The Internet is exploding and getting plugged in is crucial. Google reports that in a single month, they had more than 31 million online searches related to insurance quotes (Google keywords-July 2009
), so there is a ton of business up for grabs. Taking the right approach can mean the difference between success and failure.
Instead of taking on the Internet by yourself, it is best to focus on your core strengths. A top-tier lead vendor can provide high quality leads matched to your target market at a reasonable price. With lead generation out of the way, you can shift your focus to your internal processes. This is where you can get the biggest payoff. Here's why.
Trying to do it yourself can be expensive
A top pay-per-click ranking on Google can cost you anywhere from $25 to $35. That is just for a click. Once you get someone to click, you still need to convert that visitor into a lead by getting them to submit a quote request. A good converting page will get 10 percent of visitors to submit a request. That means you can end up paying anywhere from $250 to$350 per lead. Ouch! And that is not all.
When you get the lead, it may not be from the right person. Since you are running the campaign you are paying for both good and bad leads. You have no way to precisely filter who clicks on your online advertisements. Getting this cost down is a priority, but there is more you should consider.
To control the cost of leads you really have to know what you are doing. It requires staying on top of rapid changes and continual fine tuning. This can be distracting and in the end, it will cost you in lost sales. There is a better way.
Add more than $7 million to your bank account throughout the next 10 years
OK. Now that I have your attention, let me demonstrate how I plan to back up this bold statement. To begin, you will want to take note of these five areas. I call these your impact areas because they directly impact your bottom line. They are:
1. The average annual revenue produced by each client
Here is an example of how this will work
2. The average cost per lead
3. Your average closing ratio
4. The number of leads received per week
5. Your retention rate
Let's say an agency owner is buying 200 leads per week for his agents at a cost of $10 per lead. He gets an average conversion of just 5 percent, so his cost per sale is $200. Each new client generates $500 in annual revenue, and he has a 50 percent retention rate. After running the numbers, this is what he finds.
His first year is kind of slow with revenues of $260,000 and 520 new clients at a lead cost of $104,000. This represents a gain of $156,000. Projecting forward we can see that growth levels out in the fourth year with gains of about $400,000 per year and a client base of about 1,000. Not too pretty, but this is how to fix it.
Do what is easiest first
Lower the cost per lead by increasing the order slightly to qualify for corporate rates. Now, instead of paying $10 a lead, the agency owner in our example lowers the price to $9. The number of leads he receives weekly increases by 50 to a weekly total of 250 leads. This does not affect conversion, so his cost per sale now drops to $180. Everything else stays the same, but look at the impact.
Revenues jump to $325,000 in the first year and the cost only increases by $13,000 to $117,000. This leaves a gain of $208,000 and 650 clients in the first year. Not bad for a simple quick fix, but there is more to do.
Shift your focus
Looking at the projections, you will see that growth starts to level out in the fourth year at about $600,000 per year and 1,250 clients. This increase in revenue and clients is better, but still not good enough.
Cross-selling is a great way to increase retention. The more policies you sell to a client, the less likely he or she will be to buy insurance elsewhere. Cross-selling is an excellent strategy because it will also increase the average annual income produced by each client. Look at what can happen when you focus on cross-selling.
Let's say the agency owner in our example can add just 10 percent to his retention rate by focusing on cross-selling. He now has a 60 percent retention rate and the average annual income produced per client increases by $250 to $750. What does his business look like?
First year revenues reach $487,500
He is still enjoying the volume discount, so his cost for leads remains at $117,000. This leaves him with a gain of $307,500 in the first year. What about growth? Within four years, he breaks $1,000,000 in annual revenue, and growth continues strong till the seventh year, capping out at about 1,600 clients and roughly $1,200,000 in annual revenue.
Profits can go through the roof by focusing on internal processes instead of chasing new clients. This example shows how your business can continue to grow for years without increasing the number of new clients that come through the door each year. This is huge, but there is more.
Finally increase sales without increasing cost
Currently, the agency owner has an average conversion rate of 5 percent. What would happen if he increased it by just 1 percent? At a 6 percent conversion rate, the agency owner would increase his first year revenues to $585,000. Costs will still be at $117,000 so he would see a gain of $468,000 in the first year. His second year gain would be $819,000, and he would break one million dollars in just three years.
A great way to retire
Small improvements in a number of areas will mean the difference between a business that is struggling and one that is very successful. The example we just considered shows how an agency can go from a 10-year cumulative gain (total revenues minus total cost of leads) of $3,640,508 to $11,274,515. That is a whopping increase of $7,634,007.
It also almost doubled the book of business from 1,039 clients to 1,938 within 10 years. That is a nice asset to own and could contribute to a great retirement. Without improvements in these five areas, all of this is money left on the table. Here is the best part.
This increase is seen without a huge expansion or a large increase in overhead. The annual lead purchase increased by just $13,000, and the lead volume by just 50 leads per week. Most of the benefit was gained by focusing efforts on internal processes and increasing efficiencies.
Here's the bottom line. Millions of high quality insurance leads are available through the Internet, but it is what you do with them the really determines your success.
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