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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