I am finally to the last piece of my series on what I consider to be the three components of ROI. I know, I don’t want it to end either, but it is time, (yes, that would be sarcasm). So far we have discussed:

1. Costs:
   1. Costs Per Lead
   2. Cost Per Funded Loan (CPFL)
2. Conversion Ratios

The final component to ROI is the oft-forgotten: Income.

Income appears to be almost always overlooked as a component in evaluating a lead provider’s ROI. All lead providers are not equal, so if you are not measuring the income of each lead provider, then you suck. OK, that might be a little harsh, but you are almost certainly not optimizing your ROI.

There are several ways that you can influence your income via your lead buying, the most obvious method is by leveraging the minimum loan amount filter. In the olden days, lenders would want volume at $350,000+ minimum loan amounts so they could drive higher loan amounts and thus, higher fee incomes. If they were willing to shell out the higher cost per lead, I was always willing to play ball. But today, with the new Fanny/Freddie rules in place and most investors running from non-conforming loans like record companies running away from Brittney Spears, it is rare when lenders want to drive higher loan amounts because there are few places to place that loan. So, if you can no longer fill your pipeline with $900,000 subprime
California loans, how are you to still make money? Unfortunately there aren’t any easy answers.

The glaringly obvious answer is in FHA, especially with the increased loan amounts recently provided by HUD. But with lenders pouring into FHA like bandwagon fans to the Boston Red Sox, it reminds me of a comment that I think was made by Paul Knag on his blog (although I can’t seem to locate the post, I just didn’t want to steal your thunder, Paul!) when he said FHA could be, “the new ‘Sub-Prime.” There is sure to be ever-increasing competition so what margins exist now are likely to be driven down by the increased competition therefore how else can you drive higher incomes? The answer is increased efficiency, and in order to increase your efficiency, you need to know your data!

If you are able, you are going to see that certain lead providers fund very differently in some very key ways. A great example can be demonstrated by a recent visit I had with one of my best clients (names and faces changed to protect the innocent, as always). This client actually has the ability to look at the average fee incomes per lead provider. I paired this data with the average loan size per lead provider and it told a pretty compelling story.

Although all three of the lead providers’ filters were basically identical there were some pretty significant differences in:

1. Average Loan Size
2. Average Points per Loan

What this says is that:

1. My average loan size was lower than Company 2, but well higher than Company 1
2. The client’s average fee income is higher with Me, 1.14% vs. 1.07% with the other two
3. So, when you add a higher average loan amount with a higher average point income that makes for a greater ROI.

The reason why this info was so important was because I was not the lowest price lead. But since most companies are not this sophisticated, they will base their decision purely on lead price. But you can see in this case, that would hurt your profitability because Company 1 was the lowest-priced lead, but also the least profitable.

This is why data is so important. You can’t improve upon that which you don’t measure. If you are only looking at costs, then you are leaving profits on the table. I know what I am saying is not simple to do, it takes a very data-driven person and a fair amount of time to be able to best leverage the information, but there are a myriad of products out there that can help.

Firstly, use a lead management system if you are not already. (In no particular order) Kaleidico, Leads360, LeadMailbox and LeadROI all have ways to get at this data, but admittedly I am becoming more aware that while they are all effective at managing pipelines, workflow and costs, they do have some glaringly obvious shortcomings with regards to amassing income data (Bill, Jeff, Raj and Rick, if I am wrong, please let me know – I’d love to see it!). But these are all exceptional systems that I could not recommend highly enough. Use them religiously, but having access to the data is different than actually using the data.

If you are not good with data, or don’t have the time to do the mining yourself, LeadCritic did a write-up on new company, Sparkroom, that can actually do this for you (this is an unsolicited endorsement, for the record. I have clients that are currently using the product and so far I have liked what I have seen). Not only can their product mine the lead data and bridge the gap between costs and income, but they make that data actionable and tell you what to do with it via a consultative approach. Now, it still remains to be seen if their advice will be good, but I certainly am in favor of the concept.

Now I have to vent a little, here. I am tired of the endless conversations that I have with lenders about pricing. This was essentially the motivation for my 3-part-piece-turned-into-6. In short, don’t waste my time with conversations centered only around pricing. I am sorry, I don’t really care if, “Company 1″ sells you the same lead for $6 less unless you can also tell me your ROI for that lead provider, or your:

• Cost Per Funded Loan
• Conversion Ratios
• Income

Because unless you can provide me with that information, you just don’t know enough about your business for me to lower your price. I’m not taking food off of my kids’ table (I get paid on commissions, too), simply because you need a lower price because you don’t know how to run your own business.

Wow. That was cathartic. Hope the series was informative in some way. Now I have to find something else to write about.

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