I had a great conversation the other day with an industry peer and we came across an interesting subject that I think is worth discussing with you. It regards buying purchase leads VS. refinance leads.
There are some real benefits in buying purchase leads and certain situation were they make complete sense. Most if not all companies focus on refi leads for their main source of business and this is perfectly okay. While I was a lead buyer I stayed far away from purchase leads because they did not make sense for our model. Our model was similar to 95% of all companies at that time and that was to “turn and burn”. Not literally but our sales team was extremely used to the 30 day sales cycle as well was the whole business was. When you start throwing in purchase leads this tends to throw the typical business cycle way off. It is my opinion that large sales teams that want to be extremely efficient and performance driven should probably focus on one type of lead. Smaller shops can work both purchase and refi leads in combination a little better, however I am only speculating on that statement. If you are running a call center I suggest breaking it up into teams and let each team handle a different type of lead.
There is a huge opportunity for companies that are growing localized branches and smaller sales teams to work purchase leads. The benefits of purchase leads are that they are usually very inexpensive because of their sheer volume in the market place. The advantage of buying purchase leads is that it opens communications with local real estate agents. This communication is like an invitation to future business if worked correctly. Lead buyers looking to build their own book of business and ultimately not rely on Internet leads can benefit from purchase leads and the relationships with agents that come out of it. Lastly purchase leads allow you to build rapport with the client. Finally you have a chance to build life long relationships with a client.
For the longest time many of us have thrown relationships and the term “book of business” out the door and quite honestly a “book of business” may not really work in your model and that may be alright. For others this may be a great opportunity to begin building that book of business within your local county or city and building those relationships with real estate agents so that you ultimately don’t have to rely on buying internet leads as heavily as you may have done in the past.
Think about this concept. It may be just what you are looking for. Does anyone agree or disagree with these thoughts?
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I agree that purchase leads can be a good source of business if used properly. For a variety of reasons, though, I do think that they must be substantially cheaper to make sense and they also present some considerable challenges.
1. Working capital – It takes a lot more working capital unless the leads are MUCH cheaper. Think about it – with a 30 day cycle on refis your are turning your lead investment every 4-6 weeks for the most part. With purchase leads it is probably more like 4-6 months. So you are paying for 3-4 months leads before you start to generate substantial revenue. This is offset if the leads are much cheaper.
2. Generating the additional value of purchase leads requires combining two types of sales operations that, at most companies, are quite different. A loan officer working in a call center may be ready to close the loan but is ill equipped to leverage the potential referral to an agent to build that relationship. On the other hand, we do a lot of work with realtors and getting the LOs who handle that to take leads seriously and call them instantly and repeatedly is frustrating to say the least.
You can try combining the two, allowing the more normal type of sales force to handle the lead and loan but “referring the referral” to a loan officer dealing with realtor business. But what incentive does the loan officer who is dealing with the client have to really create a referral? How could you even compensate since the benefit from giving the referral to the realtor is intangible and based upon building a longer term relationship?
It’s cumbersome. Except for the smallest of firms (where the owner can be the bridge) it is very challenging. I feel it is a goldmine for anyone who can really make it work the way it should.
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right!
combining the two would never be good in my opinion. As I said I think they work really well for either for localized shops that do not want rely on Internet leads or for specific teams that only deal with purchase leads.
Great points
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The tough part is getting loan officers who are out and dealing with agents – and therefore able to make good use of the referrals to build relationships with realtors – to handle leads the way leads need to be handled.
We are trying distributing leads to guys in the field via blackberry. We have certain loan officers on call for leads at any given time. Very new but trying to make it work. It is very hard to get this type of LO to call a lead 5 times a day.
What do you think is the average cost discount out there on purchase leads vs. comparably filtered refi leads?
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AJ,
The mobile phone strategy is a scary one for me. You really are relying on the integrity of your LO’s to call them and are the calls really trackable?
I think most purchase leads are at the most 50% the cost of refi’s, many times much less. They are also very little competition for those consumers too. Meaning there is a good chance they are exclusive.
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Couldn’t agree more, yet these are the LOs who can really make use of the referrals. I don’t see guys in a call center transferring a potential lead for a Realtor to a different loan officer who will then use it to help build a relationship.
It’s an experiment. The calls are theoretically trackable but not easily enough to really do more than spot check.
Of course this is offset by less competition, lower lead cost, the added value of building new realtor business, and the fact that these are guys who usually handle purchases from realtors and builders.
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