I received some fantastic responses to my most recent post on my opinion of the value of live transfer leads, and I felt that I should respond.
First and foremost I don’t want this post or my previous one to be interpreted in a way that reflects an opinion that I don’t think live transfers are a viable source of marketing. I absolutely think they are and the fact that DoublePositive recently raised $4 million in VC funding proves that others with far more money than me think so, too. My position is that while live transfers are a viable marketing source, I do not feel the premium price for the leads translates into an equitable level of ROI. I still feel that way.
One of the resources that was cited in the insightful response from Joey Liner of referenced an analysis from blogger John Demayo. Numbers are like political banter. In the hands of the right person, you can spin them just about any way that you want. Demayo’s posts makes some great points about additional costs of time associated with the diligent follow up on leads. The fatal flaw, however, is that he is basing his math off of a 1% funding ratio for Internet leads. If you are only seeing a 1% funding ratio then you probably should be using live transfers because you are either an inefficient shop or you are buying crappy leads. 1% is too low. If you do the same math with a 2.5% funding ratio – which I think is more accurate for a well-run shop – then the story is not as compelling; costs per sale go from $2000 to $800 per loan in his scenario.
I am all for the concept of out-sourcing. It improves efficiencies and typically saves time and money, but that is only in situations where someone else can do it at a lower cost. My experience has been that most well run shops using a lead management system, and in best-practice situations a dialer, can achieve lower costs than if they farmed out the front line resources to a live transfer company.
Much has also been said about the costs associated with repeatedly calling leads. It is no secret that success with leads comes from a persistent and diligent follow up after lead receipt. Yes, there is a cost that is associated with the time required for this follow up, but there is an incredible amount of value derived, too.
The value of a lead is not based solely on whether or not it immediately turns into a loan. One of the most important reports that I have learned about over the years was one done by an industry leader in originating via Internet leads. They wanted to learn which days, relative to lead receipt, were the most successful for contacting consumers. The results were as follows:
1st: Day 1 (duh)
2nd: Day 2
3rd: Day 21
Point being, value can be derived from good Internet leads long after the initial couple days. What gets lost often (and I am guilty of this myself) is that we too often think of these as simply leads rather than customers. So yes, there absolutely is a cost associated with the time that it takes to diligently and consistently follow up with these leads customers. But a tremendous amount of value can be derived from these leads long after the initial first few days of receipt provided that you are organized enough to adequately follow up on days 20, 30, 60, 90, etc. If you are not, then you are not maximizing your lead opportunity. Now, I understand you can call a hot transfer lead down the road, too. But I think the prospect of paying $80 for that lead does make it less attractive at day 20, 30, 60, etc.
The bottom line is this. To generate a live lead, this is the typical process:
- Acquire lead
- As a loan originator you are actually competing in the acquisition process with live transfer lead companies since they buy the same leads that you do
- This also nullifies the “exclusivity,” concept. Yes, that specific transfer is exclusive to you, but it was generated from a purchased shared lead that was bought by 4-5 other lenders, too.
- Contact lead
- Screen Lead
- As Joey from Double-Positive spelled out in his comment, there can be several steps to this process
- Transfer lead
What needs to be understood, then, is that there are costs associated with every step. And of course, on top of those costs, there are also profit margins; turns out that just like Internet lead companies, hot transfer companies like to make money, too.
Once again, I am certainly not saying that the services aren’t valuable, or that you can’t still make money off of the leads because of the higher associated costs and margins. I have many clients that have and do utilize live transfers as a key component of their marketing portfolio. It is just that it has been my experience that a well-managed shop can replicate much of the pre-screening or pre-qualifying process in-house. By doing so, you are eliminating the third-party costs, their margins and thus greatly reducing your acquisition cost.
So, that is my opinion. And it really is nothing more than that, an opinion. I am not trying to paint my posts as the final word in the Internet lead industry. But the best solution, no doubt, is to test it out yourself.
Test some hot transfer leads. Just make sure you understand pricing because as I wrote in my original post, if you are buying a $25 lead and getting a 40% contact ratio, then you really shouldn’t pay much more than $62.50 ($25 / 40%) for a contact. Otherwise, you are just overpaying.
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“Just make sure you understand pricing because as I wrote in my original post, if you are buying a $25 lead and getting a 40% contact ratio, then you really shouldn’t pay much more than $62.50 ($25 / 40%) for a contact. Otherwise, you are just overpaying.”
