Every conversation I have, it seems like agents are calculating Return on Investment (ROI) differently.
A 3:1 ROI means if you spend $1,000 in marketing, you’ll get $3,000 in return…but it’s how you come up with that $3,000 return figure that seems to throw many agents off. Most agents don’t factor in A LOT of things into this equation. Namely:
- Getting advanced 75% with months 10, 11 and 12 being paid later.
- Being paid as-earned over 12 months with companies that only pay as-earned, like Trans and Pru.
- The time it takes to get a policy placed.
- The follow ups that you’ll close months, sometimes years down the road.
- The lifetime value (LTV) of a customer. Think re-writes, term conversions, referrals and other product sales down the road.
Most agents will look at commissions received TODAY compared to dollars spent. In reality, full commissions are paid over 1 year and those should be factored in.
Agent Case Study
With that said, let me tell you about Pete. Pete came to me really frustrated and said he’s barely making money on his leads. He said he’s put $6,000 into leads over 3 months and had only made $7,500 in commissions. So his ROI is less than 2:1 and says this business isn’t working for him. I ask Pete to gather some data and bring it to a phone call we scheduled. Here are Pete’s numbers:
Marketing invested month 1: $1200
Marketing invested month 2: $2300
Marketing invested month 3: $2500
Total Marketing Costs: $6000
Placed Premium To Date: $13,200
Commissions Paid To Date: $7500 (some policies being paid as earned, advanced 75% on other policies)
Amount in Offer Status: $2600 (average, 80% will get placed – $2080)
Amount in Underwriting: $8,500 (average, 65% will get placed – $5525)
Amount in Application Out: $13,400 (average, 50% will get placed – $6700)
When everything funnels through, he should place a total of $27,505 ($13,200 placed to date + forecasted placement) on a $6,000 marketing spend. That’s over a 4:1 ROI over the next 15 months (assuming the “application outs” close over the next 3 months and get paid in full over the next 12 months).
That’s not including any sales from follow ups, which always happen if you’re on top of them. Also not including any referrals, re-writes, conversions and other product sales down the road. If you include those, he’ll easily make a 5:1 ROI over the lifespan of these clients, most likely much higher if he takes his lead nurturing and automation seriously.
You see, Pete was looking at today’s numbers – not at the overall picture of what he’ll make.
When determining ROI on your life insurance leads, you first need to understand:
1. The cycle of a life insurance sale
Some sales are 1 call closes, others take days, weeks, months and I’ve even had leads covert over a year later. Those future sales should all count towards that marketing spend’s ROI. With that said, you can’t accurately determine your total ROI on a campaign after just a few weeks or months.
2. Cycle of commissions.
Lets say you’re due a $1,000 commission. You’re advanced 75% so you only receive $750 immediately and the other $250 gets paid out in months 10, 11 and 12. You have to count the future as earned $250 in your ROI. Same thing goes for those companies that only pay as-earned – you need to count total future commission due to you on that sale.
With that said, it’s VERY hard to determine ROI on marketing spend because you have to let the process run it’s course.
It’s a tough pill to swallow to only receive a portion of your total ROI in the beginning since you need that capital to live and re-invest in your business. However, it’s a powerful accelerator when you hit that 1 year mark and the policies you placed 9 months prior start paying you again.
Those who keep their head down and keep writing business and perfecting their processes their entire first year, will start having commissions snowball around the 1 year mark when all the as-earned commissions start stacking on top of each other. This is the tipping point for most agents and where they start seeing some real income. This is exactly what happened to me.
Let me also tell you how nice it is when you spent money 2 years ago on marketing and it’s still generating referrals, re-writes and new leads from nurture campaigns. If you automate and set things up correctly, your Lifetime Value (LTV) of a client will explode your ROI down the road. You just have to hang in there until it does.