When times get tough many companies are forced to focus in more on performance measurement. So it’s no surprise that the words that seem to be on everyone’s lips in the leads space these days are data, measurement, metrics and ROI. Every day a new company seems to pop up with a new way of guaranteeing lead “quality”, lead integrity or sales performance. But, despite the talk, many of these companies are still waiting in the wings for the metrics revolution to take place.
Why is this? We all know that it’s the bottom line that matters. And at the end of the day we know that profitability is dictated by the ability to purchase leads that turn into sales at some definable ratio. What we are really bad at though is properly defining what the key metrics are that help us behave in a way that creates an attractive profit per lead.
I believe that it is the following metrics that are most important in ultimately driving profitability:
Behavior metrics
Average Speed to Contact: The faster your salesperson calls a prospective customer, the more likely you are to close the sale. You need to monitor this because calling a customer 5 minutes after they have made an inquiry is good but leaving the lead to go cold for an additional 25 minutes typically results in a 2100% decline in your likelihood to close the sale.
Contact Attempts: Salespeople need to be persistent. If they are calling often, they increase their chances of connecting and are far more likely to be the first to contact the customer. The chances of closing a lead when you are the first to contact the customer are exponentially better. Don’t forget that the average lead is worked by 4-10 of your competitors.
Contacts Made: Salespeople who are working leads need the customer to pick up the phone. If your salespeople are making a lot of contact attempts and making relatively few contacts, you may need to find a new lead source!
Actions: This is a measurement of overall activity going on in your salesroom. How many times do they make a disposition each day, week, month? If they are not taking several actions in your lead management system every hour then they are probably not doing their jobs properly. Maybe it’s time to quit checking ESPN.com and hit that phone.
Success metrics
Contact rate: What percentage of the leads in your system have resulted in an actual contact being made during the past day, week or month? If you are not contacting a high percentage of your leads, they are either poor quality leads or your organization is behaving badly (see metrics above)
Application rate: What percentage of your leads have led to an application being taken? Depending on the industry, this would be defined as having taken a loan or enrollment application for instance. Typically a good benchmark here is that less than an 8% application rate is fairly poor performance, although this depends on the type of leads your company uses and the underlying level of customer demand at the time. It is definitely possible to consistently hit in the high teens if you are buying good leads and have a team that is behaving in the right way.
Conversion rate: “The ultimate metric”. What percentage of your leads end up generating revenue? If you are in business today then your own performance regarding this metric is likely etched in your mind, it is that fundamental. If you don’t know this ratio cold then I’d suggest that you need to get your hands on a lead management system ASAP (although it needs to be one that measures your conversion rate, of course!).
I would argue that armed with these 7 simple metrics, you have everything that you need to build a cutting edge sales organization that can weather any storm. Furthermore, given the simplicity and comprehensiveness of these measures, it is probably high time that the industry embraces these as common standards. Once we do that, for the first time we will all speak a common language and can begin to benchmark ourselves against one another. Only then will we truly be able to say whether we are performing well or poorly in a market that changes dramatically from one day to the next.
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Nick,
These are good indications, but ultimate success must derived from ROI. The metrics you mentioned are all fine and should be standard in every company, but can be meaningless and drive poor decisions id you do not include some type of ROI analysis.
Lead Critic,
Yes, I absolutely agree. ROI is the underlying metric that we all really care about. However, I think that the other metrics that I mention, used wisely, are the enablers of a high ROI. Along with a good market and decent revenues per funded loan, of course.
Thanks,
Nick
Nick, I am HUGE fan of LMS’s and specifically of Leads360. Leads360 is clearly one of the very best in the industry, but I have to admit that I am disappointed at this post. You make the very same mistake that I would estimate at least 90% of the lead buyers make when evaluating their lead companies’ performance; you make no mention of INCOME. The Behavior Metrics help you arrive at costs, and Contact Rates, Application Rates and Funding Ratios also all help you arrive at cost metrics like the Average Cost per Funded Loan, but that is not enough. LeadCritic did a great post on this topic about a year ago here, http://tinyurl.com/3dh4ag. It showed a real example of how one lead could have a higher CPFL than another lead with a lower conversion rate. This is because costs, on their own, do not paint the entire picture. If all you were tracking were only the metrics that you suggest, then the lender would miss this example and possibly buy leads that did not optimize ROI thereby costing themselves revenue. Without emphasizing “income” with the same veracity as costs, you cannot see the entire picture. I agree with you that the industry could benefit from a standardization of metrics, but if there is no mention of “income,” within those metrics, then you are still potentially costing your business profits.
Some_Insider, income is certainly important, which as you point out, is the other half of profitability. However, the metrics that I have laid out do pertain to income to the extent that all else being equal, more conversions = higher revenue. I agree, not all conversions are equal because the revenue per funded loan is not always the same.
