Tip #2: Defining Success Through ROI

Get out your calculators! Too often agents use "gut feelings" to make business decisions when their own data is all they need to determine what marketing initiatives are making them money.

  • To know how successful your marketing efforts are, it's important to track your return on investment (ROI) - that is, how much you make vs. how much you spend.
  • To calculate your ROI, add your own data into this formula:
    Commissions $ from
    Policy Sales
    (Cost of Leads *
    # of Leads Purchased)
    = ROI
    Now let's see that same formula with example data:
    $800 in Commissions
    ($7.95 * 30 leads)
    = $3.35
  • Another way to look at the above return-on-investment example: if you have a $3.35 ROI - then for every $1 in marketing dollars, you receive $3.35 in commissions. That like earning a 235% return on your money!
  • There is no "right" ROI number - try a variety of tactics to get an idea of what a good ROI is for you. However, if you have a ROI that is less than $1, then you're losing money and should re-evaluate your marketing strategy.
  • Agents often incorrectly focus purely on closing ratio and contact ratio. While these metrics do demonstrate the relative quality of leads, it does not take into consideration the cost of obtaining those leads in the first place. A higher closing ratio definitely helps and saves you time, but the chart below demonstrates a scenario where a lower closing rate lead can actually out-perform when viewing ROI as your metric for success:
    Lead QtyContact RateConv RateCost per LeadSalesTotal CostReturnROI
    Company A 30 50% 15% $9.50 5 $285.00 $1,800 6.32
    Company B 30 30% 12% $7.00 4 $210.00 $1,440 6.86
    Company C 30 45% 18% $13.50 5 $405.00 $2,160 5.33
  • That being said, agents are also making a mistake if they only consider price when choosing an online lead company. Price is only part of the equation when determining whether or not leads are profitable. After all, it's no good to get a lot of cheap leads if not enough are converting into sales. Price AND quality AND return (commissions) work together to determine the best value.
  • Don't get discouraged because your initial leads didn't convert - look at the big picture! Before calculating your ROI you need to have statistically significant data. We recommend at least 30 leads to really get an accurate representation of how a company's leads will work for you.
  • During an interview with top agent Chuck Taggart, Chuck reported buying 4,200 leads per year, and converting 1 in 11 leads into a sale. The commission earned from a 9% conversion rate is not only profitable for Chuck - web leads are the best deal for his money. Remember that having a 9% conversion rate could mean that an agent can work 10 leads and not close a sale until lead #11. Too often agents give up too soon, potentially missing out on a great source of new business because they don't have enough data to realize their actual long-term return.

What do you think about this tip? Do you have one to add? Email your comments and suggestions to: julie.hsu@allwebleads.com