It’s a question often asked by apartment marketers who are testing the waters of paid search campaigns for the first time.

Here’s the great news: It’s not that hard to get to a solid answer—one based on real needs, not just a number pulled out of thin air.

Aric Billings, a Senior Digital Marketing Specialist 30 Lines, discussed an approach for helping marketing achieve leasing goals with the most efficient ad budget possible.

Identify the numbers that must be hit. Always start there, then work backward to determine the spend. This is true whether handling online ads in-house or working with a pay-per-click (PPC) vendor.

It’s a more straightforward formula to master than you might think.

These data are needed for the calculation:

• The community’s leasing box score
• Whatever report shows where leads are coming from (all lead types: Email, phone calls, chat, etc.)
• Google Analytics reports
• The traffic/budget estimating and planning tools in your Google Ads account

Take that insight and apply some marketing math. Being an expert mathematician is not required to back into these numbers.

Note: This example is for a typical stabilized property. Different techniques exist for new lease-ups and student properties.

Steps to Determine Ad Spend

This may seem oversimplified at first, but it’s a good exercise to prevent overspending or underspending. It’s also a useful practice when making thoughtful adjustments to an ongoing ad spend.

Here are the steps to take to identify an online ad budget:

1. How many apartments do you need to lease this month? Let’s say it’s 10 leases.
2. What’s your leasing team’s closing ratio? Divide the apartments you need to lease by this number. This roughly indicates the number of tours needed to give to achieve the goal (10 leases). [10 leases/40 percent closing ratio = 25 tours needed]
3. What’s the community’s lead-to-tour ratio? Across all ad channels, this might be 25 percent to 30 percent. Divide again. This is the number of solid leads needed to give the leasing team enough at-bats. [25 tours/30 percent lead-to-tour conversion rate = 84 leads needed]
4. What type of results are other ad channels delivering? Is the community good for 30 to 40 solid leads every month from Craigslist, Facebook Marketplace or an ILS? For example, assume that 35 percent of the leads will come from other channels, and the community’s website carries the rest of the load. [84 total qualified leads needed X 65 percent of our leads need to come from the website = 55 website leads].
5. What’s the community website’s session-to-lead ratio? On the community website and its landing pages, this might be “leads from property website” (sometimes called a “goal conversion rate”). Industry averages are approximately 1 percent; typically, marketers want that number to be 3 percent to 5 percent (or more) after they have optimized a website to increase conversions. Divide once more. This is how much traffic needed to be driven to the website to achieve the needed leads. [55 website leads/3 percent session to lead conversion rate = 1,834 visitors to your site].
6. Look at how much traffic is being generated versus what is needed. Let’s say the website already gets 1,500 new prospective resident sessions per month. So, the gap needs to be bridged by about 334 sessions where it is falling short.
7. Find the cost to acquire that traffic. In PPC, that’s the Cost Per Click (CPC). It’s going to vary widely by submarket and even by keyword. (Historical costs can be pulled by the marketer or the third-party marketing vendor from Google Ads and a few other tools.) Multiply. Let’s conservatively assume it’s $2 for this example. (For example, as of July 2019, the average cost per click across 30 Lines’ portfolio of customers nationally is $1.01.) [334 website visits (clicks) needed X $2 per click = $668]

If working with an agency or PPC vendor, don’t forget to add in their margin or management fee to calculate the real total cost. If it’s 20 percent, you’re up to $802.

In this example, $802 is the starting point for a monthly spend on paid search ads.

That’s probably not going to be the exact number spent but consider it to be a rough estimate of what a PPC budget should look like, based on real projected vacancy. Adjust every month, or more frequently as needed.

Improve Every Step

Now that the number has been calculated, work toward optimizing every step of the process--starting from Step 1--and watch what happens.

If the closing ratio can improve from 40 percent to 44 percent with smarter lead nurturing campaigns or better sales training and nothing else changes in the equation, the estimated budget falls to approximately $330 (and that includes the agency fee).

Improving a community’s leasing performance by just 10 percent can cut PPC expenses by more than half.

The numbers get better when each step improves: Want more people to show up for their tours? Try an online appointment scheduler or email/text scheduling assistant. That way, more people show up after a community sends them an automatic reminder with directions to the door.

Want the website to convert more visitors to leads? Make sure the community’s pricing and availability is updated and that it is easy to navigate, then layer on smart tools that increase conversions--targeted website pop-ups, keyword-focused landing pages, better images and multimedia, triggers and messaging inspired by sales psychology, live chat or a chatbot, etc.

Can more and better leads be squeezed out of other channels such as organic SEO, Facebook Marketplace or Instagram? Go where the attention is. The more that can be leveraged from organic marketing channels, the less the apartment marketer will need to rely on paid sources to bridge that gap in traffic.

Can the community’s ads’ performance improve? Look at the keywords that are converting, ad copy, the user experience of the landing pages and the overall quality score. Improving ads’ performance can both increase total lead conversions and reduce costs per lead.