There are many mysteries in life for which we may never really see an answer. What came first, the chicken or the egg? Is their life on other planets or solar systems? Why is Dr. Phil even on TV? I won’t claim to know the answers but one pervasive mystery that eludes most people in this industry is the concept of “Return On Investment,” or ROI.

What I actually find more often is that companies think that they know their ROI, but actually aren’t looking at the whole picture. I do feel like I have the answer to this and will be writing a three part series on the three key components to ROI. I won’t tell you how to measure it, I’ll let the great lead management programs on the market provide that solution for you. But I will demonstrate the importance of looking at all three components and some of the pitfalls incurred if you don’t look at the whole picture.

In it’s most fundamental form, ROI consists of two key parts, money coming in (income), and money going out (marketing spend, costs). Groundbreaking stuff so far, I know. But the reason I state the obvious is that most of the conversations that I have center around costs. Typically companies know how much each source is costing them (at least on a per lead basis), but they don’t have any idea how much they are genuinely making in income from that specific source. Costs are important, but if you are not measuring the costs against the income they generate, then you are not seeing the whole picture. If costs were the sole factor for decision-making, then we would all be driving a Yugo. I am going to venture a guess that there are not many Yugo’s being driven by this readership (not that there is anything wrong with a Yugo!).

Three Key Components of ROI
Drilling-down beyond just Costs and Income, I feel there are three key components to ROI. Within those three components there are sub-categories that I will touch on. Each of these categories and their components provide leverage toward optimizing ROI. I will show you why you need to pay attention to each one.
1. Costs
a. Cost per Lead
a. Cost per funded loan (CPFL)
2. Conversion Ratios
a. The key metrics that drive Conversion Ratios
i. Contact ratios
ii. Application Ratios
iii. Approval Ratios
iv. Underwriting/Documents Received
v. Fundings
b. The Conversion Ratio’s affect on CPFL
3. Income
a. Average loan size
b. Average Points per Loan

For those of you who are more visual, this is what I feel would be an adequate visual representation of ROI:

As I stated, most shops make the mistake of measuring only some of the components, typically just Costs and Conversion Ratios. But stay tuned for a pretty detailed look at each component. I’ll share some real-life case studies to demonstrate the point (names and faces changed to protect the innocent) and hopefully we can all get a little better of a handle on how to genuinely evaluate the different sources on the market, and at the same time make sure you are doing “the right things right,” to genuinely affect your bottom line.

Stay tuned…
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