About the Author

author photo

Bill Rice is the CEO of Kaleidico, a leader in lead management systems. Prior to founding Kaleidico he was the VP of National Home Equity and the Home Loan Benefit program at Quicken Loans and one of the founding executives of DeepGreen Bank, an Internet-only bank that was one of the first and (at that time) largest buyers of LendingTree leads in early 2000.

See All Posts by This Author

Don’t Buy Leads, Invest in Leads

May 27th, 2008 • Related • Filed Under

You may have thought you couldn’t afford to buy leads. However, I am going to show you a secret that is going to prove you can’t afford not to. So often we go into marketing focused on the initial investment with no consideration of the return or the alternative. ZipSearch’s blog post on investing in mortgage leads reminded me how important it is to highlight this point.

Let’s go through a mini marketing planning session for your mortgage business.

Reviewing Your Mortgage Business

Let’s set the perspective of the average mortgage business. Let’s assume you are a mortgage broker or perhaps a small community bank. You have 10 loan officers. What do you do today to generate prospects?

If you are the average mortgage loan officer your marketing budget looks something like this:
  • $200 for a yellow pages ad
  • $200 for a newspaper ad
  • $50 here and $50 there for little ad square on the local diner’s placement
  • $5000 to mail a cheap flyer to anonymous households
And these expenditures go out the door off and on with no trackable results, no phones ringing, and constant panic of when your next prospect may walk through the door. Stop the madness and build an opt-in database of customers that steadies your business in good times and bad. You can create this opt-in list yourself or you can jump start the process by purchasing opt-in, real-time, Internet generated leads.

Characteristics of a Good Lead Provider

If you are going to buy leads versus generating your own each of these terms is important.
  • Opt-in: You are simulating a referral here. You want to make sure the customer has raised their hand and asked for information. Otherwise, you are in for frustration and potentially fines.
  • Real-time: This is probably your best hedge against Do Not Call and CAN-SPAM violations. Generally, your violating or black hat lead generators are peddling cheap lists.
  • Internet generated: Again, most lead scams are perpetrated by folks peddling data, lists, and other untraceable set of customer names and phone number. Direct XML posts from Internet lead generation generally avoids this problem.
Stop Buying Leads and Start Investing in Leads

If you decide to buy leads you need to commit to two critical mindsets:
  • Leads are customer referrals
  • Leads are investments
The first premise will ensure that you appropriately follow-up and consider each inquiry with the same intensity, fervor, and respect that you would your Mom’s friend. These are folks that have been referred to you–by and Internet company, not your golf buddy–a referral all the same.

The second mind shift is from buying leads as a short-term fix to and investment that returns indefinitely if managed properly. This one typically is a little hard to sink in, but let me show you a quick illustration of the value of making adding lead nurturing into your lead management process.

Let’s make the assumptions in this simple Lead ROI calculator:
Lead ROI 2% Conversion
The result is a pretty conservative estimate of the return you can expect on a small purchase of leads, worked for 14 days, and converting at 2% during that time period. Not bad, nearly doubled your investment in clear profit.

Now let’s assume that you left them in the lead management software and nurtured them with an education based campaign for another 3 months. Do you think you might get another 1% conversion?
Lead ROI 3% Conversion
This is pretty powerful. That little extra automated effort on the lead just doubled my income again!

Now let’s watch our lead investment grow again by witnessing the amazing effects of lead nurturing. Working on my customer database for 6 months, and only 1% more…
Lead ROI 4% Conversion

Nearly $60,000 in profit on a $12,000 initial investment in Internet leads. This is only the single effect of one month and one lead buy–imagine layering that effect with monthly lead buys. Or, even mounting crazier numbers by believing CRM industry studies that 3% of any client database will, on average, transact annually.

The conclusion is obvious and the math is compelling–Don’t Buy Leads, Invest in Leads!

Post a Response

I'm happy to use Increase Sociability.