Episode #009 – Barrett’s Razor: How to make more money by working less

You're listening to the REI Marketing Nerds Podcast, the leading resource for real estate investors who want to dominate their market online. Dan Barrett is the founder of Adwords Nerds, a high tech digital agency focusing exclusively on helping real estate investors like you get more leads in deals online. Outsmart your competition and live a freer, more awesome life. And now, your host, Dan Barrett.

Dan: Alright, hello everybody and welcome to the REI Marketing Nerds Podcast. So happy to have you as always. Daniel Barrett, here from Adwords Nerds and yeah, I'm very, very happy to be back here. I was actually gone the whole of last week. I was away. I went to Paris with my wife. It was super fantastic. This is a trip we have wanted to take forever and took a trip away from our kids for the first time in a very, very long time. I am back in the office and I got to say, being away is amazing and it's rejuvenating and all those wonderful things and obviously I am very, very lucky and grateful for that experience but there is something about the joy of coming back home to the routines and habits and familiar things that I really, really love and one of the things that usually happens to me when I go away on vacation is I come back with a ton of ideas and a ton of things that I'm really excited to talk about. It's like you force your brain to take a break and you force it to focus on other things for a while. You're usually going to find that your subconscious kind of surfaces all of this cool stuff. That definitely happened to me on vacation, although I got to say – you know walking around Paris and having nice dinners and wanting to talk to my wife about real estate investing stuff didn't go over super, super well so I'm going to dig into one of the things today that was on my mind while I was on vacation and maybe this is just a really good sign of how how nerdy things really get up in my brain.

But this week, I wanted to talk about Barrett's Razor. Barrett's Razor, first of all no one is going to accuse me of being super humble for naming this after myself. But the subtitle for this episode is "How to Make More Money by Working Less" or you could also call this "How to Make More Money by Spending Less." This is a major mental model that I developed when I was still running this company entirely on my own and doing all my own account management. Most of you guys know I have a wonderful team. We're a team of 9 people, I think right now, purely doing real estate investing marketing and that's amazing. But back in the day, I was doing all the work myself. I was really starting from scratch. When I started doing this stuff there was not really anybody talking about it, nobody was sharing techniques or tactics. In fact, this is not that long ago but really very few investors were doing online marketing at all and one of the scary things and the exciting things about that was I really had to come up with everything on my own. There was no one to say, this is what works, this is what doesn't work. I really had to just figure it out. That's been a big challenge but it's also been a huge sort of a factor in our growth and success is that we did the work.

Not to belabor the point but I was doing all the management myself. I was doing all these Adword accounts for myself and investors trying to figure out what worked and what didn’t. One of the questions that I would always get is "what do I need to spend?" So investors would say, "I'm interested in working with you, I'm in Houston or I'm in Dallas, or I'm in Connecticut" or whatever. They would say, "I'm in this market, what do I need to spend to get deals?" For the longest time, I really did not know how to answer that question, it's a really hard question to answer because obviously every market is different and you guys have heard me say this on this podcast a million times, every market is different, it's different day to day, week to week, month to month much less Houston being different from Dallas being different from Connecticut. So it's hard to give someone an exact number but I would kind of estimate something that would be helpful to them. Over time I realized that the reason that question is so hard to answer is because it's the wrong question. It's the wrong way to think about the issue of what you need to budget for your marketing and what you need to be spending and what you need to be spending in Adwords or Facebook or really anything. Because in reality you don’t need to spend anything, there is no minimum; there's no maximum, there's no necessary amount you need to spend in order to make money with online marketing.

Let me give you a concrete example to break that down because that may sound like a hand-wavy answer but let me explain what I mean here. For Adwords, specifically most of our clients, we require them to spend a minimum of $2000 a month. Now you might say, "Well Dan requires $2000 a month to spend that must mean that $2000 a month is what people really need to spend." But that isn't actually the case, the reason that we require that is because if you're spending less than that you really don't need management. It's got nothing to do with what you need to spend in your market to be successful, that $2000 minimum has to do with working with us. So let's say, you don't have $2000 a month at all, let's say you only have $100 a month so way less than our suggested minimum. Does that mean that you can't do online marketing for motivated sellers? Absolutely not. In fact I had someone ask me this recently what would you do if you only had $100 a month? I would spend it online, 100%. Here is what I would do if I knew I had only $100 a month. I would really, really, really laser focus on a very small number of keywords, I mean I'm talking about like five keywords. I would run with low bids. So I would low ball the bids on those keywords. I would use modified broad match keywords in order to generate more traffic for less money and I would use a very extensive list of negative keywords in order to filter out everything that could possibly come up that's not what I want. If you don't have the technical background, you may not be super sure about all those things mean individually but just know that basically what I'm saying is if I had $100 a month, I would run a very restrictive and very low ball style of strategy. Now that kind of strategy, that might generate one deal a year. So we are not setting the world on fire, I'm probably not quitting my job, I'm not retiring, well maybe I could retire to Costa Rica who knows? I'm not buying a new house or whatever. I'm doing a deal a year. Think about what that means, I'm spending $100 a month that's about $1200 a year if I run that all year. Now let's say my average deal size is 10K because I'm doing wholesaling, I think that's very, very reasonable looking national deal values right now. I'm spending $1200 a year and I'm making $10,000. That's almost nine times return on my investment in that marketing spend. If you could do that in the stock market, people would think you are a wizard. So that's very good ROI with a very tiny budget by the way that's very, very doable for pretty much anybody. So it's not the case that you need to spend a certain amount of money and if you don't spend that amount of money, you're not going to do deals. It's just about matching your needs and your expectations to the strategy that you're going to use. If you can only spend $100 a month, no you're not going to be doing five deals a month off that. That's just realistic but you could get a really significant return.

