When Business Slows, Buy Leads Low and Underwrite High

When Business Slows, Buy Leads Low and Underwrite High

We’re approaching a notoriously slow time of year in the online financial services industry. With fewer customers applying for loans, lead volumes drop significantly. Rather than keep the same underwriting and receive less volume, a better strategy is to possibly purchase leads at different (lower) prices and tighten your underwriting requirements.

There are plenty of viable leads in the mid-range price point. Lenders can start adjusting their buys at a certain amount and vary it from there, depending on the results they achieve.  If a lender is currently only purchasing leads at a single or few price points, this time of year might be the perfect opportunity to expand the pool of lead tiers.

At the same time, lenders should also closely examine their underwriting guidelines in order to eliminate the undesirable loan applicants from their pool. Stricter underwriting can weed out those who are more likely to default on the loan. Lower lead acquisition costs offset the chance of a slightly higher default rate.

In other words, with stricter underwriting in place, lenders can buy lower cost leads. Though cheaper leads possibly come with a higher chance for default, the defaults won’t impact the bottom line as much because you paid less for the lead in the first place.

Unfortunately, there is no magic mathmatical equation for determining the threshold for the best lead acquisition cost. That threshold is different from lender to lender. The goal is to find a happy medium, which requires some trial, error and patience. With business expected to slow soon, now is as good a time as any to try.