects. You run ads in papers, update your website, send out flyers, etc to tell people that your business exists and you’d be happy to help them. Success in any business requires intense focus and planning - and start up funds to maintain your marketing. And because marketing involves so many activities - from getting people interested in your services to creating a working relationship with them to understanding client needs - it is absolutely essential to your business.

However, marketing must be done strategically - meaning that running a few ads here and there, sending out postcards every 6 months, or photocopying flyers isn’t going to cut it. Each marketing piece must reinforce your core message, and that message must resonate with your target audience. Posing with your dog or kids to create a “personal” touch isn’t good enough. There are 1 million Realtors out there - 200,000 have entered the market in the last 5 years - what makes you different from them? I bet 80% of them have dogs or kids or both. If you can’t summarize what makes you unique in 30 seconds or less, your marketing message isn’t working for you.

Marketing As An Investment

Marketing is an investment. You must put in something to get several times that back. Major corporations like Coca Cola spend $500 million on marketing to reach as broad of an audience as possible. They are in a constant battle with Pepsi for 1% of the beverage market share which translates to billions of dollars added to their bottom line. They market to get more people to drink their product, and reap the rewards several times over. It wouldn’t make sense if they spent $500 million and only made $200 million or even $500 million in sales. They could a better return on their investment by putting their money in a money market account at their bank. Instead, they invest in their business and demand a return of 5-10x what they put in. If Coke cut back on its marketing budget, Pepsi would chisel away at Coke’s profits.

You obviously don’t have that kind of money to throw at your marketing, but the principle still applies on a smaller scale. You spend a certain amount and expect it to bring in more sales. You focus on a specific target audience and market to them with a consistent and frequent message, like Coca Cola’s “The Real Thing” or “Always Coca Cola”, and build up awareness about who you are and what you can do for them. (Of course, you don’t build a ‘brand’ overnight. It takes years. One mailing or website will not make your brand.) At the same time, if you and several other Realtors are marketing to the same target audience, if you scale back on marketing, the other Realtors will slowing take your market share.

You Have Extensive Competition

On another note, if people are listing with you, they’re paying you to market their home. Your marketing plan better be more solid than photocopying a picture of their house on a tatered sheet of paper and sticking it in doors. Why? Because there’s nothing stopping them from doing something similar at a fraction of what they’re paying you. A crooked, photocopied flyer does not make a good impression - it inadvertantly brands you as cheap and inattentive to details. Why would they pay you when they can spend $50 at Kinkos to get nicer stuff printed up themselves? Remember, in the last 5 years, 200,000 Realtors have joined the market, bringing the total to NAR membership to over 1 million. And NAR estimates that only about 50% of all those licensed join their organization. Add that to the FSBO estimates that range up to 25% in some markets and you’re competing with a lot of people for the opportunity to help clients buy and sell homes.

The Cost of Doing Business vs. What Clients Will Pay

What’s really interesting is that Realtors still demand about 5-6% commission. In any other industry with such low barriers to entry, an influx of competition would drive down prices for the provider’s services to the point where a number of them would be forced to leave the industry. A few might differentiate themselves through value and customer service to become the Top Producers, but the vast majority will struggle to get by. Currently the home market is still booming, although Greenspan will be raising interest rates come the end of June. If the real estate market does cool off, there won’t be enough business to go around.

In terms of salaries, I previously mentioned that the median salary for a new agent is for new agents is $22,500, compared with $39,300 for all sales agents - the median salary combining the two is $36,000 for full time agents who work 43 hours/week. Keep in mind, that’s the middle value in that list of all salaries - half the numbers are less than that. So, let’s assume you do make $39,300 and work an average of 2000 hours per year - that’s about $19.50/hour. It’s not bad, but you’re also paying your own health benefits, retirement planning, taxes, business expenses, etc out of that. If you make only $22,500, you’re making roughly $11.25/hour. (Compare that to the National hourly wage reported by the US Dept of Labor for 2002 at $17.18)

So, from your standpoint as an agent, you need at least 5-6% to survive, but from your client’s perspective, you charge the same as everyone else - why would they go with you when they can go with someone else for the same price or cheaper (or do it themselves)? Needless to say, it’s getting a lot tougher to remain in business if you aren’t differentiating yourself through everything you do, and that certainly includes what clients are paying you to do - marketing their home or helping them find one that fits their needs. Provide exceptional, high quality, and highly valuable service, and you’ll be well on your way to a promising career. Make a half-hearted attempt to get rich quick, and odds are, you won’t be in real estate for long.