This assumes you spend no more time calling leads then you do with transfers, or that your time is worth $0.
Most people will pay more for a transfer, then a lead that leads to a transfer, because the transfer takes less work.
If your time is worth money, transfers should be worth some amount more then the “effective cost per transfer” of leads.
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Fair enough, John. I do recognize that the time is worth some amount of money. I guess the question is, then, is your LO’s time worth a 3x premium? I would argue its ot worth taht much and that’s why I feel a viable traditional lead will return a better ROI.
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Man, I should really proof read before I click submit. Of course, what I meant to say was that, “I would argue that it is NOT worth that much and that’s why I feel a viable traditional lead will return a better ROI.”
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I’m not as directly involved in the call-center side of the business as many of you are these days. Perhaps someone could share the cost of working leads and getting them to the point where they are effectively of the same value as a transfer. For a few of the smaller shops I helped out years ago, the cost was very significant, and a $62.50 transfer was WAY more profitable then $25 leads with a 40% contact-and-basic-prequal rate. And we rarely saw 40% contact-and-basic-prequal rates….the % was normally lower (driving up the cost of the initial calls, and driving up the value of a transfer as compared to a lead).
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Bingo.
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It is all in the follow-up and I really appreciate this post. Time is money but the long term follow-up creates amazing opportunities for agents, lenders, etc to build their own pipeline of business.
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It’s weird that everyone is talking about LO’s as if they’re not the persons actually purchasing these leads…
I work for a “shop” but I purchase all of my own live transfer leads. I’ve used Logicall, Eleadz and have been sticking with Double Positive lately as I get a 1-in-12 closing ratio with them at 50 dollars per lead.
I purchase leads because it is not a Loan Officer’s job to cold call leads/customers. It’s cheap owners who have propogated and tried to convince their loan officers that this is part of their job description. For any L.O.s dealing with that, tell your boss to pay you 80% and remind him/her that he/she works for you — you’re the one paying the bills.
So, as a loan officer and not a telemarketer, I would say either do Live transfers or hire a telemarketer yourself. I only work about 3 hours a day 4 days a week and make around 8K per month. That means that my time is worth $166.00 per hour, which is far less than what I pay for leads.
Know your worth, people!
B
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Brent,
Good for you! It sounds like you have got your act together.
I don’t agree with most of what you just said, but …
LO’s are absolutely sales people and that includes calling people, sometimes cold calling people. If this was not then banks and brokers would simply have the processors and underwriters be the order takers and eliminate your role altogether.
I think you are capitalizing on well hot transfers, but don’t fool yourself, your sales. What did you do prior to buying the hot transfers?
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Brent, great input. But you have to realize, and I am sure you do, you are the exception and not the rule. You are the 20% in the classic 80/20 rule and the other 80% of loan officers don’t really have the work ethic or desire to be on the hook for their own leads. But I actually do agree with you that someone of your apparent caliber should hire their own telemarketers or use live transfers. But for the other 80-90% of the market, costs will need to be monitored more closely to ensure profitability.
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To LC — I started out as a telemarketer until one day I came in hours early and picked up the phone book on my off time and got 2 leads that would eventually turn into one loan and told my boss at the time that if he wanted it to close he’d have to make me an L.O…
I then made 40%, then 50%, then left that company to go make 55%, then left THAT company to go make 90% (but had to do all my own processing and there was an 850 “Processing fee”) and so left that company to go make 75% — which is where I’ve been ever since, but I only have a 395 processing fee AND I have the greatest processor EVER…
:::phew:::
So, yeah, that took years and years (5?)and I guess that’s why I’m so against L.O.s being treated like cattle, because it’s so difficult to find owners (like the one I have) who will judge each L.O. as an individual, not as a group.
SomeInsider — I do realize, though, that most L.O.s want to have a nice office and phones and a desk and things provided to them and don’t want to actually put their own jewels on the line.
I work from home, buy my own leads, and yeah, you’re right, it’s probably the exception. BUT there are a lot of exceptional people out there working in this business.
I guess it all comes down to motivation. The reason I tried so hard to be an L.O. was because I WANTED to work from home and I WANTED to own all of my own business (profit and loss) without all the legal headaches of actually owning a company. I’ve never lost site of that goal even after I attained it, and not a day goes by that I’m not ridiculously thankful that this is my life.
So, you guys are right, I’ll amend my previous statement — L.O.s: Be exceptional! Owners: Recognize and award the exceptions!
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