Mailings costs and ROI

[Daniel OKeeffe]

A bit of confusion about the wholesaling model. From what I have been reading from different sources in the forums, the mailings seem to only become effective around the 4th or 5th mailing to the same group of people and the numbers thrown around seem to be approximately 5k people you are sending a letter or postcard to every 4 to 6 weeks. If what they are saying is correct, then you need to send out approximately 20k mailings at a cost of at least 10k to get one deal? Does this sound right to people? Does it make sense? Please tell me where I am wrong as this seems like a very high expense to get one wholesale deal under contract where you may only make a profit of 5-10k. I have to be missing something in my calculation.

[Dev Horn]

Hi @Daniel OKeeffe - I'm one of those guys that talks about hitting the "sweet spot" in direct mail around the 5th to 7th mailing. I just did a free video about the marketing concept behind this, called the Rule of 7:

Sharon Vornholt wrote an excellent article here in BP on how this applies to direct mail for RE investors.

Now, having said all that, I and others teaching this don't mean to imply that you can't or won't get deals early on. Or that it takes $10,000 in marketing to get a single wholesale deal.

You might think of it more in terms of what it costs to generate a call or web lead, and just realize that that cost should decrease over time as your marketing becomes more efficient. Early on, it might cost $150 to generate a phone call, and it takes about 20 calls to find a deal. So $150 x 20 = $3,000 in marketing cost for a deal. Later, because you hung in there and developed your brand in your market and have people now referring sellers to you, your cost per call drops to $90. So $90 X 20 calls = $1,800 in marketing costs to get a deal.

Now of course your mileage may vary, depending upon the competition in your area. In LA it can easily cost $250 to generate a motivated seller call. The point is - consistency is the key to success (which is an ON-GOING business that has a FLOW of leads & deals).

[Brian P.]

Well your on the right track. Cost effective prospecting is something to watch from the beginning. I spend about 7% of my income on marketing and have for many, many years, you don't have to go overboard.

I have seen new investors blast mail outs to 30,000 people figuring they will hit everyone but forget that only a small percentage are true suspects and even a smaller percentage will respond to a single mailing but "hope springs eternal".

So consider starting with a smaller specific target group, and of course do all the very low cost, or basically free type of prospecting that you can. Lots of good ideas buried on this site, just start reading.

[Michael Otranto]

Direct mail can be vary costly and I think the list must be targeted very specifically. The best response rate I have seen from direct mail has been about 2%. Usually when I do mailings I do them in smaller blocks of 500 - 1000. This way I can track the types of calls I'm getting and I can change the message, medium, or market as needed. For example if you don't get an acceptable response rate you can change the actual message on the piece you're sending out. You can change the medium: postcard, yellow letter, etc. Or you can change who you are sending them to: the types of houses, geographic location, length of ownership, tax value, etc. Also, where are you getting the mailing list from? I bought a 5000 name list from an internet company for $400 and it was useless. I now use a virtual assistant to build lists for me via odesk for a fraction of that cost (I'm more than happy t refer her). Believe it or not there are many variables to consider.

I have found bandit signs to be the most cost effective for getting immediate seller leads. Personally I like to use multiple forms of marketing to get the most leads coming in. I don't like putting my eggs in one basket with regard to marketing.

$10,000 is a lot to spend on one marketing medium that has yet to prove itself effective. A few questions I would ask myself is: What is the average profit for a wholesale deal in your area? Are you looking for cash "MAO", or owner financing deals? Do you post ads to craiglist regularly?

[Shaun Reilly]

@Michael Otranto

What kind of lists do you have the VA build for you?

[Michael Otranto]

In Wake County NC all real estate records are available online. The list she is building now is 1000 houses on the lower middle end of town for owners who have "separate" mailing addresses; This means they no longer live at the subject property. I've had higher than normal response rates on this type of list. I'll do the first thousand addresses and then analyze the results to see what to do next. I would never do a mailing of several thousand at a time.

