I work with many commercial real estate brokers and have had a few brokers ask me how much revenue is actually generated from having a website. It’s impossible to give one answer that applies to every commercial broker, but I can present a formula that will help you answer that question for yourself, and give a general answer that should be applicable for the average commercial broker. The rest of this blog post will address the various aspects that impact how much revenue you receive from your website.
Robert Andolina published an article about converting real estate website traffic into leads. In that article he said “Some recent studies [August, 2013] have shown agent’s websites that generate large volumes of traffic have only about a 2% – 4% conversion rate.” He defines a conversion as a “hot lead.” The rest of his article talks about how you can increase your conversion rate.
Let’s assume you haven’t done much to really boost your conversion rate, and you fall into the average of a 2-4% conversion rate (CR). If that’s the case, you should expect to get the following number of leads, based on the amount of website traffic you’re receiving:
Now that we know how many website visits result in a lead, the logical next step is to determine how many leads will result in a closing. There are several articles and opinions on the average number of leads per closing for commercial real estate. The numbers typically range from 1-5%. It really depends on the quality of the leads and your skill in closing a deal. If you get 100 leads, and you close 1-5% of them, you will get 1-5 closings. I think 3% sounds like a good average number. That’s what I’ll use for my calculations in the last table of this blog post.
For the commercial real estate industry, the actual transaction value can vary to a large extent, depending on the commission rate and the transaction value. If you specialize in one specific property type, you may need to adjust your commission rate accordingly. However, based on LoopNet forums and other reports, it seems safe to say the average commission rate is around 4%. This is just an average number for us to work with, but it seems very realistic.
In Jeff Rauth’s article about commercial mortgage closing costs, he gives a “breakdown of the average closing costs on commercial mortgages, on either investment or owner occupied properties. This overview is relevant for loans between $200,000 to $8,000,000.” This implies that most commercial transactions, or loans, are for $200,000 to $8,000,000. Based on my own observations, it seems most commercial listings tend to be $200,000 or greater. Although the average transaction is probably much higher, let’s pretend the average closing is worth $200,000. I realize leasing transactions could be a bit different, but you can adjust these numbers, as needed, for you. Let’s also assume the average commission rate is 4%, since that seems pretty standard. If that’s the case, one closed deal is worth about $8,000. Here’s the math:
For your convenience, I also put together a table (below) that shows adjusted transaction values and adjusted commission rates. This may be helpful as you do your own calculations.
This blog post has identified and presented the following average statistics:
- Average number of leads, generated from website visits
- Average number of closings, generated from leads
- Average transaction value
- Average commission per transaction
Now that we have these estimated figures, we can calculate the actual value of your website traffic. I suggest you check and see how many website visits you are getting. Then, use the table below to see the estimated amount of revenue you are generating because of those website visits.
As an example, let’s use the seventh row down. This is for the person who generates 15,000 website visits. In their case, their website will likely result in around 450 good leads, 14 closings and a total of $108,000 in revenue.
First, get your numbers together.
- How many website visits do you get per month/year? _______
- What percentage of those visits turn into a lead? ________ Most real estate professionals report a 1-5% conversion rate.
- What percentage of those leads will turn into a closing? _______ Most real estate professionals report a 1-5% conversion rate.
- What is your average transaction value? ________
- What is your average commission rate? ________
Second, run these calculations, with your numbers.
- Multiply your visits by your leads percentage (example: 15,000 x .03 = 450). This gives you your leads.
- Multiply your leads by your closing percentage (example: 450 x .03 = 14). This gives you your closings.
- Multiply your average transaction value by your commission rate (example: $200,000 x .04 = $8,000). This gives you your commission.
- Multiply your commission by your closings (example: $8,000 x 14 = $108,000)
Tada! This tells you how much revenue you were able to generate, based on the amount of website traffic you received.
Please realize these numbers are based on the best statistics I could find, for the commercial real estate industry. Most of the data is based off of qualitative surveys, rather than quantitative research. Of course, you may have different results, based on your unique situation. This blog post isn’t designed to be a statistically absolute calculation of what you will make from your website traffic. There are many factors that could impact your results. Having said that, it’s quite likely your results are even better than what I presented above. This is especially true if you have a higher average transaction value or a higher commission rate. However, I believe this is a very good generalization of what the average commercial real estate broker can estimate. In the end, it all depends on you, your website and your market.
Now, see what you can do to increase your website traffic and conversion rates. The higher these numbers go, the more revenue you will make. If you want help boosting your website traffic and leads, I’d be happy to have a conversation with you. Just let me know!