LEADCRITICAre Live Transfers Worth The Premium?
Filed Under: Live Transfer Leads, featured
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I speak on a daily basis to lenders that try countless different marketing methods all with various levels of success. I had a conversation recently about Live Transfers with a client who was asking me for my input. Out of disclosure, the company for whom I work does not have a live transfer product. But the answer to the question on live transfers is really nothing more than a simple math equation.
The advantage to live transfers, obviously, is that you are going to have a 100% contact ratio. There are benefits to this, such as: higher morale among loan officers (no need to pound the phones making outbound calls), and you will typically see higher funding ratios as well. As we have learned, however, higher funding ratios don’t necessarily mean higher profits. This is because your lead costs are much higher for live transfers, so what you need to be able to determine is, is the potential increase in funding ratios worth the premium price for live transfers? In my experience, typically, the answer is no.
As I mentioned already, this boils down to a simple math equation to determine your cost per contact. The equation is:
Cost per Lead
—————- = Cost per Contact
Contact Ratio
So, if you have a $25 lead and your contact ratio is 50% then your cost per contact is ($25/50% =) $50. In my experience, most of the reputable hot transfer companies are priced from $60-$80 and up in which case this would not be a win for you. You would be paying more for a contact then what you can generate on your own. Generally, this has been my experience, too.
Most shops can typically generate a cost per contact at a lower cost than what they can acquire it for from another company but if that is not the case then live transfers can be a good option for you.
Next time you are considering live transfers as a source of marketing, you now have the math to make an informed decision based on ROI.
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Nick Hedges | Jun 4, 2008 | Reply
SomeInsider,
This is interesting. I’m not sure that I would agree that with Hot Transfers, since you are paying $60-80 you cannot win versus regular internet leads. It all depends.
For this price you would have to believe that you would be receiving an exclusive lead versus having an inquiry that is split 4 ways and that the increase in contact rate is reflected in an equivalent increase in the conversion rate of the lead.
If we assume that an average regular data lead costs $15, the contact rate is 80% and the average conversion rate is 2.5% then the following math indicates that a Live Transfer could produce a lower cost per conversion than a regular data lead.
Regular Data Lead Economics
- Average Data lead price = $15
- Average Contact Rate = 80%
- Leads/inquiry = 4
- Data Lead Conversion Rate = 2.5%
- Cost per conversion = $600
Live Transfer Lead Economics
- Average Live Transfer lead = $70
- Live Transfer Contact Rate = 100%
- Live Transfer Contact Improvement = 20%
- Leads/inquiry = 1
- Live Transfer Conversion Rate = 12.0% ((2.5% x 20% improvement) x 4)
- Cost per conversion = $583
Obviously you can argue about some of the assumptions but I think the math shows there is a case for Live Transfers.
My company, Leads360, doesn’t sell any type of lead regular or live, but we do continuously advise our clients on the best lead sources to meet their goals. We believe that for the right customer Live Transfers can be effective. Specifically if they are having trouble getting contact rates to industry benchmark levels.
What do you think?
Nick
Sean | Jun 4, 2008 | Reply
Someinsider,
I am just curious- do you associate a cost with TIME? As in time/energy spent pounding the phone to obtain your 50% contact ratio? What $ amount should you be adding to your “$50″ to determine “true” cost of contact??
You have left out a HUGE variable in providing a simple formula for lenders to calculate ROI -
Lead Critic | Jun 4, 2008 | Reply
Nick,
Live transfers are not exclusive…is that what you were assuming? Nor do they convert at a higher rate, based on my experience. The benefit lies in the reduced cost of every contact
Some_Insider | Jun 4, 2008 | Reply
Nick,
I really appreciate the well-thought out comments. I certainly don’t argue with the math, but I think that live transfer leads, in their actual application, do not typically see the types of results that you assumed. Namely, I would argue that a 20% improvement in contact ratios would necessarily translate into a 20% increase in fundings. The reason for this is due to the fact that, as you stated, the lead is exclusive.
Exclusive leads are one of the greatest fallacies in the industry. It certainly makes sense to assume that, if you don’t have to compete against anyone else via a purchased inquiry, then you would have greater chance to close the deal. In practice, however, this isn’t the case (this is a great idea, for my next post, actually). In short, consumers want choice. If you don’t give it to them via a shared lead model then they will simply make their own additional inquiries elsewhere so there is no increased value in exclusive leads because consumers are still going to check elsewhere first for a competitive choice. In my experience, I have never seen the inherent increase in contact ratios due to live transfer leads translate into anything close to a 12% funding ratio. I am not saying that it’s not out there, but I have never seen it in any sustainable fashion. What I have seen is typically about half of that, 5-6% which on a $70 lead would give you a $1200 - $1400 cost per fund. This is still a very respectable acquisition cost, but in my experience a well run data lead shop can beat that handily.
