But it seems that the perception of lead generation has not kept up with market reality and brokers seem to have two distinct ideas about it.
For those who started buying leads a year or so ago before the start of the credit crunch, the perception is that lead generation is about spending a few hundred pounds on sub-prime leads, converting two or three of them, making a few thousand pounds and binning the rest.
The other perception, usually held by brokers who have come to lead generation more recently, is that one buys 10 or 20 leads and only a few of them convert so it’s a waste of time.
Both views are incorrect and it is up to reputable lead generators to explain what to expect from the sector today and how it fits into brokers’ business models.
The reality is that lead generation is different from what it was a year ago. With the proliferation of broadband and finance-related websites, consumers are going online more often and visiting more websites to look for financial advice.
They are filling in more forms and submitting their details many times.
Whereas previously they submitted their information at a later stage in the sales process – for example, when they were ready to make a purchase – they are now looking for mortgage-related advice at an earlier stage of their research.
The result is that when buying leads, brokers get access to consumers at this earlier stage and will have to put in more time and effort to convert them into business. This is an effect experienced by many online firms and is not exclusive to the mortgage industry.
The other major difference is that lenders have slashed their product offerings and fewer consumers than ever are being approved for mortgages. This means that if a broker bought the same 50 leads today compared with a year ago, the number converting into business would be dramatically lower.
Lead generators cannot control this as they are at the mercy of wider market conditions just like any other company in the industry. But this is not to say that leads won’t convert. It simply means that compared with the pre-credit crunch world, brokers have to buy more leads to see the same results. It is the responsibility of lead generators to explain this to customers.
Lead generation remains the most cost-effective and measurable way to source new business. Unlike traditional forms of marketing such as newspaper advertising and direct mail, with lead generation brokers can target the exact customer profiles they want and work out quickly whether the approach is working.
Brokers need to determine their budgets for buying leads, work them and then calculate how much has been earned compared with how much has been spent. The size of the difference and brokers’ business models will determine whether lead generation works for them.
In the past, many brokers have measured lead generation in the wrong way. The most important metric needed to judge whether it is working is return on investment. It is not necessarily about how many leads convert into business – it is about the income or return generated from the overall spend.
But this is a snapshot view. Before undertaking lead generation or marketing campaigns, brokers should scrutinise their business and work out what they need to achieve to make it worth the money and effort.
Lead generation needs to be measured against realistic predefined metrics.
For example, do brokers know their cost per acquisition targets? How much can they afford to pay for converted customers?
Do they know what percentage of business they upsell into other products? What are the average commission levels generated from different sized mortgages?
If brokers don’t know the answers to these questions they should find out.
Lead generation can only be measured in the context of these basic metrics and how they compare with other sources of new business.
Using basic financial modelling, brokers can work out what they need to generate from buying leads to make the process worth their while.
This won’t be the same for every brokerage. For example, firms selling a high percentage of protection products could afford to pay more for mortgage leads and accept lower conversion rates.
By starting off with fairly conservative expectations, brokers can build a number of financial models for various scenarios with different conversion rates. This would allow them to see their potential returns in a variety of situations and also give them the scope to fine-tune their lead buying campaigns.
For example, financial modelling should include scenarios where ancillary products are sold to consumers and how this affects returns on investment. If a lead buying campaign falls just short of the target metrics and only 5% of cases have been upsold into protection, brokers can quickly work out how many extra cases they need to upsell to achieve the returns they want. This will allow them to improve matters to get better results.
The beauty of lead generation is that it is perfectly scalable. Once the initial process has been fine-tuned and brokers are hitting their targets, they can start to increase the volume of leads they purchase and the returns will grow accordingly.