Sales do not always equal profitability. You probably know the number of sales you had this week, but do you know how much those sales cost you? If the cost was more than the sales amount, then you aren’t profitable.

Tracking the sale cost or Cost Per Acquisition (CPA) is how you find out if you’re profitable. Knowing how to calculate your CPA is very important to the success of your business. By analyzing these numbers, you can figure out how to improve your profitability.

# Cost Per Acquisition (CPA)

The calculation of the cost to convert a lead or a prospect into a client.

Find out how much it costs for each step of the lead generation process. This applies whether your leads are generated from the Internet, telemarketing, or other sources.

There are two ways you can increase your profitability: by reducing your cost per lead or increasing your appointment and closing ratio. If you can do both, even better for your profitability!

When you calculate your CPA for each marketing campaign, you can find ways to budget better and focus your money on what is working.

Here is an example from Senior Marketing Specialists on some campaign costs. Your costs may be different depending on your circumstances.

### Mailer

Campaign Cost

\$480

Total Leads Generated = 15 (1.5% return)

Total Appointments Generated = 6

Cost Per Appointment \$80

Total Sales = 2

Cost Per Sale \$240

(You can also add your time to the calculating CPA of purchased leads for an even more accurate cost. That includes time spent reviewing the leads, reaching out, following up, updating CRM records, etc. See below for more information on how to calculate your own hourly rate.)

### Thoughts to Consider

Mailers are a low-cost method but take more work and time, both for the mailing to go out and for you to receive your lead cards. Once you receive your lead cards, you must still contact the lead and set the appointment.

# How Low Cost Leads May Equal High CPA

## Sample CPA for individual leads

10% Appointment Conversion

\$120 per appointment 20%

Appointment to Sale (Close Ratio)

### Thoughts to Consider

With low-quality leads, you need more quantity. To convert 10% of your leads to appointments, you would need 10 leads for each appointment.  For a 20% conversion of appointments to actual sales, you would need 5 appointments for every sale or 50 leads per sale.

\$15 per lead = \$150 Per Appointment

\$750 Per Sale

\$20 Per Lead = \$200 Per Appointment

\$1,000 Per Sale

(Example courtesy of Senior Marketing Specialists)

For agents who are generating their own leads, remember to factor in the cost of your time.

Campaign Cost Per Hour

Total Leads Generated = 1 Per Hour

Total Appointment Conversion = 20% (5 hours = 1 Appointment)

Cost Per Appointment

\$200

Total Sales = 1 (5 Appointments)

Cost Per Sale

\$1,000 worth of your time (25 hours)

### How to Calculate Your Rate

In 2022, there are 260 working days or 2080 working hours. To find your hourly rate, take your annual income and divide it by day or hour.

## Cost of Referrals

Getting referrals is a great way of getting qualified leads. Referrals have the lowest CPA and the highest closing ratio of any leads. You’ve been recommended to a person who is now reaching out to you directly. This increases the likelihood they will enroll with you.

Remember, referrals may not have an upfront cost but they are not free. They are a result of an effective retention plan that builds a strong relationship with your clients who remember and recommend you.

The cost of retaining customers is generally 5x less than it costs to acquire a new customer. Review your retention plan and talk with your General Agent or FMO about ways you can improve this.

# Steps for Reviewing Your Profitability

1. Write down the overall cost of the campaign (expenses and your time)
2. Divide by the number of appointments
3. Divide by the number of sales

• What can you do to reduce your costs / increase your ratios?
• What marketing campaigns are costing you the most?
• Which campaigns are the most profitable?
• Which campaigns are right for you?

What are you doing to retain your current clients and increase your referrals? Review your process or create one to build on.

How is your profitability? Do you do a regular analysis of your CPA?