Sean,
You are absolutely correct about the old adage time = money. I recently wrote another post about the best-practice of having a “front-line,” of telemarketers making the outbound calls and then, effectively, “hot-transferring,” the leads internally to your LO’s. You could argue, then, that by cutting out this initial process and letting someone else be your front-line, then you are saving money. But then, on top of the inherent costs for that front line, you also have to tack on their margins. I am not saying to never use Live Transfers. In fact, I think it is a very viable marketing source. But typically, a well-managed shop can operate with greater ROI with traditional data leads in my experience. My point was only to make sure you had the information to be able to do the math yourself and don’t just assume that a 100% contact ratio justified a price that is typically 3-4x the price of a traditional data lead.
Joey Liner | Jun 4, 2008 | Reply
DoublePositive is considered by many to the industry-leader and thought-leader in LIVE Hot Transfers. The folks at DoublePositive have been long-time lurkers of the LeadCritic blog, but never active in the discussion – until now at least. I can’t resist – I feel as though I have been “summoned” by this post.
With all due respect to Some_Insider and his experience, I have to pile on to the points made by the previous commenters that essentially argues that the contact ratio formula is not wrong unto itself, but is significantly incomplete in determining the true value of LIVE Hot Transfers and the true ROI of their average price points when compared to Internet leads.
I’m thrilled to see this discussion come to the fore here on the LeadCritic blog, but it is a discussion that has been going on elsewhere for a good while. Long-time DoublePositive advocate John Demayo analyzed the value of a lead vs. a live transfer back in 2005:
http://www.johndemayo.com/johndemayocom/2005/10/the_value_and_t.html
Last year, we attempted to broaden the discussion on our own blog by challenging the very lexicon of terms we use in the industry:
http://blogs.doublepositive.com/2007/05/15/the-evolving-lead-generation-lexicon-introducing-cost-per-qualified-lead/
These days, we try to position LIVE Hot Transfers as representing three dimensions of value in one bundled cost:
1. LIVE contact
2. Qualified (vis-à-vis our doubleCONFIRM™ process)
3. Productivity
The post from Some_Insider only addresses dimension #1 – LIVE Contact. But even this one can use some further explanation. The DoublePositive technology platform is engineered to OPTIMIZE live contact rate. Firstly, our real time process attempts the first phone call to the consumer within milliseconds of the consumer’s clicking of the submit button on the online form. Many studies have confirmed that reducing the time to contact a lead drastically improves the ultimate conversion ratio. Conversely, having a sales professional stand by their lead queue waiting for the next lead to come across so that they can fat-finger dial the phone number within seconds is simply not realistic.
More importantly, LIVE contact is not the goal, per se. It’s a means-to-an-end. Live contact can result in a consumer that simply wanted to win a free iPod, changed their mind, is already committed to a different option, etc. In other words, an additional layer of screening for interest/intent, and qualifications is always required before a sales professional can begin a sales process with the consumer. This leads us to the second dimension of value of LIVE Hot Transfers, qualify a LIVE consumer via our doubleCONFIRM™ process.
Once we have established LIVE contact with a consumer, we will ask them up to three qualifying questions, which will vary by vertical. In the mortgage industry, we are verifying the loan type (in order to separate the purchase from the refi crowd), the property type (to eliminate mobile homes) and state the property is in (to correct for second homes or vacation properties that are outside of the state licensing filters). Even though this information is typically included in the data provided by the consumer during the form-fill process, most seasoned Internet mortgage lead buyers will agree that these pieces of data are often highly-inaccurate.
So an important question to ask when comparing Internet leads to LIVE Hot Transfers is…
Of the consumers where LIVE contact is established, what percentage of those are GENUINELY-interested in moving forward with the sales process (e.g. not trying to win a free iPod), and what percentage of those who will pass through this additional screening process to eliminate true deal-killers. Our experience is that only a small percentage of leads will make it through this process.
In other words, it is likely to take 5, 6, or even 7 Internet leads to result in one LIVE Hot Transfer.
So, by our math, but using the same $25 lead price point, you’re likely to be well over $100 in lead costs alone when compared to the equivalent $60-$80 LIVE Hot Transfers.
And we do all the work!
Sean and Nick’s comment about time is money is spot on as well, which segues nicely to our third dimension of value – productivity.
What we’ve found is that a sales professional that closes 4 deals per month from Internet leads can close 6-8 deals per month when we replace all of the time spent chasing down consumers, leaving messages, scheduling call-backs, and sending emails with time spent SELLING. Please note that this added dimension of productivity is typically not calculated in acquisition cost or cost-per-funded-loan formulas, but the value is absolutely real. In the John Demayo blog post referenced above, he attempts to capture this productivity value on the cost side with a “Cost to Call” metric, but we prefer to view the same value on the productivity side of more sales per month without increasing any additional resources or overhead.