However, I do think that using these metrics will allow a sales organization to optimize their sales team in a way that generates the highest number of converted loans. A better way to increase revenue than focusing primarily on revenue per funded loan.
I find that many of our clients are not looking for reports, they are looking for answers. We are listening and responding accordingly. I wholeheartedly agree that we have all missed the boat on reporting metrics in the current iterations of the existing lead management systems. All the metrics mentioned by Nick are once more a reflection of what the enhanced features offered by our respective lead management systems will give us better insight into, but this does not in any way provide more accurate visibility into revenue. We all know that cost per funded loan is the holy grail of reports, but we have all conveniently found a way to skirt this issue because we know it requires a lot more dissection of the “conversion metric”.
Nick, you seem to be a way to be laying the groundwork for new reports to be released in the 360 system, which is great, but if we can’t tell our clients what each conversion is costing them, don’t you think we’re smoke and mirroring a little? Lead Critic has always said this to us when he was with the company that is a client of LROI, but we just didn’t have all the pieces to accurately provide him with this info. So, we conveniently dodged the bullet.
However, we have never forgotten his, and many client’s words and we have identified a way to more accurately gather this info and make reports reflect this. But, accuracy is key and it does require breaking a lot of pieces of the lead management process apart and attributing cost and income metrics to them. In my opinion, providing inaccurate CPFL data is far worse than not providing it at all because once it is provided, key business decisions will be made from it and it is too risky of a proposition to not do correctly.
Look, we didn’t choose the ROI name for no reason. We understand that the ‘Return’ part of ROI is what keeps our clients in business and what is ultimately important to them, but I sincerely believe that the slower evolution of lead management analytics is something that was inevitable. There is a foundation of learning that can only come from seeing how users respond to this kind of software implementation at the point of sale and then examining what kinds of data can be gathered based on usage patterns. Fortunately, we have learned quite a bit in the past 2-3 years. Now it is how our systems respond to these learnings that will ultimately determine our success in the future.
Nick, I love what you’re saying though. All the points of data you mention above are definitely components to better understanding Lead ROI.
I agree with both of you to a point.
ROI is certainly the ultimate objective. However, the metrics that I have laid out enable lead buyers to increase conversions. Increasing conversion is undeniably directly linked to income which is half of the profit equation. The other measure that you could also track is revenue per funded loan, which I ignored because having a large number of loans convert is typically superior from an ROI perspective to having less loans fund at a higher revenue per loan.
On the cost side the metrics do a good job of measuring the efficiency of the sales force which is typically the highest cost for most sales shops.
Leads360 focuses primarily on the 7 metrics that I mention because we believe that these are the ones that ultimately drive the highest ROI. This is what we see in our data. I do agree, however, that it is also best practice to keep a close eye on the ROI metric too.
I’d be interested to hear if there are other specific metrics that you think are critical in driving superior ROI.
Raj,
Yes. Cost per funded loan is very important, as is revenue per funded loan. Ultimately profit per funded loan is what we all want to know.
I believe that the LMSs that can deliver this piece of information as well as the metrics that I describe above that enable people to optimize CPFL and RPFL will be the ones that “break-through” over the next year.
And you are right, the 7 metrics I mention will be tracked out of the box on Leads360 system from this week onwards. We believe that this will create a minor revolution in the way that lead buyers and users think about their information.
Now THIS is dialogue, I love it. Nick, you are indeed right that, “all things being equal,” more conversions = greater profits. But to be fair, if all things were equal you wouldn’t really need an LMS, would you? You could accomplish the same thing, essentially, via a CRM system like Salesforce.com to manage lead distribution and workflow. I think the obvious point is, all lead providers are NOT created equal and that is why it is imperative to evaluate the income related to your marketing sources. Typically better conversions do equal a better ROI, but there are countless examples of when this is NOT the case (and I have written about a few). That is why it is imperative to be able to evaluate costs just as easily as the metrics that you outline.
Raj, you too make some excellent points but again you refer to the Cost per Funded Loan as the “Holy Grail.” That very well may be the case, but I think it is imperative for the superb Lead Managements Systems like LeadROI to help steer the conversation purely from costs and make income and ROI the Holy Grail. Again, if anything needs standardization it is the fact that managing your business purely to costs is like operating your business with blinders on. You need to have the peripheral vision that income gives you to really maximize ROI.
Some_Insider,
I think you should reveal yourself at the LeadsCon conference. I have always appreciated your comments and would love to meet you in person. If you want to stay anonymous, wear the Nacho Libre mask and share your ideas with me over a drink.
I didn’t see a Nacho Libre mask at LeadsCon. Was Some_insider revealed?