## Why Cost Per Lead (CPL) Shouldn't Be The Metric You're Worried About

I'm sure you've seen it as much as I have.. The mortgage marketing expert touting their $3 Facebook leads like they're the greatest thing since sliced bread. It sounds good, doesn't it? Looks good maybe? I mean shit, if you could convert even 1 out of 200 of those leads, that's only a $600 per borrower marketing cost... *Not too shabby right?*

Wrong. What piece of the equation are we missing here? When was the last time you factored time into your ROI calculations?

## So you're generating $3 Facebook leads, now what?

As much as the expert sold you on a 3% conversion rate, you're now asking yourself, what does that even mean? 3% conversion over what period of time? Is a conversion a closed deal or a contract?

I'm going to let you in on a little secret: nobody is getting a 3% conversion rate with Facebook leads. That's a normal conversion rate for Zillow leads, but Zillow leads have a much higher level of intent than someone who scrolls through Facebook and clicks on an ad. When was the last time you saw Zillow offer a free homebuyer's guide and sell the data they get from that as a lead? I can answer that for you, it's never. That's because Zillow knows that having a human follow up with that lead would be a waste of time. The leads they sell come from people who have visited their site and been looking at homes or people who landed on one of their landing pages from a search network like Google.

Conversion always needs to have a time window associated with it, so it should be expressed like "Our leads convert to closings at an average rate of 3% over a 120 day period." You've got your definition of a conversion, your conversion rate, and your time period modifier. If we're being honest, Facebook leads convert at more like a half of a percent to one percent over that 120 day period of time. If you don't believe me, work through the numbers with one of your colleagues running Facebook ads. No, I don't mean ask them, because at $3 a lead nobody is tracking that closely. No, look at the number of leads they've generated up until 120 days ago, and the number of closings that came from those leads, and that will give you a rough idea. But really you should be going back to all of the closings, tracking what month they closed, and then charting when those leads came in and how many closed inside a 120 day period of time, or whatever reasonable timeline you're comfortable with.

## Impact of Time on ROI of Mortgage Lead Generation

I never ask people to take my numbers at face value. Not the numbers I give them on my system, or the numbers I tell people are realistic across other platforms like Zillow, Boomtown, Realtor.com, Facebook, Google, etc. I always encourage people to get their own data, but the problem is most people aren't tracking the data or asking the right people to get to the bottom line.

For the sake of this blog post though, let's assume that I'm right. Let's assume that Facebook leads convert at 1% over 120 days, while search network leads convert at 3%.

This means that on Facebook, you need to get to 99 no's to get to your one yes.. Let's assume you have an automated follow-up system and you don't do ANY follow up prior to the lead engaging with that automated system. From what I see in the industry right now, contact ratings for these systems sit consistently around 40%. Of the 40% that contact, if you're generating leads on Facebook with a short form you may see 10-15 that tell you that you have the wrong number or that they're not interested right away, and that leaves you with 25-30 leads you're working through to get to your one closing. How many estimated hours have been invested up to this point? Remember, we're talking about converting over 120 day period of time, and all of the follow up with those 25-30 leads to get to that point. Not counting the time it takes to process the loan, let's assume you spend 2 hours a week following up with your leads. If you spend 2 hours a week following up with leads and are constantly getting new leads coming in, I don't think it would be an unreasonable assumption that it takes about 20 hours of follow up per converted deal, at least for purposes of showing my point.

How much is your time worth? Let's find out. Take your income over the last 12 months. Now be honest with yourself about the number of hours you **actually work*** *on an average week. For most people that's about 30 hours when you remove the fluff. Multiply that number times 52, and divide your income by that number. If you're following along, that would look something like this:

Income over last 12 months: $120,000

30 hours x 52 weeks: 1,560 hours

Income divided by the number of hours = approximately $77 per hour

Based on that calculation, and the 20 hours of follow up you need to do to find and convert your one lead, that deal is now costing you $1500 PLUS the $300 in ad spend.

## Let's look at a lead source that converts at 3%

Okay, now let's look at search network leads and assume a conversion of 3%. Why is the conversion rate so much higher with search network leads? Easy guys, it all boils down to *intent.* When someone goes to Google and types in "How much home can I get approved for." That person has a much, much higher level of intent than the person that Facebook says is within their target market and happened to click on your shiny lead magnet. Zillow does the same thing and gets similar conversion rates.

The average cost per lead across our platform and all of our markets we serve right now is about $10 per lead. At first look, this is over 3x the cost of Facebook leads. But let's do our calculation, shall we? We're going to take the same value of time of approximately $77 per hour to calculate ROI based on generating 100 leads in a month. We all know if you can convert more leads out of the same group, that it doesn't actually take any more time right? It will obviously take more time to process the loans, but as far as lead gen and follow up the time outlay is the same. So the calculation is simple:

If it costs you $1500 in man hours to weed through 100 leads and find your closings, and you close 3 deals, they cost you $500 each in man hours.

It cost you $1000 to generate 100 leads and generate 3 deals, so your average ad spend per closing was about $333 dollars.

Total cost per closed transaction? $833 including man hours vs the $3 Facebook leads that cost you $1800.

## So what's the most important metric to track?

Obviously, in this case, a higher conversion rate made all of the difference in ROI. However, that's not always the case! Zillow long form leads cost upwards of $40 in some markets, which puts you back up to an $1800 cost point including time outlay even at a 3% conversion rate. In that comparison, I would say Facebook leads make more sense for someone who can't afford to buy $4000 worth of leads in a month.

The bottom line is that you need to be looking at your **cost per closed deal** and you need to **include time in that calculation**. Work through the same calculations I just did with any lead generation effort you begin, and you should be in the best position to be able to make an assessment on which system is right for you and your wallet.

If you're currently working in a lead gen system that is wasting your time, check out our website at www.empowerfunnels.com. We've got more great free content there, as well as an explanation of who we are and what we do. Thanks for reading!

See you at the top!

Michael