Medicare Café - The Hidden Cost of Free Leads
Leads are important. They are how many agents get off the ground and are used until they build a self-sustaining book of business.
Before we go any further, there is a difference between your paid marketing that returns leads and free leads. Free leads are typically offered through agencies that take a reduction in commission. With your paid marketing efforts, you are only paying for the leads you receive. If you bring your own leads or prospects in through other marketing efforts, say seminars or referrals, you do not have a reduction in your contract.
However, with an agency offering free leads, you may have a permanent reduction in your contract.
What does this look like?
Here is an example:
- Company – Medicare Supps ABC (fictitious company for example purposes)
- Their street level commission is 25%
- Sample Commission – Premium $150 @ 25% X 12-month advance = $450
- Insurance agency offering free leads is offering 19% contract for Medicare Supps ABC
- Example Commission with the agency – $150 per mo. @ 19% X 12-month advance = $342
That 6% reduction in commission means every sale is costing you $108.00.
While you may expect a reduction in commission for leads, this reduction is for EVERY piece of business. With you own marketing, you are only taking a reduction in commission if you factor out the cost of the marketing campaign. With the above example, it applies to every piece of business regardless of its origination FOR THE LIFE OF THE POLICY.
To further that example:
Let’s say you sell 60 policies from those “free leads.” This is costing you $6,480.00 EVERY YEAR. Those 60 policies say on your books for 4 years. Those “free leads” cost $25,920.00.
Even if your marketing costs are more than the $108 in the example above, they fall off after year one and you will receive full commission for year 2 and beyond.
What to do with this info?
Before you sign a contract for free leads, look at the actual cost (there more than likely is a cost hidden somewhere) and run some example numbers. This is especially vital if this is a carrier that will be your primary source of income!