[Dev Horn]

Hi @Daniel OKeeffe - I'm one of those guys that talks about hitting the "sweet spot" in direct mail around the 5th to 7th mailing. I just did a free video about the marketing concept behind this, called the Rule of 7:

Sharon Vornholt wrote an excellent article here in BP on how this applies to direct mail for RE investors.

Now, having said all that, I and others teaching this don't mean to imply that you can't or won't get deals early on. Or that it takes $10,000 in marketing to get a single wholesale deal.

You might think of it more in terms of what it costs to generate a call or web lead, and just realize that that cost should decrease over time as your marketing becomes more efficient. Early on, it might cost $150 to generate a phone call, and it takes about 20 calls to find a deal. So $150 x 20 = $3,000 in marketing cost for a deal. Later, because you hung in there and developed your brand in your market and have people now referring sellers to you, your cost per call drops to $90. So $90 X 20 calls = $1,800 in marketing costs to get a deal.

Now of course your mileage may vary, depending upon the competition in your area. In LA it can easily cost $250 to generate a motivated seller call. The point is - consistency is the key to success (which is an ON-GOING business that has a FLOW of leads & deals).

[Shaun Reilly]

@Dev Horn

Nice video and good info in the post.

I also see you shaved your playoff beard. :)

[Daniel OKeeffe]

This is a great response. I really appreciate you guys doing this and taking the time out to answer these questions. Michael, I may just take you up on the offer to work with your contractor who is doing work through odesk. Thanks guys.

[Michael Quarles]

IMHO the rule is fairly simple.

Earnings

______ = .08-12%

Marketing

After time this will turn into a 20-22% multiplier.

[Shaun Reilly]

Originally posted by Michael Otranto:

In Wake County NC all real estate records are available online. The list she is building now is 1000 houses on the lower middle end of town for owners who have "separate" mailing addresses; This means they no longer live at the subject property. I've had higher than normal response rates on this type of list. I'll do the first thousand addresses and then analyze the results to see what to do next. I would never do a mailing of several thousand at a time.

Okay yeah I can make absentee lists here pretty easy as well.

Was hoping you had a tip for an easy way to get them to compline some other targeted lists. They mostly seem to be tougher to do remotely.

[Jerry Puckett]

Originally posted by Dev Horn:

Hi @Daniel OKeeffe - I'm one of those guys that talks about hitting the "sweet spot" in direct mail around the 5th to 7th mailing. I just did a free video about the marketing concept behind this, called the Rule of 7:

WOW!! Great Video @Dev Horn !! If I could vote for this post multiple times I would! I tried to get this same point accross in my BP Blog article Building your Direct Mail Marketing Machine

In using the analogy of a machine, it must first be built, then fueled and tuned. @Daniel OKeeffe , if you are a one man shop, and you are still working a full time job, then 5k pieces of mail per month would be silly. To get started and scale the learning curve as quickly as possible, I usually recommend sending out about 1000 letters per month. More than that and you'll get overwhelmed, less than that and your momentum will be slower to build. Less than 500 letters per month will still work, it will just take much longer (usually) to land a good deal.

Dev made a great point in his video that most people miss. The start up cost seems high because from a cold start it generally takes some time to the first deal. But after that first one comes, if you stay persistent in your marketing that machine will start to spit out deals on a regular basis. Once you have deal flow, the cost per deal drops dramatically. He is exactly right about coming to a point of critical mass where everything just comes together. I have seen it happen time and time again with many of my clients.

[Bob C.]

Originally posted by Jerry Puckett:

Yeah... and eventually the deals just come to YOU.

[Dev Horn]

Pretty funny to link the 2, @Bob C. ;-)

[Bob Ewoldt]

This is a great string. Thanks for the info, everyone.

[Bob C.]

Thanks Dev

So... We've got the Rule of Seven..

Is there a guideline to when things typically drop off?

Do we mail to these folks forever?

