double POSITIVE Marketing Group, Inc.

I am continually amazed at how MAJOR components of lead/marketing/advertising performance are overlooked by even some of the biggest buyers in leads, marketing, and advertising in the world.  Many lead buyers have become myopic in their elevation of “Acquisition Cost” as the ultimate indicator of lead performance.  This is two-dimensional thinking.  Acquisition Cost is determined by calculating the cost-per-lead and dividing it by the conversion rate of the lead into a sale.  If a lead costs $50 and 5% convert into a sale, the Acquisition Cost is $1,000. 

“Acquisition Cost” is veiled by other terms, specific to the respective industry.  In the mortgage industry, Acquisition Cost is “Cost per Funded Loan.”  In Education, Acquisition Cost is “Cost per Enrollment,” in Insurance, Acquisition Cost is “Cost per Policy,” and so on.

If an organization is experiencing an average Acquisition Cost of $1,000, then a new lead source that that yields a $500 Acquisition Cost is twice as good, right? 

Hmmm… oh, really?

Let’s take a closer look, shall we?

EVERY organization that spends money on leads, advertising, and marketing does indeed have an average Acquisition Cost (whether or not they know it or are tracking/calculating it is a different matter).  Those same organizations also have an average number of sales per sales person per month. 

The organization with an average Acquisition Cost of $1,000 may be attracted to an option that promises a $500 Acquisition Cost.  But what if the average sales person who averages 4 sales per month at $1,000 Acquisition Cost drops to 1 sale per moth with a $500 Acquisition Cost.  Is that really a better option?  Not a chance.

Here’s another hypothetical…

Should the same organization with a $1,000 average Acquisition Cost consider a source that forecasts a $1,200 Acquisition Cost (20% above the average?).  Of course not, right?

Hmmm… Oh really.

Let’s take another closer look….

The organization with an average Acquisition Cost of $1,000 may be inclined to avoid a source that promises a $1,200 Acquisition Cost.  But what if the average sales person who averages 4 sales per month at $1,000 Acquisition Cost increases their production to 7 sales per moth with a $1,200 Acquisition Cost.  Is that better or worse?  Better by a mile in just about any organization.

So, why the change in the average number of sales per sales person per month in the examples above?  It’s simple.  Higher-priced options tend to require less TIME to convert into a sale than lower priced options.  Lower-priced options feature lower prices per lead, which may indeed lower acquisition cost, but at the added cost of TIME.

This concept of TIME is a third-dimension that needs to be considered by buyers of leads, buyers of marketing services, and buyers of advertising.  The time dimension can be calculated as a positive or a negative (either one works, but it’s critical to include on or the other).

As a positive dimension, the time dimension means productivity.  In other words, how productive can the average sales person be with each individual option.  Most sales professionals are in highly-paid positions, and their time is their most valuable asset.  As much of their time should be spent selling as possible and the amount of time attempting to make contact with a potential buyer, qualifying the buyer, and determining if the buyer is interested, should be kept to a minimum.

As a negative dimension, the time dimension means cost.  What is the fully-loaded cost of working a lead source?  This extends beyond the price paid per lead, and should include the average sales person’s compensation, the cost of their phone, the cost of their computer, the cost of their connectivity, etc.  These are all sunk costs, and the more deals a sales person can close, the more these costs are minimized in the context of a variable cost structure.

You can use either the positive or negative approach (you can guess which one we’re biased towards here at DoublePositive), but it’s critical to add that 3rd dimension into calculations and decision-making.  To ignore this data is to ignore one if the most influential dynamics affecting your organizations costs and productivity.

Private Equity Week reported this past week that LeadPoint has successfully completed its 5th round of funding.  Below is the report from PE Week:

LeadPoint Inc., a Los Angeles-based online leads exchange marketplace, has raised $6 million in Series E funding, according to a regulatory filing. Backers include Redpoint Ventures, Estalea LP and Breakwater Ventures. The company has now raised over $15 million.

I can attest first-hand that it’s not exactly a friendly market out there right now for fundraising, so I tip my hat to CEO Marc Diana for getting home on the deal.

SPF

I’ve been in the lead generation ecosystem for a long time.  To put that statement into perspective, my previous company, TheLoanPage.com, was launched back in 1997, and I have been trying to drive Internet consumer traffic to online forms essentially since the Netscape IPO.

The three companies I saw establish the biggest beachhead in the early years were Lending Tree, LowerMyBills.com, and Nextag – all of whom went on to build multi-hundred-million dollar business, sell for handsome multiples, and provided a handsome return to their investors.  These businesses sold “leads” as opposed to selling traffic on a CPA or CPL performance-basis.  Since their early respective successes, I feel as though there has not really been a staggering amount of innovation.  There are, of course, some notable exceptions.  Adchemy began in 2004 with the intent of bringing high-science to the lead generation world.  LeadPoint was also founded in 2004 with the challenging mission of become the world’s eBay for leads.  DoublePositive was also started in 2004 with the purpose of pushing Internet leads out to a whole new performance-based delivery model – LIVE Hot Transfers instead of Internet leads.  All three companies have had a substantial footprint in selling to the mortgage industry (similar to Lending Tree, LowerMyBills.com, and Nextag).  But even with the meteoric rise of Education, Insurance, and Automotive and lead-buying industries (in the face of a challenged mortgage landscape), I have not seen a tremendous amount of business model innovation in the space.  Especially in the mortgage industry.  Sparkroom appears to be another exception to this rule.

I first learned of Sparkroom from my friend Ed Powell, a former sales executive with Lending Tree and GetSmart who played a significant role in their early days all the way through their sale to Barry Diller’s IAC.  During his time at Lending Tree, Ed had identified that the single biggest challenge of the mortgage leads ecosystem was the lack of objective and rational decision-making with respect to lead buying and lead performance.  Ed partnered with his friend Jamie and founded Sparkroom.

Jamie and Ed acknowledge that the lead tracking and lead management space was quickly gaining new entrants such as Leads360, Leads ROI, and LeadMailbox, but felt that these companies were focused on CRM functions (as they should), which left a void and an opportunity to focus like a laser on technologies that could facilitate analytics and dashboards with a comprehensive ROI being clearly defined. 

Sparkroom was founded in early 2007, was funded by Matrix Partners in May 2007, but just recently emerged from stealth mode.  My most recent conversations with Ed and Jamie leave me feeling particularly bullish about their direction.  They have added a “services” layer as an option to sit on top of their technology.  Mortgage originators thus have the option of using the Sparkroom platform directly (Software-as-a-Service), or rather engage Sparkroom vis-à-vis an account executive who can directly manage the Sparkroom platform on behalf of the client in order to achieve specific ROI objectives.  In other words, if you goal is to double mortgage loan originations while decreasing your cost-per-funded-loan by X%, Sparkroom can manage this effort for you and do all the work.

I cannot help but see this play as very similar to the “Agency of Record” concept which is most commonly found in the education vertical.  Cole & Weber manages multiple lead sources for Capella.  QuinStreet manages multiple lead sources for Devry.  Up until 2008, Advertising.com managed multiple lead sources for University of Phoenix.  These types of relationships allowed the schools to focus their resources on their core business of education (not Internet marketing).  It looks as though Sparkroom is bringing this same type of offering to the biggest lead-buying mortgage companies, and I would expect, if done correctly, this will be an extremely valuable service.

Of course, I’m always biased toward fellow entrepreneurs diving into a brave new world, but I seldom write a blog post as long as this one unless I feel as though the offering is something quite unique.

Best of luck to Jamie and Ed.

SPF