Episode #120 – How Getting More Leads Might Hurt Your Real Estate Business

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 and deals online, outsmart your competition, and live a freer, more awesome life. And, now, your host, Dan Barrett.

Dan: All right, hello and welcome to this week's episode of the REI Marketing Nerds podcast. As always, this is Daniel Barrett, here from AdWordsNerds.com. We help real estate investors get motivated seller leads and deals online every single day. How are you? It's been a minute. It has been a minute since I've had time to record this podcast. [01:05.6]

If you are at all interested in the behind the scenes of running a successful marketing agency for real estate investors, what this has meant for me personally is I have been in the trenches. I have been deep, deep in the trenches. We decided earlier this year or, I should say, in the middle of last year, really, to make a pretty profound change in how we deliver our kind of customer experience.

So, we're bringing in a dedicated customer service or kind of a client experience person that allows our PPC team to solely work on managing accounts or not doing any client communication, and since we haven't had that role there, I have stepped in and have been doing all of the client calls, all the client communications and everything, and that has been really, really amazing. It's been a while since I did that. [02:01.5]

What that has allowed me to do is really dig into our systems and processes, find places where we can improve. My mind has been going a mile a minute. We've been doing all this research. We're building out this huge data pipeline that uses machine learning to sort of find high ROI keywords and market segments. We are doing so much. I'm completely redoing my coaching program. I'm developing a new sort of high end elite SEO service just for real estate investors. It has been an absolutely packed end of 2020 and beginning of 2021, and as a product of that, I just haven't really had time or bandwidth to dig into the podcast.

But you know what? I miss the podcast. I miss doing this. I miss having this moment to kind of sit and chat with you, and the podcast is where I develop a lot of really important ideas and where I, quite frankly, sort of roll out the stuff here first that is going to get rolled out to our clients and to my students and stuff later on. [03:07.7]

This week I wanted to get into a topic that is like that, and I wanted to explain to you something that I am deeply excited about and have been implementing for every single one of our Google Ads real estate investor clients, for every single one of our search-engine-optimization real estate investor clients, literally for everything, for my coaching programs, for my one-on-one mentoring students. This is the thing I have been using day in and day out in order to make problems and questions that come up about how to diagnose an account, how to get better, how to scale, all these things that are such perpetual problems for real estate investors. I have been using one framework to fix all of those problems and have been having incredible success—and that framework is called the theory of constraints. [04:03.7]

Now, I do not make up the theory of constraints and, in fact, I've talked about the theory of constraints on this podcast before, so you can go back and check that out. But today I want to dial in on something that, to me, felt a profound insight that I think you can immediately turn around and use in your own online marketing for motivated sellers, whether you're doing SEO, whether you're doing PPC, whether you're doing just conversion rate optimization just on your website, whether you're doing mail, whether you're doing cold calls.

Literally, no matter what kind of marketing you are doing, you can apply this insight directly to it and that insight comes directly from the theory of constraints. Again, I didn't make this up. The only thing I'm doing is applying this to the online market. Okay.

Now, a bit of a background just in case you have no idea what I'm talking about. The theory of constraints was developed by this guy named Eliyahu Goldratt, who was a sort of business consultant, manufacturing consultant, logistics-supply chain consultant. He was really active in the early-80s and still remains active through the 2000s and up to today. [05:20.7]

But he developed this body of work he called the theory of constraints, which was really an attempt to apply scientific thinking to business problems and he was dealing a lot with manufacturing. The ’80s, this was the period of Japanese car manufacturers absolutely giving American manufacturers a shellacking in the market in terms of providing a better product that required far less maintenance for less money at a faster rate. I mean, we really were getting demolished and that was because the Japanese manufacturers had developed this kind of what later would be called the Toyota way and then morphed into lean manufacturing, these principles of how they ran their factories. [06:11.6]

Goldratt was kind of an intellectual competitor, you could say, to lean and to Six Sigma and to these other kinds of improvement methodologies. I love this topic, by the way. I would just read endlessly about this stuff and there's a lot to be gained there, but I don't want you to have to go through [all that].

Literally, I bought a theory of constraints handbook the other day and the book was literally a hundred dollars to buy this book, so clearly this is sort of a specialized body of knowledge and you may be wondering, What does this have to do with real estate investing, and specifically, what does this have to do with marketing? So, let's take one of the insights from theory of constraints and let's talk about how it applies to the marketing that you are doing right now.

All right, now, the theory of constraints has this mantra, this motto that I love, and this phrase that they talk about all the time is the illusion of local optima. [07:07.5]

The illusion of local Optima. Now, what that means is that if you have a system, let's use a manufacturing example, you've got a conveyor belt with a series of machines along it, right? This is kind of your manufacturing process. You've got Machine A and Machine B, and Machine C. Let's say, Machine A paints the widget. Machine B, I don’t know, sets the paint and the Machine C packages it or whatever. That's your little process. There you go. Paint it. You’ve got to set the paint and then you've got to package it.

