How to weigh up the value of leads
Mortgage Strategy07-01-2008
Brokers should compare the results they get from using leads with their other marketing activities to arrive at a fair judgement of their effectiveness, says Justin Rees
The lead generation industry has come in for some criticism in recent months and to be fair, some of this has been justified. But often, the negative perception of the industry is down to the fact that brokers don’t understand how it works.
There is a common misconception among brokers that when they are buying leads, they are buying guaranteed customers. This is not the case. Lead generation is essentially a marketing activity and its success should be determined by return on investment. Frequently, when brokers cry foul and complain about buying bad leads, it is because they are measuring the success of their lead generation spending in the wrong way.
If a broker spends £1,000 in a week on leads and makes £5,000 profit, they have made a good return on investment. The minutiae of each individual lead is irrelevant if brokers are making a healthy profit, but they tend to get hung up on details.
Online lead generation is best put into perspective by comparing it with other marketing activities.
Most consumers use the internet to research financial products and services before they buy, and more than 70% of them use Google to search the web.
A broker could run a marketing campaign on Google and buy keywords relevant to their businesses to drive consumers to their website.
Every time a consumer clicks on a link to get to a broker’s website it costs the broker a few pounds, but there is no guarantee that the individuals visiting their website will be appropriate or even leave their details.
But a broker would not consider asking Google for their mon-ey back for individuals who click onto their website but do not convert into business - and they can’t anyway. This is an inherent risk of internet marketing.
The same mindset should be applied when buying leads, but the difference is that lead generation cuts out a lot of risk to brokers because buying a decent amount of leads will put brokers in touch with consumers who want mortgages.
If you compare online lead generation spending with traditional print advertising, the point becomes even more clear.
A broker may have £1,000 to spend on an advertisement in a local newspaper but with this form of marketing there is no guarantee of getting any enquiries and no comprehensive way to monitor if anybody has even seen the advert. Equally, there is no guarantee of who will respond.
The broker’s marketing budget might only allow them to buy an ad of a certain size so there will be limited space to get messages across. If the broker only deals in remortgages for loan values of more than £150,000 and a first-time buyer responds wanting to borrow £100,000, the broker may not be able to help them. It is accepted that this is simply the nature of marketing - you wouldn’t call the paper and ask for a refund.
Buying web-generated mortgage leads is no different. Online lead generation allows brokers to filter customers to their requirements but even then, some who fill in forms genuinely looking for mortgages may have circumstances that make them unsuitable for certain brokers.
Leads are not simply plucked out of the ether by lead generation firms. Lead sellers spend a lot of money generating leads and if they don’t get a fair price for them, they can’t sell them into the system. Good lead generators want to work with top sellers who generate the best leads, so they have to ensure sellers get a good price.
Lead sellers and buyers deal with consumers who are often irrational in their behaviour on an individual level but predictable and rational en masse. Hence, buying leads in volume ensures good overall quality and positive return on investment.
A bad lead is not any lead that doesn’t convert into business. Bad leads can make it into the marketplace but reputable lead generation firms should have systems in place that minimise the number of bad leads traded, or have policies whereby brokers can return them and obtain refunds.
An example of a bad lead could be one whereby an internet form has been deliberately filled in with incorrect information, such as a false name and address.
Good lead generators should have validation software that detects these leads and invalidates them so they don’t get into the market. This is done by simple algorithms designed to recognise commonly faked names such as Mickey Mouse.
Telephone number and postcode validation systems are also available so false numbers and addresses should not make it into the system. But humans who want to cheat the system are often ingenious so bad leads occasionally get through. Brokers should be able to return these and get refunds. They should ask to see a copy of their lead generator’s returns policy before they buy leads.
A major source of bad leads is lead generators that use false or incentivised marketing to encourage consumers to fill in forms. A reputable lead generation firm should police its lead sellers to ensure their sourcing practices are compliant and transparent.
Before brokers sign up to a lead generation company, they should ask to see an example of how its leads are sourced. Websites should state what consumers are agreeing to when they fill in forms.
By taking some simple steps, brokers should be able to spot good lead generators so they can use leads with confidence as part of their marketing mix.
At the same time, it’s up to reputable lead generation firms to be transparent about what they do and help educate brokers to ensure the integrity of the industry. Information will allow brokers to understand the value of lead generation in helping them develop their businesses.
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