Brokers: How much do you spend to acquire a new client?

How much does it — or should it — cost you to acquire a new client?

Out of many leads you attract to the brokerage, how many of those sales actually close?

If you can’t answer these questions, you are already playing catch-up with brokerages and carriers that have a firm grasp of these key measurements.

“It’s really important to watch the metrics,” Jeff Roy, CEO of Excalibur Insurance Group, told the Insurance Canada Technology Conference in Toronto Wednesday.

“You have to make sure you are measuring your ROI [return on investment] and tracking for every dollar you are spending on generating a lead,” he said. “What is your close ratio, and what is your acquisition cost per client? It’s important for brokers to figure that out. If you can’t figure that out, you are just guessing and going with your gut, and going with your gut can get you killed in this marketplace.”

Roy said his brokerage is diligent about keeping track of leads generated by website traffic, for example, and how much money it costs to generate these leads. For example, the brokerage tracks how many customers click onto the website based on the company’s owned or “organic” assets (i.e. website visits that come through Google or other browser searches), as well as website traffic derived pay-per-click marketing campaigns on social media such as Facebook.

Roy said his brokerage gets 50 to 200 leads per month just through Search Engine Optimization (SEO), which is the use of certain keywords to make it easier to find the website on Internet browsers such as Google. That’s a good result, he said, although he is still looking to raise the bar.

On the pay-per-click slide, he said his brokerage is “doing very well,” with the cost down to about $5 to $6 spent for each click [and potential lead] brought to the website. Since the brokerage quotes on one of every two of those customer clicks, the brokerage is spending approximately $12 per lead right now, Roy said. That’s a far cry from the $30 the brokerage used to spend in earlier days, which Roy described as an “abysmal failure.”

Roy was asked for a benchmark on a successful cost per acquisition.

“I think if you could get a $100 to $200 acquisition cost per client, I’m happy with that,” he said. “You have to look at the commission.”

Take, for example, a broker who writes one policy and brings in $200 commission. If you factor in that 50% of the commission is spent on overhead for salary, then if you paid $100 to acquire that sale, you would be breaking even in the first year after the sale. After the first year, if your retention is 90%, then you would start to make money.

If, however, you write that same policy, but you spent $200-$300 to acquire that lead, you would lose money the first year, and it would take approximately half or two to pay it. In another scenario, if you bought a brokerage for 4 times (commission), then it could take up to seven or eight years to make up the money you spent to acquire the lead.

“I look at it as if you can pay it off in one year, it’s a bonus,” said Roy. “One-point-five to two [years], I can live with, but I like to break even in Year 1 or make a small profit.  We have 10 or 15 different marketing programs all at different levels, so kind of like a mutual fund, it balances each other off. And we are trying to improve each one each day.”