Understanding your performance metrics is essential to running a profitable real estate investment business. This guide explains how to calculate your Return on Investment (ROI), Lead-to-Contract Ratio, Contract-to-Deal Ratio, and Prospect-to-Lead Ratio so you can track results, optimize your approach, and scale your business with confidence.
Glossary
Before diving into the formulas, let’s clarify some key terms:
Prospects: These are the properties you receive from 8020REI.
- Leads: Property owners who have shown interest in selling their house.
- Contracts: These occur when a property owner decides to sell the house to you at an agreed-upon price.
- Deal: This is when you find a buyer to acquire the property you've contracted.
How to Calculate ROI
ROI measures the profitability of your marketing or acquisition efforts. It compares what you earned to what you spent.
Formula:
ROI = ((Revenue - Cost) / Cost) x 100
Example
Let's say you spent 2,000 on marketing to get a property. You sell that property for $12,000.
- Revenue: $12,000
- Cost: $2,000
- ROI: ((12,000 - 2,000) / 2,000 \times 100 = 500%)
You got a 5x return on your investment.
Note: Make sure to account for the dates when calculating ROI. You might spend on marketing in June but get the revenue in July. The ROI would still consider both these amounts despite the time gap.
How to Calculate Ratios
Lead-to-Contract Ratio
This ratio shows how effective you are at turning interested property owners into signed contracts.
Formula:
Lead-to-Contract Ratio = (Number of Contracts / Number of Leads) x 100
Example
If you have 10 leads and 2 turn into contracts, your Lead-to-Contract Ratio is (2 / 10) x 100 = 20%.
Contract-to-Deal Ratio
This ratio shows how effective you are at closing deals from contracts.
Formula:
Contract-to-Deal Ratio = (Number of Deals / Number of Contracts) x 100
Example
If you have 5 contracts and 2 turn into deals, your Contract-to-Deal Ratio is (2 / 5) x 100 = 40%.
Opinion: These metrics are essential. Knowing your ratios and ROI can help fine-tune your approach to each prospect, ultimately saving time and boosting profitability.
Why These Metrics Matter
Tracking these numbers consistently helps you:
Identify bottlenecks in your acquisition process
Improve marketing and outreach strategies
Allocate your budget more effectively
Forecast revenue based on conversion patterns
Scale with clarity and control
How Often Should You Review Your Metrics?
We recommend reviewing these metrics:
Monthly to adjust active campaigns and improve short-term results
Quarterly to identify larger trends, market shifts, and scaling opportunities