So the reason that I was having so much trouble answering this question of "What do I need to spend?" The reason I'm having that trouble is because it's not the right question. Thinking about the problem in a fundamentally wrong headed kind of way and that's going to send us down these blind alleys. Now that's going to bring us into this idea of Barrett's Razor. Barrett's Razor came about from this process – I have all these clients, I'm doing all the work myself, I'm really struggling in a lot of cases to manage that workload and to manage people's budgets and help them understand what they should spend. So over time, I started to notice patterns in all that work. I started to notice things that would come up again and again. The mental model I developed to describe this is Barrett's Razor. Barrett's Razor goes like this, at any point, most of what your ads spend is waste. I'm going to say that again, this is the mental model, this is Barrett's Razor, at any point most of what your ads are spending is waste. That's a pretty dramatic statement but it is going to be broadly true even of very well run ad accounts. It's true in our ad accounts. It's true with anybody pretty much you're going to pay to manage your stuff. It's going to be true if you manage your own stuff. It's just true generally across the board. Most of what your ads are spending is waste. That's because this whole idea of understanding what you need to spend and understanding how much time and effort you need to put into managing and understanding what you need to spend in your market; it comes down to the trade off between efficiency and volume. It's one of those things that when you really start to understand it; you're going to be able to use it time and time again on your own stuff. You're going to be using it time and time again if someone else is managing your stuff in terms of understanding first of all if they know what the heck they are doing and two: understanding their strategy and how they're actually going to go out there and make you money.

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Alright, so let's talk about this, let's talk about this trade off between efficiency and volume. The way I think about this is I like mixed martial arts. I like to watch UFC and stuff like that. If you're not familiar with that, you can just think boxing or any kind of combat sport. Now you got these two people, real tough fighters and they are competing in a specific weight class. For people who that like fights, they already know this but if you're not familiar with this at all; let's say we are in the same weight class that means we both have to be 170 pounds, no heavier than 170 pounds in order to fight on fight day.

Now what ends up happening is both of us, both people fighting in this competition here, we don't walk around at our normal weight at 170 pounds, oh no, no. In reality we're both much heavier than that. So I might weigh 190 pounds let's say on Monday and by Friday I have got to weight 170 in order to compete and so what I do is I cut weight. This is this really dramatic process of dieting and if you've seen videos of people in the sauna with the garbage bags over them or they are on the bike cycling in like full sweats and sweatshirt while the heat is blasting all over them. It's like what are they doing? They are trying to lose weight. They are trying to lose a lot weight really, really quickly. They are losing water weight to get their weight all the way down to 170. So they weigh in at 170, cool, I weighed in at 170, I passed the rule so before the fight, I get most of that weight back by drinking the water and stuff now when I actually walk into the ring I might be 180 or 185.

So not to get lost in the weeds here, but basically the idea is when I'm a fighter, I've got to learn to cut weight so I can get down to a low weight in order to compete. So let's think about that. When I'm losing weight, what am I really doing? I'm becoming highly efficient. I'm getting rid of everything that is extra in anyway, every bit of water, every bit of salt, every pound, or ounce or kilogram whatever it is; I've got to get rid of it so I'm really efficient. Nothing but muscles and bones, that's the ideal. This is where by the way if you see people and they look really, really ripped, they've got like a six-pack, and rippling biceps and veins popping out everywhere, you're most efficient in this state. But the thing is in that state, most people are most actually at their weakest point. If you think about it, it makes sense. I haven't eaten anything in three days. All my water weight is gone. I'm dehydrated. I'm really, really weak and in fact in some cases people have gone to the hospital or have even slipped into comas because they did this wrong. Right? So even though, I'm highly efficient at this point where I've cut all this weight I'm also very weak.

