An area many brokers wrestle with involves understanding the economics of being in the business. It sounds simple, but the cost of acquiring a new customer is one of the single most important measures a broker needs to understand to grow and maintain a profitable block of business. We are not talking about the life time value of a customer. This in more in terms of what it will cost you to get that customer, and how long before that relationship is profitable. In other words, the cost of convincing a potential customer to enroll in coverage and make a purchase.
This article explains customer acquisition costs for brokers in detail, including how you can measure it and the steps you can take to improve it.
What does this mean?
It is important to understand all the components that go into making a sale, specifically ones that will generate revenue for your business. There are marketing and lead generation costs, relationship development costs, lost sale costs, and installation of a new group with multiple carriers and products cost. Understanding each of these elements and how they impact your business is critical to your long-term success. There are many hidden expenses in each of these categories and we will explore each in this four-part series.
First, we cover how to look at these expenses. As the insurance market moves to more of a consumer focused, 1:1 type program, it is most logical to look at your costs on a per subscriber basis. This means if a group has 15 employees and 25 members with only 12 taking some coverage that you offer, then you have a group with 12 subscribers. Likewise, an individual policy with four members is only one subscriber.
Marketing and Lead Generation Expenses
In the early days of business, many brokers were dependent upon approaches like word of mouth. Today, this is simply not enough. Many brokers have adopted new approaches to engage in targeted campaigns that track individuals’ progress from leads to consumers. Not only does this require a strong belief in how much customers will like your health plan options, but also a clear understanding of what outreach technique will make you the most successful.
These new approaches are heavily focused on consumer purchasing behavior. Take a moment to think about your own purchasing behavior. Do you prefer online shopping over going to the store? Do you prefer free trials before making a commitment to purchase?
To adapt to this, brokers can:
- Identify and assess their target audience to develop an appealing strategy with appropriate marketing communication venues and effective tactics;
- Use inbound marketing to build traffic;
- Establish meaningful conversation using social media;
- Build trust through hosting lunch-and-learns that engage and educate clients;
- Analyze metrics of all aspects of the customer acquisition process to identify areas in need of improvement;
- Develop their own omni-channel customer strategy to connect with customers through online and offline touch points;
- Utilize their brokerage’s or others’ thought leadership content to nurture leads and develop relationships; and/or
- Incorporate other low cost sales approaches into their selling practices.
How much does it cost?
Which channels are the cheapest to acquire a new customer? Some of the most common approaches to acquire customers involves search engine optimization (SEO), search engine marketing (SEM), public relations, social marketing, direct sales, and channel sales. These can be costly activities for many brokers. More often than not, the more activities or contact required to convert your lead, the costlier this becomes. The most valued acquisition method will likely be the one that provides customers in the most inexpensive way possible.
Can you reduce customer acquisition costs?
The answer is yes. There are several ways of lowering the cost of acquiring customers. Health insurance agents and brokers can save time and money by:
- Improving conversion rates. As you spend more money to acquire traffic, your success will depend on the number of people who are converted into “customers.”
- Investing in referral marketing. Are your existing customers referring their friends and family members? Referrals are a great investment. Referrals are said to be the fastest growing marketing tool, with the potential of decreasing your customer acquisition costs by nearly 50%. In fact, a recent study conducted by Wharton Business School found that 83 percent of satisfied customers are happy to refer friends.
- Provide support. Selling often involves educating consumers. According to a 2013 SaaS study, only 2.2 percent of acquired users ever transition to paying customers. Therefore, helping consumers understand the value of their health insurance plan or related products can have a significant impact on the selling process. Try following up or provide advice to clients, post-sale.
- Incorporating free channels into your strategy. Marketing can often become costly, but it doesn’t have to be. Social media (as discussed earlier) is a great way of establishing relationships with clients and social networks at no cost. But, there are other ways too. You may consider writing for a column in your local paper as a guest author or via an online website. Highlighting your expertise will help you generate buzz, gain followers, and further establish your customer base.
How do you measure customer acquisition?
Measurability is the key in determining customer acquisition success and there are several ways of measuring it. Digital channels are often more easily trackable (i.e. email click-thru rates). Every campaign should have clear measurable points established early on, but coming up with proper metrics to measure success, can often be challenging.
Sales often begin as a manual, unsalable process, however, once it evolves, it can become repeatable, profitable, and (of course) more measurable. Key performance indicators (KPIs) such as the number of monthly demo requests, sign ups, and referrals are good ways of gauging your performance.
A simple, yet effective way of measuring this is by utilizing an excel spreadsheet – to track unique visitors, signups, customer types, and other metrics – in addition to tools like Google Analytics, that track people who visit your website or blog. These metrics can provide an illustration of consumers’ purchasing behavior. By understanding these patterns, you can then categorize customers as active customers, referrals, etc. and by channel, where you can see which method brings in the greatest number of qualified customers.
The views and opinions expressed by the authors on this blog website and those providing comments are theirs alone, and do not reflect the opinions of Softheon, Inc. (dba Welltheos) or any employee thereof.
I earned my BAA from the State University of New York at Stony Brook and MBA in Healthcare Administration from the University of Ohio (Athens). I was born and raised on Long Island, NY and enjoy capturing what the island has to offer through photography.
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