Have you ever noticed how most government programs fail? The reason they do is because there are multiple competing criteria for success.
Real estate investors make this same mistake when they’re running ads. When you want high lead volume, a low cost-per-lead, and high-quality leads you make it almost impossible for your ads to succeed — because each of these criteria compete against each other.
Not only does this “nuke” your budget, but you end up getting the lowest quality leads possible. It’s the worst of all worlds.
In this episode, I’m revealing why most things fail and how optimizing for one criterion saves you from falling in this trap.
Show highlights include:
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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.
Look, as always, if you want to talk to somebody, somebody who's just going to help you figure out what the best online marketing strategy is right now for your market, then you can go to AdWordsNerds.com/Strategy to grab a time on our calendar and we will help you out. [01:11.7]
Now, this week, I'm getting into this week. I'm going to talk about something I literally read last night. I literally read this last night and I highlighted it. I wrote it down and it really reminded me of something I see with a lot of different real estate investors that I work with and a lot of it just investors that I socialize with and network with because I'm in contact with a whole bunch of people, big and small in this industry.
This came from this really incredible book that I actually really recommend, which is called Why Most Things Fail. It's written by a guy named Paul Ormerod.
Now, if you are into the theory, you want to get into this, it's really fascinating. He talks about the life cycle of businesses and how it's actually very similar statistically to the sort of lifespan of creatures in an evolutionary competitive landscape. It's really fascinating. [02:12.6]
He talks about big government and government programs and all this stuff. It's a really, really interesting book, but fairly theoretical, a lot of economics, stuff like that. That's the kind of stuff I enjoy thinking about right before bed. If that's your jam, then go on and get into it, but if not, no worries.
One of the things that I highlighted last night, I just thought this was so interesting. Okay. He’s talking about government programs. Okay, he’s talking about basically like it's got a whole chapter on why do government programs often fail? And he makes a pretty compelling argument that these things that are the aims of most governments, for example, driving down unemployment, that most of the things that governments do of a variety of types—we're not just talking about Americans. We're talking about the British government and Spanish government, all this stuff, all these different types of things that governments do in order to try to drive down unemployment—they generally don't seem to have a very big effect, if any, at all. [03:17.8]
It's pretty interesting. When you back up and you really look at long-term data, there isn't much evidence that government intervention really helps to drive down unemployment, and this includes things like cutting taxes, which tends to be in the States a kind of a right-wing sort of approach to stimulating the economy, and it goes for the more traditionally left-wing approaches of stimulating the economy. It's really fascinating. It's just not a whole lot that governments do that seems to be successful.
Anyway, that's the broader context in which I found this little phrase and I wanted to tease it out here. It says: [03:59.0]
“In general, it is rare for a government to have a single criterion of success. So many competing and conflicting goals exist. The real-life equivalent of a checkmate in chess remains a chimera. Politicians are sometimes beguiled into believing that, in bill Clinton's phrase, ‘It's the economy, stupid’, but this by no means always works.”
Now, here's what Ormerod is saying here. Okay, he's saying that one of the issues with the government is that a government's got to, by necessity, represent a whole bunch of different people and that whole bunch of different people are generally going to have different criteria for what they consider a good outcome. Right? Maybe I want a low deficit and maybe you want high benefits or vice versa, but we kind of have competing ideas of what's going to be a good thing, right? [05:03.1]
Obviously this applies even more directly to things like cultural issues where we might be diametrically opposed, but even if you look at something like the economy and you say, Hey, the economy, good economies, good for everybody, well, not really, right? Good economies, quote-unquote, “good economies” tend to be better for some people than others, and therefore different groups of people are going to have different ideas in their head of what a good economy actually looks like. So, even for these so-called dinner-table issues or kitchen-table issues or whatever that are the meat and potatoes of popular politics, they're actually more complicated than we may think.
Now, here's how I'm going to relate this back to real estate investing and specifically getting more leads in deals online, which, of course, is what I do. [05:58.3]
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Now, the thing that I really jumped on here and the thing that I underlined a couple of different times was “it is rare for a government to have a single criterion for success”, and this reminded me of a call I had a couple of weeks ago and I actually got into this with the investor and it was a really, really useful conversation.
Now, we were on this call and this person was saying, Look, this market is really, really competitive. I won't tell you what market it is, but it is one of the most competitive markets in the country, right? Lots of people are spending lots of money online, so it's expensive, okay? The deal values are high. Profit margins are higher than they've ever been, so I'm told, but competition is high, so the cost per lead is high, right? That's what you would expect. [07:18.6]
I'm on the phone with this client and they're saying, Look, this market is really competitive and I've done deals, but I need to bring down my cost per lead. It's just too much. If I pay this amount per lead, it squeezes my margin and I'm not happy with that—and I'm paraphrasing here, right?
