This post is for my new lead buyers. You older guys should know this, if not, get you act together.

Amongst the many indicators that we look at on a daily, weekly, and monthly bases there are always others that slip through the cracks. Some lead buyers look primarily at conversion ratios, some look at cost to funded ratios, and some look at cost of origination and this list goes on and on. I came across a report from another company where they looked specifically at the conversion Application Taken to Funded. Itwas a large company too. So to say the least, I was shocked. This ratio should be looked at and should not be left out of your list of indicators, but should not be relied upon to judge the success of a lead source.
There are many reason why, but I will only mention one. A lead provider should be solely responsible for delivering a lead that falls into your filters, but they can’t be responsible for the failure or success of your processing department. However, if you see a lead provider that has an average or higher than average Contact Ratio and a below average Sent to Processing or Funding Ratio, there is something going on there. They are more than likely sending you leads that were marketed to under false pretenses or are out of your set filters. This is why all indicators are important and you shouldn’t exclude any of them.

So having said that, there are many different indicators you should look at when grading your providers, but I think there are only a few that give an accurate depiction of the actual success of the leads by themselves. The bottom line, to me, is not necessarily conversions, its cost of funded and from that you get ROI of a lead.
Example:
Lead provider #1 is giving you leads at $45 and there average loan size is $300k and a Funding Ratio of 3.5%.
Lead provider #2  is giving you leads at $36 and the average loan size is $332k and Funding Ratio of 3.0%.

Lets say we buy 1000 leads from each company:
#1 we would have funded 35 loans
#2 we would have funded 30 loans

#1 would have given us a $1,286 CPF
#2 would have given us a $1,167 CPF (even though the conversion was lower.)

Before I go any further, I am going to make two fun assumptions for the sake of simplicity. 1. We are receiving 4 points on every loan. 2. We have no over-head. (ha, wouldn’t that be nice:)

Results from Lead Provider #1 would be (Average loan amount $300k):
$12,000 gross x 35 loans = $420,000 – $45,000 (Cost of Leads) = $375,000/$45,000= an ROI of 833%
Results from Lead Provider #2 would be (Average loan amount $332k):
$13,280 gross x 30 loans = $398,000 – $36,000 (Cost of Leads) = $362,400/$36,000 = an ROI of 1007%

Now if you were strictly looking at Conversion ratios you may have allocated funds to the wrong provider. Clearly lead provider #2 had a slightly lower conversion ratio, but because is CPL was lower and its average loan balance was higher, it was able to generate more revenue for the company. I must say that most of the time conversions are in line with ROI, but in this instance it was not.

This is why it is important not to leave out any indicators when evaluating a lead source and not allow an indicator or conversion to get lost in the “mist”.

(Thanks to John Challis for bringing a great point to the forefront)