Now contrast that with a really strong athlete, someone who is really their physical prime, someone who is at their peak state like I'm ready to rock whether that is fighting or boxing or running or whatever. I am at my absolute best. It is likely that in that state of being at my absolute most ready, my absolute best, I've got a significant amount of body fat hanging around. I've got significant extra calories to burn. I've got extra water that I'm carrying around. My body is carrying around more than it actually needs so I'm not the most efficient I've ever been. I am not at my most lean but I can generate a lot of force. I can be extremely strong. I can be extremely powerful. This is the trade off between efficiency and volume. I can be at my most efficient in my marketing meaning I have no waste. I've got nothing that is spending money and not generating leads, I'm at my most lean. There is literally nothing extra happening, only the things that are absolutely required are in there but in that state that marketing campaign or marketing account is likely to generate a lower overall lead volume. And the converse is also true if I've got an account that's generating a ton of volume and a ton of activity and a ton of leads, it's probably also generating a fair amount of waste. It's got extra stuff that isn't' really necessary. This is just true across the board. It's going to be true in any kind of marketing. Think about it in direct mail to bring this back to something that I think a lot of you are going to be more familiar with, if you have a list of just purely – only the people who match this, really, really strict criteria, you know they have a certain amount of equity and in a certain one mile radius and they have a certain amount of income and they have certain this and a certain that and really, really, really specific list, that list is going to be really responsive but it's probably going to generate less deals overall than if you mail everybody in your state a hundred times. Right? You're going to get less deals that way of course one's going to be a lot cheaper but the other one is going to generate more deals. This is always the question we have to answer. Do I care more about efficiency or do I care more about volume? Do I care more about hitting a certain weight or do I care more about athletic performance? Efficiency versus volume. We are always trading one for the other.

Now in the case of Barrett's Razor, Barrett's Razor is about recognizing this and saying if any account that's generating volume, it's likely that a significant amount of it is going to be waste. So you can really focus on cutting the waste and cutting the amount that you need to spend or you can focus on really boosting the volume. It's very hard to do both. Like if you want to cut costs, there is a fairly straightforward checklist for doing that. There really is. I mean this is something that we do pretty much everyday for clients. It's a relatively restrictive list of things that you do. You can cut the number of keywords that you're running, just run the stuff that is generating leads for you. You can look at the position of your ads and say, "What positions are my ads in when they generate the most leads?" You can look at the devices that you're running. You know people on mobile, people on desktop, people on tablets, where do most of my leads come from? You can look at zip codes or regions and say, "What zip codes are generating leads and which aren't?" You can look at the time of the day or the day of the week, which of those are generating lead and which aren't. Out of all those categories typically only about 20% of the things that you are targeting are actually generating leads for you or results of any kind. If you look at your keywords, about 20% of your keywords are generating pretty much that you're getting. If you look at the position of your ads, it's going to be 20% of all positions; usually the ones at the top. You're going to be looking at mobile, desktop or tablet, usually one of those is generating the vast majority of your stuff. You look at zip codes; maybe 20% of your zip codes are generating all your leads. You look at the time of the day or the day of the week, they are going to be clustered around certain hours of the day typically. So pretty much all the time, 20% of the stuff that you're doing is generating most of your results which means by definition about 80% of what you're doing is waste. This is Barrett's Razor. At pretty much any moment, most of what your ads are spending is waste. But that's not necessarily a bad thing. Remember there is a trade off here between volume and efficiency so we can cut our waste all the way back but we are going to sacrifice volume and likewise we could boost our volume all the way up but we're going to sacrifice efficiency. So there is no right or wrong but it's about understanding you and understanding what you are looking for and understanding your market conditions and what's important to you in the moment. This is pretty much what we do for all of our clients. It's like sit down and try to understand this and dial it in over time. Can we dial in a little less efficiency for a little more volume? Can we get a little less volume but really make a dent in our cost per lead? It's a process. But it's understanding the mental model that allows you to actually go through that process otherwise you're going to be trapped in this loop where you're constantly trying to cut weight and get the most athletic performance at the same time and you really cannot do that. It's got to be one or the other most of the time.

So I hope that is super helpful for you. Hey listen, if you are listening to this podcast and you are not in our Facebook group, you should get in there because it is free and it is awesome. We post in there every single week. We do weekly live shows. We do tons of posts. We do tutorials. I've got a thing on "How to use YouTube to Find Motivated Sellers." I've got an SEO guide. I've got deep PPC trainings. We got all this stuff in the group. It's totally free. So you can go to oldsite.adwordsnerds.com/group to find that. Likewise I've got the show notes, links to everything that I talked about here, all sorts of cools stuff over at oldsite.adwordsnerds.com/podcast. So again that's oldsite.adwordsnerds.com/podcast to find all the notes for this episode and our past episodes. If you like this show and you got some value out of it, subscribe, leave me a review, I would really appreciate it. It helps other people find the show and it's fun to do so I want more people to find it. Let me know if you have any questions. Hope you're having an awesome week. I will talk to you guys next week. Cheers. Bye.