[Ceasar Blackman]

Originally posted by Bob C:

Thanks Dev
So... We've got the Rule of Seven..

Is there a guideline to when things typically drop off?

Do we mail to these folks forever?

Great video @Dev Horn solid information that everyone should know!

I am also curious as to when to stop the mailing tho

[Dev Horn]

We recommend that you pull (pay for) a NEW LIST every 6 months, and that your marketing to your target groups continue to those lists as long as you are doing the business of REI and want to get deals.

Of course, there are other forms of advertising that you might consider, such as EDDM, door hangers, signage, PPC, etc. that you might overlay on your direct mail efforts (or use as an alternative to your direct mail in some months).

If you refresh your lists 2x a year and mail consistently to high-value prospects (absentees, etc.), you can do very well with direct mail to drive your REI business. Many of the larger investors we work with are doing 10K to 20K pieces of direct mail every month. That said, I see many investors doing 1K to 2K per month and getting good deal flow from their very targeted campaigns.

[Brad Chandler]

When I first started in the business my sister used to hand address letters to absentee owners. I got a call from a lady one day and she said "well, I wasn't planning on selling my house but after getting the 6th letter from you I guess I will sell." I cleaned it out, listed it and made $43,000 profit.

[Shaun Reilly]

Originally posted by Brad Chandler:

When I first started in the business my sister used to hand address letters to absentee owners. I got a call from a lady one day and she said "well, I wasn't planning on selling my house but after getting the 6th letter from you I guess I will sell." I cleaned it out, listed it and made $43,000 profit.

So I think you are subtly hinting that you feel it was worth sticking with? :)

[Jerry Puckett]

Originally posted by Dev Horn:

We recommend that you pull (pay for) a NEW LIST every 6 months, and that your marketing to your target groups continue to those lists as long as you are doing the business of REI and want to get deals.

Just want to add here for clarity's sake....when you refresh your list, you are actually pulling a new one with the same geography, same criteria. In the last 6 months, some of the people on your sold their house some other way, or were foreclosed on, etc. As a campaign goes on you begin to see more and more RTS (Return to Senders) because your list is getting stale. On the refreshed list, these names should come off.

In addition, some folks who were not on your list before will be moving in to your criteria, and these names will be added.

Some will come off, some will go on, but the bulk of the list is still the same, and yes, you continue mailing to them until they sell you their house, fall off the list or tell you to go to hell.

[Bob C.]

So you repurchase the same list (criteria/farm)?

I was wondering about that. Wondering if maybe we simply purchased "what's changed since the last time*" - but didn't know if the companies like that provided that service. I've got an email into listsource for a couple days - so far no answer.

* then I take that list and run it against / update my current list

Also... if you repurchase the list, does that mean that you start your marketing cycle again? I.e. "old" people get your first letter again?

[Jerry Puckett]

Originally posted by Bob C:

Also... if you repurchase the list, does that mean that you start your marketing cycle again? I.e. "old" people get your first letter again?

Yeppers

[Dev Horn]

That's it Jerry! Exactly my point...

[Brian Davis]

I have started mailing inheritance and probates over the past 2 months and plan on staying consistent. (My list is about 3000 names/addresses so it can get very pricey if you guys are blowing smoke up my a**...haha) My first mailing was a yellow letter and my second was a white business letter. My thought is that different people will react different to the 2 letters. From watching the video Dev put out, it seems others may be sending out very similar looking mail to build trust with the recipient and familiarity. Any thoughts on this? I was actually planning on going back to a yellow letter for my 3rd mailing but I am confused. I really do not want to send 14 pieces by doing 7 from each angle..

1 other thing...if you are mailing a list you know others are mailing, couldn't you simply say that you have been sending mail and you are sending this letter to follow up and piggy back on others mailings? it is very possible the previous letters have been thrown out and they finally save the one that comes in when they are ready to sell so how would they know the difference?..or maybe the letter could say that your partner has previously sent letters and you are just following up in case there is a need to sell?