Excess Fertilizer Bad for PlantsThis is the second of a four-part blog series on producer expansion in financial services. Please click here to read the first.

A few months ago, I decided to start a small herb garden on my roof deck. Neither my wife nor I had the slightest clue how to begin this project, so we went to Home Depot and spoke with someone from the gardening department. That individual set us up with everything we needed, including some plant food. When I asked how much food to give the plants and when, part of the answer struck me: “Do not overfeed the plants. Food exceeding the prescribed amount will not help them grow faster, and it could even hurt the growing process.”

The lesson from this story—that adding food to plants would eventually lead to diminishing returns on growth—reminded me of the mistake some financial services firms make when optimizing their recruiting pipelines.

For example, take an insurance carrier (Carrier X) that recruits thousands of new salespeople yearly through many lead sources. It seeks to convert leads into recruits (who then hopefully produce). Carrier X uses web-based, fee-for-service sources as a primary lead channel. Consider the following sequence of events from this channel:

  • Year 1: Leads from source A convert to recruits at a 20% rate. Leads from source B convert at a 5% rate (albeit on a much greater lead number).
  • For year 2: Carrier X significantly increases investment in source A due to the higher conversion rate in year 1. Investment in website B is reduced.
  • Year 2: Leads from source A increase dramatically, by over 200%, but the number of recruits generated from those leads increases only marginally, by 6%. Leads from source B declined significantly, and recruits dropped by 10%.
  • Recruits from sources A and B in aggregate declined in year 2 compared with year 1. This is with similar investment levels in each year.

What happened? The carrier tried to give “too much plant food” to source A, hoping that it would yield at a similar lead to recruit conversion rate to that of year 1. However, source A was already “tapped out”—significant increases in lead generation did not yield similar returns in actual recruits. What’s more, it was detrimental to the total recruiting success from the web channel, as source B was underinvested.

We also studied the carrier’s other lead sources and noted the same diminishing returns relationship. Ultimately, we advised Carrier X to course-correct its investments in Year 3 so as to not over- or under-invest in a particular lead source.

How can firms ensure that they are optimizing their recruiting sources? We recommend three actions:

1. Categorize and track leads: Make sure that your leads from recruiting are categorized into different lead sources, and done so consistently.

2. Measure historical success rates: Measurement is the first step to optimizing recruiting. Firms should maintain yearly records of the lead quantities and subsequent conversion rates to estimate the “value” of each lead source.

3. Take a portfolio-based approach: Like personal investing, ensure that you have multiple sources for recruiting, and then strive for a balanced investment allocation to each of those sources, using the insight gained from steps 1 and 2.

After your recruits decide to join your firm, you have to convert them into producers, which will be the topic of our forthcoming blog. As always, stay tuned.

Topics: sales, Peter Manoogian, Recruiting, salespeople, Investment