Bottom line is that our LIVE Hot Transfers customers that adequately track their marketing dollars through services such as Leads360 report a 15-30% lower average acquisition cost and more closed deals per month per sales rep. Sounds like a good deal to me, but then again, I’m biased.
Joey
p.s. Obviously, we’ve spend a great deal of time thinking about and analyzing this very topic. Here are other manifestations of these thoughts:
White Papers on the History of Mortgage Leads and compares LIVE leads to Internet leads:
http://www.doublepositive.com/resource/Delivering_Live_Leads_to_Loan_Officers.pdf
Blog post on finding the balance of Quality, Quantity, and Cost of leads:
http://blogs.doublepositive.com/2008/05/26/the-keys-to-new-business-for-sales-organizations-seeking-hyper-growth-quality-quantity-cost/
Blog post on the value of a sales professional’s time:
http://blogs.doublepositive.com/2008/04/02/what-is-time-worth/
Chris | Jun 4, 2008 | Reply
Don’t forget that once you run that credit check, your “exclusive” lead will start getting calls from other mortgage companies.
A Lead Buyer | Jun 4, 2008 | Reply
I am not convinced that a live transfer agent in the process does not subtract from some of the customer experience. Customers are getting so many calls from so many people that additional reps in the process may just decrease the customers confidence… Just a thought.
That being said I do take some transfer leads. They are ok but as Some_Insider suggests the CPFL is somewhat greater than a non hot or live transfer in many cases. Still profitable but not as low as data. Some are worth it but of course I am not going to say which ones here
Lastly I have not bought Double Positive leads. I have thought about it. The guys over at DP are knowledgeable and talented…just not sure yet if it is for us. If we do make the leap I will report back.
Noel Collins | Jun 4, 2008 | Reply
I will only say you can make any type of lead work for you if done correctly. I know the DP company personnel well, Have been around since conception, inception. I also ran my on inhouse team. Both have positives and negatives. The one common denominator is that sales agents should spend their time doing what they do best, selling/pitching/closing, etc. Anything you can do to improve what I call “Employee Equity” or time spent peforming direct sales functions is a good idea in my opinion.
Some_Insider | Jun 5, 2008 | Reply
I love this dialogue. There is some great stuff here and I really appreciate the exceptionally well-thought out post from Joey and Double-Positive. I certainly have some thoughts on it, but it is probably a little too much for a just a comment here. So, I am going to put together my thoughts and make it my next post. I think everyone benefits from dialogue of this type and I am glad we can do this in such an open forum. But for my reaction, please stay tuned for my next post.
Joey Liner | Jun 5, 2008 | Reply
Thanks Some_Insider. I suspect that we probably know each other, since we both have been in the industry for a long time.
I would ask that you, “A Lead Buyer,” and anyone else for that matter who is interested attend my Webinar on LIVE Hot Transfers next week.
Details can be found here:
https://www1.gotomeeting.com/register/914916417
Hope to see you there.
Thanks again.
Joey
Beau Bratton | Jun 19, 2008 | Reply
Even though I may be privy to Voice leads. One thing not mentioned here is getting the consumer on the line during their hand raising event. Maybe the true values of the Hot/live-transfers are not as intriguing for Mortgage as for other products/verticals. Regardless there is a valuable dynamic when receiving the consumer on the line if it’s an exclusive/scrubbed voice lead while they are ready to make a financial decision. Hot blooded like a child’s first visit to the ToysRus.
It is my personal, humble, non-data backed opinion that this particular segment will find a very large home for buyers (much larger than today). Simply because it’s the bigger stronger older brother, the evolution of data is voice. It just needs to be priced right and qualified well and few other secret ingredients.
SomeInsider | Jun 19, 2008 | Reply
Beau, there is no doubt about the fact that there is inherent value in the “hand-raising event.” The question that I posed was whether or not the sources of live transfer leads can create that hand-raising event in a cost effective way. It’s been my experience, and yes - it is limited to the mortgage vertical - that this is not the case. Don’t discount that data leads are, “raising their hands,” too. There is room for a higher rate of fraud with the traditional leads, yes, but the premium paid to generate and scrub the voice leads does not typically translate into enough ROI to justify the premium lenders have to pay to obtain them. That is my humble opinion, at least. Thanks for the input!
Beau Bratton | Jun 20, 2008 | Reply
SomeInsider: Agree with you, and was pointing out a dynamic that was not considered in other post’s with regards to conversion etc. I believe you are correct in the current landscape, however as I said I think that this us a puzzle that someone or some company will crack eventually.