The illusion of local optima is that if we optimize the performance of every individual step, we will get optimal performance. And it kind of makes sense, right? If I optimize Machine A and I optimize Machine B, and I optimize Machine C, theoretically, I should get the best performance. [08:13.7]

To tie this into online marketing, the way that this often comes up is people will think, Okay, I need to have the most amount of impressions, which is eyeballs on my ad or my website or whatever, just somebody seeing it. I need to have the most impressions and the highest click-through rate, and the highest conversion rate, which is the percentage of people that become leads when they land on my website, and I need to have the highest close rate, and if I do that, most number of impressions, most number of clicks, highest click through rate, highest conversion rate, highest close rate, my business will be at its maximum level of success. That is something that makes sense on paper, makes sense intuitively to us. We kind of get that. With the theory of constraints posits is that that is actually not true. [09:06.1]

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When you optimize every individual step, you don't get the absolute best level of performance. You actually get a worse level of performance, which is fascinating. There's a ton that goes into that, but I don't want to get too much into the theory. Let's keep it in online marketing. [09:58.1]

Let me ask you if your job is to maximize the number of eyeballs on an ad, how do you do it? You show that ad to the highest number of people. You pick keywords that have extremely high search volumes, right? Maybe you use a keyword match type that's very broad. Maybe you maximize your bids. You bid as much as possible so that those ads are in high positions for every single one of those searches. That would be how you would maximize impressions. But that doesn't necessarily lead you to getting more deals at a higher profit margin.

For example, by raising your bids willy-nilly, you are eating into your later profit margin. By targeting keywords that have the highest possible search volume, you are lowering your average quality per lead. [11:04.0]

By targeting the keywords that have the highest volume, you are almost guaranteeing, if your ad is in a high position, that you are going to get clicks from that ad. But if you are not offering what those people need or want, that is going to be wasted ad spend.

Now, let's think about conversion rate. If I wanted to optimize my conversion rate, which seems like an obvious thing to do, how would I do it? I'm going to make it as easy as possible for them to convert. Maybe, for example, I am going to run Facebook lead-generation ads, which have very, very, very high conversion rates. I mean, lead formats, literally the form is there in the ad on Facebook. They never have to leave Facebook. What could be the problem with that? I'm going to maximize my conversion rate. [11:57.0]

When you do that, you tend to get an extremely low quality of lead. People often don't even know that they filled out that form, and so when you call them, they are angry. Not only are they not going to close, not only are you spending money on leads that maybe don't even have a house to sell, maybe if you do this often enough, because, again, you are optimizing, maximizing your conversion rate, maybe if you do this often enough, someone opens up a complaint against you with the Better Business Bureau or with the state and then you have to deal with that.

Now let me even ask you, could it possibly be bad to maximize your close rate? And the answer is yes, because how could you maximize your closure? You just close on any deal at any price and, of course, if you close on any deal at any price, it isn't true that the most valuable deals are always going to be the ones that use your resources the most. [13:02.7]

It could be that the deals that have the lowest profit margin and the lowest profit potential actually take the most effort from you, and so you are doing things and spending resources that are limited on opportunities that don't have a whole lot of upside, because, again, all you cared about was maximizing the number of closes you made. So, it isn't true that if we just maximize the performance of every single metric, we will get the best end result. It isn't true.

There are many times when I will look at a Google Ads account from a student, and I will say. Your conversion rate is too high, because unless you have a conversion rate of a hundred percent and you got that a hundred percent by only sending one really targeted person there, there's nothing wrong with that, but I can almost guarantee you are leaving money on the table by sacrificing so much volume. There is going to be a sweet spot of a lower conversion rate, but a higher traffic volume that is going to produce more revenue for you long term. [14:11.6]

So, it isn't true that if we just optimize every single individual metric, we get the best result. There is always going to be a time when we say, You know what? I actually need to dial this back, and by dialing it back, I am actually going to produce the end result that I want, which is more money in your bank account.

Remember the goal is not to generate clicks. The goal is not to generate leads. The goal is not even to generate deals. The goal is to generate money in your pockets, and it is very common in the online marketing space and in the investing space for us to lose sight of this very important fact.

This is one of the reasons that AdWords Nerds or at AdWords Nerds, we do not seek to generate purely the highest possible volume of leads. We seek to generate the highest quality leads we can generate at a significant profit. [15:12.3]

That is a very different job than just saying, Get me as many leads as possible. This is why, on average, our leads close one out of every 12 and I'm not even filtering out bad quality leads or spammers or other wholesalers or whatever. I'm including them in that number. It is still on average across our clients, across the country, one out of 12. That is because we are focused on generating return on investment, not a sheer number of deals. \

I hope that makes sense. If you are at all interested in the theory of constraints, I'm probably going to be talking about it more and more this year because I'm doing a lot of study on it. I'm using it more and more in my marketing and in my business, and even in my personal life, and I find it fascinating. If you have any questions, let me know. [16:00.5]

By the way, you can go to AdWordsNerds.com/Strategy if you want to talk to someone on my team and figure out, Hey, how would this work for me? How would you apply this in my market? How would you apply this with my budget? We'll help you figure that out for free. AdWordsNerds.com/Strategy. If you like it, you can keep it. If you want to do it with us, we can do that as well. Hope that makes sense. I'll talk to you soon. Thanks for listening. Bye.

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