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Do Online Lead Generators Produce a Return on Your Investment?

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By Eugene L. Meyer

RISMEDIA, Oct. 5, 2007-Well, it seemed like a good idea at the time. Not long ago, a whole industry arose to serve a perceived need: online lead generation. It was seen as a new, tech-savvy and effective way to generate business. Referrals and shoe leather still had their place, of course, but this was a new age of technology where time is money and speed matters. What could be faster than the Internet?

Of course, online lead generation also comes with a price, and many brokers are now wondering whether the price is right-or too much. Lead generation marketing practices have also come under scrutiny from the Federal Trade Commission

“At first, agents saw it as a way to gather leads rather easily,” says Derek Overbey, vice president for marketing of Silicon Valley-based Intero Real Estate, with 2,300 agents in seven states. “Personally, I think they are losing traction.”

New Orleans-based Latter & Blum broker Arthur Sterbcow echoes Overbey. “We’re having 18th thoughts, not second thoughts,” he says. “It’s obviously a body of work in progress, in terms of quality of leads. What we’ve learned internally is you can drive them to the water, you can make them drink, but if they get sick they’re not coming back. We can drive lot of traffic to and from our Web site, but it’s the quality of the traffic that’s the key.”

Though online lead generators had initial success selling their product to customer-craving brokers, Overbey said, the leads were often not “high quality”-meaning they didn’t turn into sales-and weren’t worth the investment.

As a result, many brokers have abandoned or sidestepped the practice of seeking clients through online lead generators by establishing their own internal systems to generate and convert leads with in-house call centers and almost instantaneous agent follow-up.

Among the big national brands, Weichert Lead Network began five years ago and has a call center that reaches customers within 30 seconds, and then “scrubs” the leads, winnowing out the least promising, before sending them along to agents. “This year, we should send out over 100,000 scrubbed leads to the agents,” said President Mike Montsko. Several offices are converting over 10% and lots of associates are doing over 20%, Montsko said.

Intero sends potential customers an e-mail as soon as a property fitting their needs appears on the MLS. Then within 10 to 15 minutes comes a quick, follow-up phone call.

Overbey says he “never saw [buying leads] as a good path to go down. We chose to revamp our own system.”

Lead-generation companies, of course, see things differently. Such well-known companies as Homegain.com continue to offer deals where brokers pay monthly according to the number and location of leads, and a referral fee if a sale results.

Nonetheless, online lead generators have their defenders. Payam Zamani, owner of Reply!, has been in the online lead business since 1994, with mixed results. But he remains bullish: “Today, we have 10,000 Realtors from all over the nation buying leads from us, and it’s definitely provided a great return on investment.”

Zamani claims closure rates of 10%, with a range from 2 to 35%. Reply! charges a flat fee of $44.95 per lead. “If I spend $40 per lead and close one in 10, that’s $400 per closed transaction,” he says. The key, Zamani adds, is not to give up too soon, like joining a fitness club and expecting to lose weight in a week. “I have to be prepared to wait six months to see if this program works for me or not.”

“As long as you have a good process to respond and incubate potential customers and you can measure results, lead generators are a great source to get new customers,” says Glenn Houck, co-owner of LeadQual, a lead-response company with offices in Connecticut and California. “Then measure what you’re spending versus what you’re earning. It’s a great testing ground. These leads expect an instant response, and 48 percent are ignored.”

LeadQual doesn’t generate leads; it vets and answers them, with a “live call” within three minutes, according to Houck, to see if they are worth an agent’s time. Absent such a filter, Houck said, “Realtors must respond to 100 calls immediately to get three deals, and they get burned out.” With LeadQual, Houck says, conversion rates are two to three times higher.

“The problem with Internet leads is not that there aren’t real buyers,” adds Houck. “It’s that the industry is not responding to them well.” For LeadQual services, brokers pay $5 to $7 per lead. “It depends on the number of leads a company sends to us and the number of times they want us to call before giving up,” he said.

“It’s amazing how many things are the hottest new thing,” notes Mark Stark, CEO/owner of Las Vegas-based Prudential Americana Group Realtors. “It’s the same lesson we’ve learned 1,000 times. It’s great if you‘re following up immediately. The plus is you can touch anyone in the entire globe. The negative is there’s no connection; there’s the opportunity for connection.”

A 5% conversion rate of leads into sales is “incredible,” says Stark, and far higher than the usual 2% to 2.5%. “We have a great month of 2.5 percent and a bad month of 1 percent,” he said. Leads come from his firm’s Web site and also through an arrangement with Yahoo that directs all real estate inquiries for a given area to Prudential agents.

“You can’t put all your eggs in one basket. We’re in the people business. The bottom line is you need communications,” he said. Ultimately, he adds, “It’s all about driving communities to you, and giving them enough value.”

Adds Overbey: “People are now going back to door-knocking and working their neighborhoods or making cold calls. The Internet brought great advantages to the industry, but it’s not taken agents out of the mix.”

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