I'm taking notes and I'm thinking, we're talking about possibilities, and I said, I just want to stop you there for a minute, because before every call that I do with a client, I always go back and I look at my notes from every other time that I've spoken with that client, and I went back in my notes for this call and went back over our notes before we talked, and what I noticed was a couple months ago, when you and I spoke, your primary issue was volume. You said that you weren't getting enough leads. You needed to get more at bats in order to ensure that you were going to hit a home run, and so for the past couple of months, we have been optimizing for volume. [08:18.3]
Now, look, there's nothing wrong with wanting high lead volume and there is nothing wrong with wanting to lower your lead cost, but here's where we bring it back to Ormerod in this book, Why Most Things Fail. In this situation of wanting both volume and cost, we have two criteria for success. What does success mean? High lead volume, low lead cost.
Now, that is a perfectly rational thing to want, but it's also important to note that, in some instances, those two things are competing with one another. In a market that is highly competitive with a very high lead cost, you can absolutely bring down the amount that you pay per lead. But when you do that, you will almost always lower your lead volume. [09:18.0]
Simultaneously, in a really competitive market, you can get every single lead in that market if you really want to. You could dominate that market. You can maximize your volume, absolutely. But you will usually have to raise your costs to do so.
Now, I'm not saying that these two things, lead volume and lead cost, are always opposed. They are not. In some cases, they go together. For example, let me give you a really concrete example. Let's say, you are running Google Ads right now, Google Search ads, your traditional Google Ads, “sell my house fast.” Your ad shows up. You get that lead. That's my channel of choice, has been since the beginning. I love it. [10:04.1]
Now, let's say, you're in a competitive market. Okay? Lots of people spending money, high lead costs, etc., etc., and you're dealing with this lead-volume and lead-cost problem. I can actually give you a solution that will both raise your lead volume and lower your lead cost. Are you ready? Here it is. I want you to start running Google Display Network ads on top of your Search ads.
Now, Google Display Network is a wonderful little network. It will generate hundreds and hundreds and hundreds of clicks, and thousands upon thousands upon thousands of views on your ad, and the best thing is those clicks will generally cost you a few cents on the dollar, maybe 50 cents at the highest, and so you can generate many more clicks in Google Display Network than you ever could on Google Search ads. Therefore, you're going to get more leads and your cost per lead will decline sharply. Higher volume, lower cost, problem solved. [11:14.3]
But, of course, it isn't problem solved, right? Because there's never an easy answer to anything. Now, what's going to happen is, when you start to run your Google display network ads, what's going to happen, unless you are very, very, very, very good at managing that campaign, your lead quality is going to go down sharply.
Now we realized we didn't just have two criteria for success. We didn't just need high volume and low costs. We also want high quality. I want to go to the absolute best restaurant and get the highest-quality food, and I want a lot of it and I don't want it to cost very much. It's hard to do that. Not impossible. Not impossible. Not impossible. In fact, to extend this metaphor probably to its breaking point, the best place, the best way to do that would probably be to learn to cook, make your own food. [12:13.0]
But in any case, what I'm saying, it's not impossible to do this. What I do want you to know is when you have multiple criteria for success, you make success far more difficult to achieve, and this is something that many investors, I feel, don't understand.
Here's where this gets really damaging. This gets most damaging and most costly if you bounce between optimizing for one or the other. For example, you spend a month optimizing for volume and then “oh, no, things are too expensive,” so then you spend a month cutting your costs, and then “Oh, no, now my volume is too low,” and then you go back to maximizing for volume and you bounce back and forth, and what that does is create an environment where you get the worst of all possible worlds. You neither get sustained volume and you don't get sustained low costs. You just get this vacillation between the two, and that is extremely destructive, especially over the long-term. [13:20.5]
I'm not telling you that you can't lower costs, I’m not telling you that you can't raise your volume, and I'm not telling you that you can't get great-quality leads online. Obviously, you can. This is what I do every day. But what I am telling you is that every new criteria for success that you add makes success that much more difficult to achieve and this is true in your business as it is in your personal life—and that is the reason, my friends, that is the reason that I’ve underlined this line 50 times, because that is a powerful, powerful realization to have and I hope that you spend a little time today thinking about exactly what your criteria for success really are. [14:08.7]
Look, as always, I hope you found this episode valuable and if you want to tell someone about the REI Marketing nerd’s podcast, I would love that, absolutely, love it. You can go to AdWordsNerds.com/podcast to find all the past episodes of this show or just download us wherever you get your podcasts, and, hey, if you could leave us a review, I'd really appreciate that. I read every single one.
For now, this is Daniel Barrett from AdWordsNerds.com signing off. See you next time.
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If you’re a real estate investor and you want to get started in online marketing, you know there’s a lot to learn: Targeting, retargeting, custom audiences, ad sets, split tests and more. It can be overwhelming, but you need to fix something else first. If you really want to get leads and close deals through
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