Tip #9: Knowing When It’s More Profitable to Stop

At what point does a lead get "old" and it's better to work new leads instead? Sometimes an agent can make more money by moving on to new leads - and we've got the numbers to prove it!

  • We know, it's easy for a lead company to tell agents to buy more leads - but we really mean it! It helps to know the best places to invest your time and effort.
  • Because older leads are a sunk cost it can be tempting to work old leads too long to squeeze extra sales out of them. Psychologically, these hard-fought sales feel like a deal because they came from an expense that was already "spent" in an agent's head. In reality, they usually require significant time and effort to convert.
  • This concept came up in an interview with top agent Chuck Taggart, where he revealed his agency's conversion rates based on the age of a lead:

    "I know that if I work my way down the list of prospects where I call a lead and get the person on the phone with the first call, I have a one in eight (1:8) chance of closing a sale. If it's the second call, then then I also have a one in eight (1:8) chance. After that the third call drops to one in eighteen (1:18) and the fourth to one in twenty three (1:23).

    If you have 100 leads in front of you that are on the fourth call, then there are four deals out there. But instead of focusing on these old leads, if you bought 100 new leads, you would have a one in eight shot, and there are 12 sales in the pile.

    Of course you'll have to spend money on the new leads. But it is actually more profitable to stop calling the old list and focus on new leads. So I emphasize with agents that you're spending the same amount of time and the same number of phone calls."

  • Chuck's closing ratios equate to the following conversation rates:
    Closing RatioConversion Rate
    First Call 1:8 12.5%
    Second Call 1:8 12.5%
    Third Call 1:18 5.5%
    Fourth Call 1:23 4.3%
  • Let's test these assumptions in a real life example. We'll consider a first-call lead "new" and a fourth-call lead "old" in this case. Since every agent's situation is different, you can enter your own lead cost and commission estimates.
    1. Assume you can only follow-up with 100 leads a week. This week, you have the option to buy 100 new leads, or follow-up with 100 older leads that you've previously purchased - so in this example option B would require no additional expense.
    2. First calculate how much new 100 leads would cost.
    3. Using Chuck's conversion data as a guide, converting 4.3% of 100 old leads would mean about 4 sales. Converting 12.5% of 100 new leads, which would mean about 12 sales.
    4. Now we need to calculate if we made more money with or without the investment in 100 new leads. Since the difference between the two options is 8 sales, calculate the extra commission you would earn (average commission per sale * 8).

      Commission from 8 Sales - Cost of 100 Leads = Additional Profit from New Leads
    5. Now see for yourself - is the profit from 8 additional sales worth the cost of 100 new leads? It is for Chuck, and we believe agents typically make more money when they work newer leads.
  • The takeaway: Even though it's tempting to not spend additional dollars by working old leads, it is actually more profitable to work new leads because the additional commissions you get from an increased conversion rate typically outweigh the cost of new leads.
  • Does that mean you should abandon old leads? Not at all. Instead, you should automate your contact to old leads knowing that they will have a significantly lower conversion rate, so it will be more profitable to spend your time elsewhere. For example, you can schedule automatic emails to check in every month, quarter or year.

What do you think about this tip? Do you have one to add? Email your comments and suggestions to: julie.hsu@allwebleads.com