How Much Should Pay for Each Insurance Lead?

Written By Ted Grigg

An insurance agent asked this question several weeks ago and I thought you might benefit from my response.

This is what he asked.

A. Only direct lead-generation associated costs

B. Direct lead-generation associated costs + a burdened rate on the marketing side

C. Total marketing budget

Here was my response.

Hi John,

This may not handle your entire question, but any CPI (Cost Per Inquiry or CPL for Cost Per Lead) must first begin with an allowable CPS (Cost Per Sale).

The basic question you and the CFO must agree to is how much the average sale is worth to you and how much the company is willing to pay for a new contract or sale.

Ask this question: "Dear CFO. If I had 1000 new contracts I could sale to you, how much would you be willing to buy them for? Give me a good price. Because the more you can afford to pay for them, the greater number of contracts I will be able to sell to you beyond this initial 1000."

The ultimate number you need is exclusive of overhead, proposals, bad debt, commissions etc. So you need to take the CFOs answer and calculate your available budget for promotion only. That's the number marketers are looking for and is commonly referred to as the CPS.

Remember that paying commissions without the support of lead generation and advertising is the coward's way out for many companies.

What I mean by that is that many insurance companies let the distributors or straight commission sales people take all of the marketing risk and pay the agent after the sale is made. With lead generation, the company must now learn how to invest in the marketing piece by spending money before making the sale.

Some companies never manage to get beyond straight commission and end up with lower profits. They also abdicate their futures to sales people or distributors and loose control of their destiny.

Frankly, any company worth its salt should know what their allowable Cost Per Customer (CPC) is. That's an even more important number to agree upon than the CPS because the each customer represents the potential for multiple contracts or sales. But sadly, that is rarely the case. That's why marketing gets cut when times are rough. Company leaders sometimes do not see the marketing budget as a critical, long term investment.

The key to all of this is that you are quantifying success BEFORE you embark on any new business venture.

Now to the CPL. The CPL relies upon the allowable CPS and the projected conversion rate. For example, if you have an allowable CPS of $100 and your projected conversion rate is 10%, then your allowable CPL is $10 per lead. And so the formula goes. The trick is the balance the lead quality with the conversion rate.

If you get better quality leads that you can convert at 50%, then your allowable CPL increases to $50 per lead. But beware. It is possible to over qualify your leads by reducing your overall sales volume to come in below plan.

You would use a different allowable CPL for ALL media including the online, direct mail, Direct Response TV, outbound telemarketing and so forth. Why? Because the conversion rates vary dramatically from one medium to the next. The constant is the CPS and the CPC.

Bear in mind that you may not be able to convert a large number of your leads on the first pass. So plan repeat contact to maximize your conversion rate over a 12 month period (or longer/shorter depending upon the sales cycle for your product). You have paid $10 or more for each lead, so you need to get back your investment with a longer term contact strategy.

In BtoB, I have seen allowable CPL's of $1,500 or more. So instituting an effective CRM software program with ongoing training in its use will make a big difference in your program's success over the long term.

When you think about it, marketers should start all new business opportunities with this type of financial pro forma.

Once you know the CPL, CPS and or the CPC, then you can develop your marketing budget BEFORE even considering your offers or media strategy. If you need 5000 new contracts over the next 12 months, then your marketing budget should be 5000 X $100 CPS or $500,000. 

Hope this helps you.

Ted Grigg

Ted Grigg is a direct response strategist who helps growth-focused companies reduce risk by identifying weak assumptions before they become costly mistakes.

Over the course of his career, Ted has evaluated several hundred million dollars in direct response testing across direct mail, digital, print, television, telephone, and other channels. His work combines direct response strategy, acquisition economics, customer analysis, creative evaluation, offer development, and disciplined testing.

Ted has worked on both the client and agency sides of the business. That experience gives him a practical understanding of the pressures facing executives, marketing teams, agencies, and service providers—and of the problems that arise when activity, media volume, or creative preference replaces a clear economic objective.

His consulting work helps organizations examine such questions as:

  • Are acquisition goals economically realistic?

  • Is the allowable Cost Per Sale supported by customer value?

  • Are targeting, offers, creative, media, and response paths working together?

  • Are tests structured to produce reliable business decisions?

  • Are unproven assumptions being treated as facts?

  • Is the organization measuring sales outcomes rather than convenient proxies?

Ted’s experience includes the development of direct mail and multichannel acquisition programs for insurance, healthcare, financial services, technology, nonprofit, manufacturing, retail, transportation, communications, government, and business-to-business organizations.

For a national direct-to-consumer insurance company, he developed a direct mail format that defeated established controls and helped expand the productive use of compiled prospect lists from less than 10 percent to more than 30 percent of total direct mail circulation within one year. He also planned Medicare lead-generation programs for more than 60 regional and national HMO and PPO organizations, with some programs exceeding sales projections by as much as 60 percent.

Ted founded Wyse Direct, a direct marketing division of Wyse Advertising in Cleveland, where he developed acquisition programs and helped launch a new technology product for Seiko Instruments by generating a predictable flow of qualified sales leads for its national sales organization. As vice president of new business development for the Grizzard Agency, he helped broaden the agency’s strategic capabilities and pursue new commercial and fundraising opportunities.

He is the author of The HMO/PPO Marketing Plan—A Step-by-Step Guide, published by Executive Enterprises, and has written numerous articles and conducted webinars on direct response strategy, testing, creative development, and marketing economics.

Ted earned a Bachelor of Arts degree from Abilene Christian University and completed two years of graduate study at Texas Tech University. He is the founder of DMCG, LLC.

http://www.dmcgresults.com
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