Why Cost per Lease is a terrible metric and what you can do about it
Due to our desire to measure everything, we inundate ourselves with reports. Some of these reports are invaluable and others have us spinning our wheels. One that is given way more credibility in this industry is the cost per lease. This report’s goal is simple; figure out if you’re spending money on lead sources that aren’t producing. I get why you want to measure that. Let’s all be honest here, measuring it accurately is very difficult.
Daddy, where do leads come from?
It isn’t how it used to be; not anymore. The internet has completely changed the landscape. Years ago when someone said they came from the Apartment Guide chances are that was where they found you. Probably the only place. In 2010, someone might start their apartment search on Google at 11pm in their PJ’s on the couch. By midnight they’ve seen your property on a pile of different websites and submitted a prospect card through your internet site. Which source do you hope to measure from?
There are several schools of thought on this one:
- First source.
- Last source.
- Multiple sources.
- Average of all sources
So we’re starting off with bad data?
Yup. In addition to figuring out which source gets the prize you also have the unreliability of the prospects themselves. They aren’t concerned with how they happened to find you. Only you are. Oh wait- there’s one other thing too. According to the NMHC Tech Conference from last week, 70% of ad sources are attributed to the wrong one. Our very own agents? Oh brother.
Does Rent.com setup the appointment, convert them to an applicant, and get them to move in?
Umm.. no. That’s the leasing agents job. Using cost per lease doesn’t take into consideration the effectiveness of your agents. It puts the blame squarely on the source instead of on you. This to me is the biggest problem with CPL as a metric. It’s like blaming the gun for shooting someone. If you aren’t converting… find out why. Maybe what you’re advertising on these sites isn’t good enough, is misleading or (dare I say it) your people need some additional training.
Is Cost Per Lead better?
Yes. If you use a lead tracking service and/or a call center you can improve the accuracy of your sources dramatically. (I’m assuming “Last Source Wins”) At the NMHC Tech Conference, they discussed trying to keep your cost per lead below $50. Analyze how effective these lead generating sites are at generating leads (and at how much money) and leave the conversions to the agents.
What other things should we be focusing on?
Pull your lead to appointment ratio report, and leads to application conversions. Make sure your agents are doing the best they can to convert as much traffic as they can. Careful though… if you put too much emphasis on conversion you risk the danger of watching your lead numbers decline. Humans have a funny way of trying not making themselves look bad.
Top of the funnel just makes more sense.
Despite the propensity of mislabeling leads you do need some way of finding out what is and isn’t working. I would rather rely on the information at the top of the funnel. There are too many other influencing factors. Once a lead source hands the lead to you, it’s your responsibility to convert.
Measure your people.
Give them realistic monthly goals. Teach. If you have 200 apartments with a 50% turnover, that means you’ll need to rent 8 apartments a month. If the office has 2 agents, they’ll need to move 2 people in weekly. One move in per person per week. That’s a realistic goal and it can give people something more tangible to strive for. Overcoming 8% vacant is fuzzy math. Moving in 1 person a week is a better measurement and makes it easier to see what’s working and what isn’t.
Cost Per Lease is an unreliable metric. It assumes that your leads attribution is being done correctly. It doesn’t take into account how effective your agents are at converting and it puts the burden of the blame for non conversion on the sources themselves. This sort of thinking in my opinion is wrong. Would love to hear your thoughts.
Happy renting everyone.
Thanks for Stuart Miles at Free Digital Photos.net for the picture.