Debating the exclusivity of buying leadsEric J. Christopherleads, suppliers, lead sources
A common question associated with the online mortgage lead
environment is whether any lead is truly exclusive. There are valid
arguments on both sides. Some end-users (mortgage brokers) feel
that leads cannot be exclusive because that would imply brokers
have no contact with each other. In fact, Jupiter
Research estimates that the average mortgage consumer submits
inquiry information on 2.4 mortgage Web sites. Yes, XYZ Lead
Company may distribute the lead once, but this speaks nothing about
what the consumer initiated outside of the XYZ touch point. The
consumer may simply be an industrious rate shopper, submitting
information on many mortgage Web sites, just to "see what would
happen" (Isn't it funny that none of your borrowers ever admit to
shopping multiple Web sites? They always claim to have visited just
one.) Also, as an industry practice, many lead companies buy and
resell leads from third party aggregators. This practice is sound
if the participants in the supply chain practice discretion and a
high level of business ethics. With a little technology and a
breach of ethics, anyone in the supply chain can muddy the water by
distributing leads upstream from where you access it. In many of
these scenarios, exclusivity turns out to be a moot point.
Re-Visiting the Past
Obviously, the goal is to close more loans with as short of a sales
cycle as possible. No one wants to work for a lower fee based on a
bidding war. That being said, as the markets shift, it may not be
as easy to find a truly exclusive, isolated prospect (other than
that of a very close referral). Let me provide you with a somewhat
humorous example: I was chatting with a loan originator client when
she began to lament how her own brother had obtained a competitive
quote on his mortgage! Looking back on the refinance boom between
1998-2003, many of our loan originator clients found that they
could call one of our exclusive leads and find themselves as the
only broker on the scene. However, that was a by-product of many
other market participants being too busy to efficiently return
calls and meet borrower expectations for timeliness. Whoever showed
up on time got the deal. Exclusive leads never implied no outside
competition, but it did imply that you could access the client in a
slightly more relaxed fashion ... at times. The effectiveness
seemed to be intact for a long period of time prior to the summer
of 2003. Deal volume was so high from originator to originator that
many leads where truly exclusive.
Present Day
By July 2003, the market was jolted off its axis with interest rate
hikes. A new reality sets in for the originator who once skated
along with 10 to 12 closed loans per month during the previous
three to four years and now struggles to register more than five
loans per month. Instantly, for someone who plans to stay in the
industry, return calls (and second return calls) must be
accomplished. When a gravy train ends, a greater work ethic
generally prevails, which is good news for the long-range
participants. The easy-money originator must find something else to
do. Many of you tell us you are fortifying your real estate agent
relationships and paying more attention to repeat clients. On the
grander level, large banks and brokers are spending more money than
ever to access borrowers and maintain production. Loan volume and
competition is obviously more difficult in 2004 than in 2003,
especially if the refinance contraction that the Mortgage Bankers
Association predicted plays out. The same lead campaign that was
set up on an exclusive basis last year doesn't mean the same thing
now. What to do?
Even as the pool of refinance prospects shrinks (based on rate
"cycle-down") and the rates jump around like a ping pong ball, the
good news is that on a return-on-investment (ROI) basis, real time
and batch non-exclusive leads from reputable lead shops still make
sense. However, a few changes to your mindset and monthly routine
may be in order.
Picking Your Source
We all know that the front-end dollar cost is always an issue for
goods and services. Heck, your borrowers constantly remind you of
its relationship to your fee. The same thing goes for Internet
leads. The market tendency and the advent of many low-cost lead
sources allowed you to spend less for leads. That worked for a few
years in the up market, but when July 2003 hit, the industry
lead-flow velocity decreased severely, and the low cost producer
couldn't produce. So, he recycled. It didn't take long for
originators and brokers to figure that out. First, try to avoid
placing the whole lead-buying decision on front-end cost. There are
literally as many versions of Internet leads as there are loan
programs. One size does not fit all. And, actually, using the
numbers below as proof, a slightly more expensive lead source may
prove to be less costly on the back end. If the price of an
Internet lead sounds too good to be true, watch out. Specifically,
if you are buying way below the $20 range for leads, make sure you
know what you are buying since there is a slight Roulette game to
that pricing range. Keep in mind that the numeric analysis of the
least expensive leads fail to reflect a few intrinsic factors. Loan
officer morals and campaign management don't present themselves in
the numbers, but are definitely factors. Consider great customer
service, an effective credit policy and reasonable loan types in
addition to front-end cost.
Setting Expectations
Second, your expectation must reflect the times. How many loans
will you close on a 100 lead delivery? This isn't just for Internet
leads. You need that realistic expectation for direct mail,
telemarketing and anything else in which you invest money. The days
of cruising along with a 15 to 25 percent conversion rate are gone.
Other barometers you may concentrate on are the marketing dollar
cost per closed loan and ROI multiple.
Keeping a Tighter Grip on the Numbers
Lastly, know your lead campaign disposition numbers. On the 100
lead campaign being considered, keep an overview of the whole
operation in addition to the last few leads received. It isn't
uncommon for the success of a campaign to come from the first 10
percent of the total leads. It could also be that the conversion
rate may be more balanced. Or, it may all evolve at the twilight of
the campaign. Every lead source fluctuates. Keep the originators
informed and force them to maintain coverage on every lead whether
the data looks like a great deal or not. Let's take look at a quick
proforma with a 100 lead campaign. Here is what you might expect,
using a realistic six percent conversion rate:
100 non-exclusive lead campaign X $20-$25 = $2,000-$2,500
(Depending on campaign)
Contact rate: 70-80 percent = 70-80 leads
Conversion: Six loans, using an average $100,000 loan amount
Yield: More or less than $4,000 gross house intake per loan;
$24,000 gross before rebates
Marketing dollar cost per closed loan: $333 to $417
ROI Multiple: 9.6-12 X ROI
No matter which supplier or lead characteristics you enlist to
grow your business, make sure you pick your source properly, set a
realistic expectation and keep a tight grip on the numbers. The
aforementioned, combined with a good crew of hungry originators,
will yield success on a consistent basis.
Eric J. Christopher is a managing partner of Huntington
Beach, Calif.-based XL
Marketing. He may be reached at (877) 842-7300 or e-mail
[email protected].
